UOB Kay Hian analyst Jonathan Koh maintains his ‘buy’ rating on United Hampshire US REIT with a higher target price of 95 US cents ($1.26) from 92 US cents previously, citing the resiliency of its grocery and necessity retail properties, high rental collections (at 98.9%), and higher demand for self-storage facilities.
The REIT’s 2HFY2020 results were in line with Koh’s expectations, with a distribution per unit (DPU) of 3.03 US cents, 1.3% above its IPO forecast. The better DPU comes despite lower than forecasted revenue for the period caused by a slowdown in leasing activities because of Covid-19 and a delay in the opening of the Perth Amboy self-storage facility.
SEE:United Hampshire US REIT posts 2H20 DPU of 3.03 US cents, 1.3% above IPO forecast
Koh notes that the lower revenue, along with additional legal expenses incurred for relief negotiations, was offset by a 25.4% drop in finance costs thanks to interest rate swaps that hedged its floating rate term loans to more favourable fixed rates.
United Hampshire US REIT maintained stable occupancy for its properties catering to essential needs. Koh believes the built-in rental escalation for over 80% of its leases on such properties and a long weighted average lease to expiry (8.2 years) will provide the REIT with a defensive, stable income moving forward. This is further reinforced by its roster of blue-chip tenants such as Walmart, Lowe’s and The Home Depot.
Koh also points out that the REIT had a significant increase in demand for self-storage facilities as lockdowns increased work from home arrangements, forcing homeowners to shift belongings to storage facilities to accommodate home offices.
“Occupancy for self-storage facilities has improved considerably and trended upward since the gradual lifting of the lockdown in May 2020. Occupancies for the Carteret and Millburn self-storage facilities have hit above 90% in 4QFY2020. Occupancy for Elizabeth self-storage has improved from 27.4% in 3Q 2020 to 36.6% in 4QFY2020. Rents have increased by 4.2%,” he says.
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Koh has kept his FY2021 DPU forecast relatively unchanged at 6.2 US cents and reiterates the REIT’s attractive yield spread.
“United Hampshire US REIT trades at a 2021 distribution yield of 9.2%, which represents an attractive yield spread of 7.8% above the 10-year US government bond yield of 1.4%. It trades at P/NAV of 0.9 times,” he says.
As at 1.57pm, shares in United Hamshire US REIT are trading flat at 68.5 cents.
