UOB Kay Hian Group Research analyst Jonathan Koh has kept his “buy” rating on United Hampshire US REIT (UHU) at a target price of 97 US cents.
For 2HFY2021 ended December, the analyst notes that the distribution per unit (DPU) grew 0.7% y-o-y to 3.05 US cents, in addition to gross revenue and net property income (NPI) growing 7.9% and 8.7% y-o-y respectively.
Koh forecasts a DPU of 6.6 US cents for FY2022 and 6.3 US cents for FY2023, considering the acquisition of Colonial Square on Nov 12, 2021 and Penrose Plaza on Nov 24, 2021; as well as the divestment of the Elizabeth and Perth Amboy self-storage properties for a consideration of US$49 million ($66.7 million). UHU recognises the divestment gain of US$3.1 million, where the selling price is 26.7% above purchase price and 10.4% above appraised valuation. It is expected to be completed in 2QFY2022 ended Dec 2022.
Additionally, UHU executed 38 new and renewal leases that total to 437,528 square feet in 2021. Where UHU’s weighted average lease expiry (WALE) of eight years has allowed for “stable income”, management has reduced leases expiring in 2022 to a minimal of 1.5%, down significantly from 9.2% at the start of this year, according to Koh.
According to Koh, this is also in light of the demand for groceries remaining stable as many employees continue to work from their homes. Moreover, full-service and quick-service restaurants are benefiting from pent-up demand to dine out, while movie theatres and fitness centres, which were the most disrupted by the Covid-19 pandemic, saw substantial recovery in foot traffic.
As of December 2021, UHU has a conservative aggregate leverage of 39.0%, with 79.6% of its total debt hedged into fixed rates. “It maintains a well staggered debt maturity profile to minimise refinancing risk, [where] its weighted average debt maturity is 2.5 years with no refinancing until 2023,” says Koh. The analyst also notes that UHU’s weighted cost of debt currently stands at 2.63%, with a healthy interest coverage ratio of 6.5x.
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Overall, UHU sees gains in fair value of investment properties of US$20 million in 2HFY2021 ended Dec 2021. With its new properties such as Colonial Square and Penrose Plaza valued at US$81.5 million, UHU’s portfolio has increased by 17.6%, according to the analyst.
As at 10.20am, units in UHU are trading flat at US 63 cents with an FY2022 P/B ratio of 0.9x and DPU yield of 10.2%.
