Listed on the Mainboard of the Singapore Exchange since March 2020, United Hampshire US REIT (SGX: ODBU), or UHREIT, specialises in grocery-anchored and necessity-driven open air shopping centres with large car parks (“Grocery and Necessity properties”) and modern, climate controlled self-storage properties in the United States of America (U.S.).
UHREIT’s primary investments are in Grocery and Necessity properties – essentially rows of shops with supermarkets or grocery stores as anchor tenants. Additionally, these properties host a mix of tenants, including home improvement stores, discounters and wholesale clubs, quick-service and casual restaurants, hair and nail salons, pet stores, and more.
Last week, I had the privilege of meeting Ms. Wong Siew Lu, UHREIT’s Head of Investor Relations and Sustainability, to gain deeper insights into the REIT. Beyond discussing the REIT’s operations and performance, I was able to clarify some specific questions I had, and I’m very grateful for her thorough and informative sharing.
In this post, you’ll find the essential details about this US-based REIT – covering its business operations, financial performance, portfolio occupancy, debt profile, and distribution payouts over the 3 full years following its IPO (from FY2021 to FY2023).
Let’s dive in:
Overview of United Hampshire US REIT
As of 30 September 2024, UHREIT’s portfolio consisted of 20 primarily freehold Grocery and Necessity properties, alongside 2 Self-Storage properties, primarily located on the affluent East Coast of the United States, with a carrying value of approximately US$738.7 million.
The REIT’s properties span across 8 US states, distributed as follows:
- Florida (1)
- Maryland (2)
- Massachusetts (2)
- New Jersey (6)
- New York (7)
- North Carolina (1)
- Pennsylvania (2)
- Virginia (1)
For FY2023, base rent contributions by asset type were 93.5% from Grocery and Necessity properties and the remaining 6.5% from Self-Storage properties.
When asked if the REIT intends to expand its self-storage portfolio, I understand their focus will remain on Grocery and Necessity properties as they are comparatively higher yielding, with a typical deal size between US$30-100 million. If the REIT can identify self-storage properties that offer an attractive yield, they would consider these acquisition opportunities.
Regarding potential expansion, the REIT constantly evaluates all market opportunities. Currently, the management’s key focus remains on the East Coast, which has high population density, strong income levels, and thus greater consumer spending power.
Many may not know that UHREIT’s Sponsor are UOB Global Capital LLC (a subsidiary of United Overseas Bank Ltd (SGX: U11), focused on private equity, hedge funds, fixed income, and real estate products since 1998) and The Hampshire Companies LLC, a private real estate firm managing 180 U.S. properties with an AUM of about US$1.7 billion. Together, they have formed three funds since 2008, with a combined AUM of approximately US$1.3 billion as of 31 December 2023.
Financial Performance (between FY2021 and FY2023)
UHREIT’s financial year ends on 31 December.
As the REIT was listed in March 2020, in this section, I will be reviewing its post-IPO, full-year results for FY2021 to FY2023, as shown in the table below:
| FY2021 | FY2022 | FY2023 | |
| Gross Revenue (US$’mil) | $55.2m | $67.5m (+22.2%) | $72.2m (+7.1%) |
| Property Expenses (US$’mil) | $16.3m | $20.6m (+26.4%) | $21.6m (+4.9%) |
| Net Property Income (US$’mil) | $41.9m | $47.1m (+12.2%) | $50.6m (+7.6%) |
| Distributable Income to Unitholders (US$’mil) | $31.2m | $33.1m (+6.2%) | $30.4m (-8.2%) |
Key Observations: Over this 3-year period, UHREIT showed stable performance in gross revenue and net property income, with particularly strong growth in FY2022 due to contributions from newly acquired properties (Colonial Square and Penrose Plaza in November 2021, and Upland Square in July 2022) and improved rent from self-storage properties.
However, net income distributable to unitholders declined by 8.2% year on year in FY2023, mainly due to a US$1.5 million management fee paid in cash (instead of units) in the second half to preserve unitholder value and reduce unit dilution, and a full year US$2.8 million retention of distributable income for capital reserves, asset enhancement initiatives, and development projects, including a new Academy Sports + Outdoors store at Port St. Lucie.
The compound annual growth rate for gross revenue and net property income over this 3-year period was 9.4% and 6.5%, respectively.
Distribution Payout to Unitholders (between FY2021 and FY2023)
UHREIT distributes payouts to unitholders twice a year – once with the release of its 1st half financial results and again with its 2nd half results.
The table below shows UHREIT’s distribution payout over the last 3 years:
| FY2021 | FY2022 | FY2023 | |
| Distribution Per Unit (US$’cents) | 6.10 cents | 5.88 cents (-3.6%) | 4.79 cents (-18.5%) |
Key Observations: UHREIT’s distribution payout fell in successive years.
The 3.6% year-on-year decline in distribution payout to 5.88 US cents in FY2022 was due to the absence of top-ups and stipulated damages from the 2 divested self-storage properties received in the previous year.
For FY2023, the18.5% year-on-year drop in distribution payout to 4.79 US cents was due to management fees being paid in cash for the second half of the year, US$2.8mil capital reserve retention coupled with a 32.2% increase in finance costs.
Additionally, UHREIT has offered a distribution reinvestment plan since FY2022, allowing unitholders the option to receive their payouts in cash (default), units of the REIT, or a mix of both. This enables unitholders to increase their unitholdings in UHREIT without incurring brokerage fees and improve the liquidity of the units.
For the REIT, the DRP enhances its working capital reserves. The cash retained is typically used for capital expenditure such as tenant improvements, a common practice in the US property market to attract larger tenants. Without this reinvestment plan, UHREIT would likely need to drawdown additional loans, and the high finance costs associated with current interest rates would further impact its distribution payout.
Portfolio Occupancy Profile (between FY2021 and FY2023)
The table below outlines UHREIT’s portfolio occupancy rates from FY2021 through FY2023:
| FY2021 | FY2022 | FY2023 | |
| Committed Occupancy (Grocery & Necessity Properties) (%) | 95.3% | 96.9% | 97.4% |
| Occupancy (Carteret Self-Storage) (%) | 88.1% | 92.4% | 91.3% |
| Occupancy (Milburn Self-Storage) (%) | 94.8% | 93.6% | 92.2% |
| Appraised Value (US$’mil) | $688.5m | $738.7m (+7.3%) | $763.4m (+4.7%) |
Key Observations: UHREIT has a robust portfolio occupancy, where it has maintained occupancy rates above 90% consistently over this 3-year period.
Additionally, unlike US office REITs, which experienced declines in portfolio valuations in FY2023, UHREIT’s portfolio value grew by 4.7% year-on-year on like for like basis, excluding Big Pine Center which was divested in August 2023. Impressively, this valuation has increased each year since FY2021.
As of 31 December 2023, UHREIT’s top 10 tenants account for 54.9% of its gross revenue, with the 2 largest, ShopRite (10.5%) and BJ’s Wholesale Club Holdings (10.1%), contributing a combined 20.6%. This top 10 group has a WALE (Weighted Average Lease Expiry) of 8.2 years, supporting income stability.
The REIT has benefited from the “work from home” trend, which has positively impacted foot traffic and sales at its Grocery and Necessity properties. With more companies now encouraging employees to work on-site 5 days a week, I inquired about potential impacts on UHREIT properties. I was told that footfall and sales at Grocery and Necessity properties remain resilient, as people often stop by for necessities on their way to or from the office. These Grocery and Necessity properties also serve as micro-fulfilment centres for online order pickups.
Looking forward, UHREIT aims to achieve S$1 billion in assets under management by the end of FY2026.
Debt Profile (between FY2021 and FY2023)
In today’s high-interest-rate environment, effective capital management by REITs is a key area of focus for investors.
Below is UHREIT’s debt profile over the past 3 financial years:
| FY2021 | FY2022 | FY2023 | |
| Aggregate Leverage (%) | 39.0% | 41.8% | 41.7% |
| Interest Coverage Ratio (times) | 6.5x | 3.3x | 2.9x |
| Weighted Average Interest Rate (%) | 2.63% | 2.77% | 4.32% |
| Average Term to Debt Maturity (%) | 2.5 years | 4.0 years | 3.0 years |
| % of Borrowings at Fixed Rates (%) (including Floating Rates Loans that have been Swapped to Fixed Rates) | 79.6% | 81.4% | 78.8% |
Key Observations: One aspect of concern is the REIT’s interest coverage ratio, which dropped from 6.5x in FY2021 to 3.3x in FY2022, primarily due to a significant increase in interest rates during that period. Initially, during the IPO, the REIT had hedged approximately 90% of its borrowings at around 1%. However, when borrowings were refinanced in FY2022 amid rising interest rates, this led to a sharp decline in the coverage ratio.
Furthermore, in the 3rd quarter of FY2024 (with its business update on 8 November 2024), the REIT’s interest coverage ratio stood at 2.5x. I raised concerns that a decline in valuation could increase the aggregate leverage limit to 45%, which, given its current level of 39.9%, would put it uncomfortably close to the threshold. However, due to the resilience and stability of its 2 asset classes, the management remained positive on the sectors’ outlook. However, if further challenges arise, they may divest matured assets to reduce gearing. UHREIT’s properties, valued between US$20-100 million, are considered ‘bite-sized’, would be relatively easy to divest.
The management indicated a target aggregate leverage of around 40%+ and, with interest rates expected to trend downward in anticipation of further cut by The U.S. Federal Reserve. With 26.4% of borrowings on floating rates as of 30 September 2024, this could aid in the further improvement of the REIT’s weighted average interest rate.
Lastly, while UHREIT has no borrowings due for refinancing in FY2024 and FY2025, a positive sign, but it has approximately 50% of its debt maturing in FY2026. With its high occupancy rates, long WALE, and solid demand for its spaces, the management is confident in managing refinancing risks, given the high demand for the asset classes UHREIT invests in.
Closing Thoughts
Overall, I find UHREIT to be a decent REIT with stable financial growth, demonstrated by a healthy compound annual growth rate of 9.4% in gross revenue and 6.5% in net property income over the past 3 years.
The REIT also boasts resilient portfolio occupancy, maintaining rates above 90%. Its tenants are primarily in defensive, recession-resistant industries, and majority of the leases are on a triple-net basis, where the REIT handles only the property’s common area maintenance and parking spaces.
Another noteworthy aspect is that United Overseas Bank Ltd, a prominent Singapore blue-chip bank, is involved through the joint venture of UOB Global Capital LLC and The Hampshire Companies LLC, to establish United Hampshire US REIT Management Ltd, the REIT Manager.
The only potential drawback is the debt profile, with an interest coverage ratio of 2.5x as of 30 September which should gradually improve in anticipation of further rate cuts by the US Federal Reserve. While the aggregate leverage remains stable at 39.9%, this is contingent upon the interest coverage ratio not falling further, which I’ll be monitoring closely.
With this, I conclude my review of the Singapore-listed but US-based United Hampshire US REIT. I would like to thank Ms. Wong for meeting with me and sharing insights about the REIT, which allowed me to develop a clearer understanding.
I hope this analysis has provided you with valuable insights as well. Please note that this post is not sponsored; I’m sharing my observations with the investment community so as to help fellow retail investors gain a better understanding of the Singapore-listed REIT. Finally, the information above does not serve as a buy or sell recommendation. You are strongly encouraged to conduct your own due diligence before making any investment decisions.
Disclaimer: At the time of writing, I am not a unitholder of United Hampshire US REIT.
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