Today, I will be looking into this S-REIT that does not have much analysts coverage and that its market unit price has plunged close to almost 50% of its IPO price back in 2020 albeit resilient results and high occupancies of over 95% for the past few years.
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No doubt they are in better shape as compared to the 3 US Office REITs, one thing that all the US REITs faced is that Landlords need to bear tenant allowances and leasing commissions for tenants, which is a common practice in US.
ReplyDeleteFrom United Hampshire AGM minutes, the management mentioned that on average, such "capex" is in the range of US$4-7mil. if we take a average which is US$5.5m, this comprised close to 20% of DI from FY2021 to FY2023.
Luckily, the valuation was able to maintain/slight increase, but could already be fully stretched by the management.
However this will definitely put a strain on the leverage going forward as they are typically funded by debt. EFR is not possible due to US regulation and the low share price.
To be honest, i am very tempted to enter this REIT at such yield but this issue kinda put me off. Not sure what is your view on this ?
Hi Han, thanks for dropping by. Very good points and concerns raised. For the CAPEX tenant improvements and leasing commissions issue, the average is not US$5.5Mil but way higher. For 2023 and 2022, these CAPEX amounted to US$18.7Mil and US$6.2Mil respectively as per its Consolidated Cashflow Statements. For 2023, they did one major extension and improvement for Academy Sports I believe. We can look at the Free Cashflow analysis to answer this point.
ReplyDeleteEven with the abnormally high CAPEX of for 2023, its free cashflow strain is only at a 10% negative impact. UHREIT has been buffering around 10% of distribution as reserve for such Capital Development requirement. So, the current payout, barring any other major unfavorable macro-economics storm or change in consumer demand, is actually sustainable at a yield of 10%.
Saying that, as per my video, investing into UHREIT is actually very risky for a number of factors. If it survived for the next 10 years with no major downsides, one would have got his/her initial investment capital covered. Nonetheless, what happened to the US Office REITs when they badly require capital injection or rights issue but unable to do so already served a warning on what could happen for a REIT of such structural setup in US. End of the day, the old adage of high risk high return still applies. It will ultimately depend on your personal risk appetite wor. :)
Yes, you are absolutely right - high risk high return. Hopefully things turn out well for this REIT !
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