Fast coming off the disposal of its locker storage facilities, United Hampshire US REIT ("UHREIT") wasted no time in its announcement on 9 June 2022 that it is acquiring Upland Square Shopping Center in Montgomery, Pennsylvania for US$85.7Mil. This DPU accretive deal will push up future annual distribution yield to 10.38% based on previous closing price of US$0.610 per unit.
1.Key benefits of this deal are as follow:
1.1 Additional diversification of tenants for UHREIT.
1.2 DPU Improvement
DPU is expected to improve by 2.13% post-acquisition. 6.23 cents will mean a distribution yield of 10.38% based on the previous closing price of US$0.64 per unit. The acquisition will be funded mainly with the sales proceeds from the locker storage facilities as well as the assumption of the existing mortgage.
2. Bad point for this deal- Leverage post acquisition crosses over the 40% mark.
The aggregate leverage of 42.7% is not desirable. While there are still ample headroom under the Monetary Authority of Singapore (MAS) stipulation of up to 50%, nevertheless, if recession were to rear its ugly head, valuation of properties may drop substantially and rights issue at severely discounted prices will be needed to restore back the leverage level. Retail investors in particularly may not have sufficient cash on hand to do such subscription during crisis period and end up heavily diluted in their unit-holdings.
Personal thoughts
While UHREIT portfolio’s focuses on cycle agnostic tenants providing essential services, its unit price has been in a persistent doldrum. Its price for the past 2 months has been in the US$0.600-US$0.640 per unit range. Despite the announcement of the above mentioned acquisition deal, its traded price remain stagnant like still water. It is currently trading at a 21% off its NAV (US$0.74 per unit) with an incredulous 10.38% forward distribution yield. It is interesting to note that the analysts of UOB Kay Hian has a target price of US$0.88 per unit for UHREIT in their report of 3rd June 2022. This represents a 44.3% potential upside in capital appreciation. Of course, the other flip side is that there maybe something wrong with the business hence the ever dwindling unit price of UHREIT being priced in by the market.
(P.S: Recently, I have been building up additional stakes in UHREIT to collect dividends while waiting for potential capital appreciation in future. Not sure whether the upturn in its unit price will ever materializes....but I am keeping faith that since it survives the COVID induced recession onslaught with resilient performance for the past 2 years, it should theoretically continue to do well....keeping my fingers crossed).
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