United Hampshire US REIT (“UHREIT”) past 3 years market price performance has been nothing short of a major disaster in the making. Its current market price of US$0.440 per unit as at 22 June 2023 represents a more than <-45%> price collapse from its IPO price of US$0.80 per unit during March 2020. Existing investors (like myself) who opt for the scrip dividends during the most recent 2022 half year distribution exercise at US$0.485 per unit have made a regretfully wrong decision on hindsight then and should just have bought from the open market in view of the ever worsening unit pricing. Based on StockCafe, UHREIT projected distribution yield is at an insanely high 13.3%.
1. UHREIT Different From Other US REITs
While all US REITS listed on SGX seems to be doing badly in terms of market pricing performance, UHREIT is unique in that it is neither (i) facing secular demand headwinds like the US commercial office REITs with high vacancy rate due to "work from home" culture nor (ii) having exposure to major tenant default akin to US DigiCore REIT. While soaring financing cost due to the current elevated interest rate environment does weight on its financial performance, its unit price have been severely punished by the market albeit resilient operational performance for the past few quarters.
While all US REITS listed on SGX seems to be doing badly in terms of market pricing performance, UHREIT is unique in that it is neither (i) facing secular demand headwinds like the US commercial office REITs with high vacancy rate due to "work from home" culture nor (ii) having exposure to major tenant default akin to US DigiCore REIT. While soaring financing cost due to the current elevated interest rate environment does weight on its financial performance, its unit price have been severely punished by the market albeit resilient operational performance for the past few quarters.
2. Recent Major News On UHREIT
(a) There is no major bad news on UHREIT except for the recent news on 19 June 2023 that the manager of UHREIT had disposed of 405,200 units at US$0.43 per unit. On 8 June 2023, the REIT manager had also similarly disposed of 500,000 units at US$0.43 per unit to raise cash for its daily working capital needs as it had received its manager's base fee of 1.89million units at an issuance price of US$0.463 per unit. The sales no doubt may have lead to some downward pressure on recent UHREIT market pricing.
(b) The only possible "bad news" is that there is a change in its CEO, Mr Robert Schmitt (who is stepping down due to health reasons) and the CFO, Mr Gerard Yuen has taken over as the CEO effective from 1 May 2023. In terms of commercial knowledge of the US grocery anchored retail space and the relationship with its key business partner, the Hampshire group, there maybe some inadequacy. Saying that, Hampshire group is significantly vested in UHREIT and I believe that they will still be rendering their utmost support to the new CEO.
(c) On the contrary, there is major good news from UHREIT released on 12 May 2023 that its Q1 2023 Gross Revenue and Net Property Income has increased +11.8% and +13.5% year on year respectively. Its committed tenant occupancy also remained high at 97%. I do not expect any major upset for Q2 2023 and as a matter of fact, I am actually expecting another strong finish for upcoming 2nd Quarter and the maintenance of the distribution to unit-holders for its performance for 1st half of 2023.
3. Revival in UHREIT Market Pricing Soon?
This is my own personal perception: If one looked back at the past few years, there seems to be a period of heighten interest and increase in trading volume in UHREIT whenever we are near the half yearly distribution payout period. There will most likely be a slight surge in its traded prices which maybe already happening. The poignant aspect is that this period of rising price is only short-lived and very soon, UHREIT price performance will slide into the doldrums again. The long term trend for UHREIT unfortunately has been a relentless downward spiral thus far and this is certainly not just the effect of an elevated interest rate environment. No one knows how long this trend will persist or whether it is a permanent expected premium demanded by the market.
Parting Thoughts
Personally, as a dividend oriented investor, I would love to put in more funds into UHREIT as its result have been surprisingly resilient and consistent over the past few quarters. It also has a long WALE of 7.4 years and no major refinancing exercise until November 2026. Nevertheless, UHREIT is already making up 10% of my overall investments in my combined portfolios and no one ever knows what "funny things" might go wrong.
Folks, do share your thoughts on UHREIT and whether you held a contrarian more pessimistic view and will be paring down your stakes due to its "perpetual" underperformance in market pricing.
Personally, I believe that the only thing keeping down UHREIT's price is actually the divestment of units by the management and insiders. I have noticed that usually, once the management queues their sell, UHREIT can drop from 0.445 to 0.420 within seconds. However, I don't have any particularly strong objection to it as it has allowed me to slowly accumulate UHREIT units at a cheaper price. UHREIT is a fundamentally sound, high yielding REIT that can grow by using it's bountiful amounts of unutilised land, as evident by their current AEI efforts on St Lucie West. Focus on the sustainability of the dividend, and all should be well! I will continue to slowly pump in more cash into UHREIT and opt for DRIP if possible.
ReplyDeleteHi PL, thanks for sharing your thoughts. May the good results for UHREIT continue and we can all "HUAT" from it for many years to come. :)
DeleteHi blade knight, your silent fan here. Sounds like you're freaking out over the down trend, but the numbers are solid. In which case, unless there is fraud, grab more.
ReplyDeleteHi Mate, thanks for dropping by. Yup....worried as sometimes, one never know the hidden can of worms until too late. Since helmed by UOB as one of the major sponsors, hope it continue to do well. Will be closely monitoring its next result released financials and operational metrics. Have a great week ahead ya!
DeleteBtw, are you also vested in UHREIT?
Nope. Very tempted after following you for so long, but I was bag holding. My biggest holding is in Keppel Corp at 25%. Betting that it's another SCI after divesting O & M segment.
ReplyDeleteWow...good selection Mate! I have also been accumulating Keppel Corp recently. Keep our fingers crossed and if it turns out well, we will all prosper together! :)
DeleteHello Blade Knight,
ReplyDeleteI've read many of your blog posts. I've read the last three of your post regarding UNHREIT.
I'm an individual investor of the REIT and I am not worried about it. From what I understand, our CEO personally purchased 200,000 units on August 16th.
They are proactively trying to reduce debt. They know inflation will be a challenge. They don't have any significant debt maturing this year or next year. Strip malls are very different than office buildings or malls. Strip malls usually consists of more land and less multi-storey buildings. The parking lot land itself is valuable. I think it is a wonderful long-term asset to hold.
Management is competent. I read your post about Lippo REIT and you are correct regarding the Lippo group. I'm Indonesian and I live in Indonesia. There are many cases where Lippo Group throws apartment buyers under the bus. They have saved money and finally able to purchase a unit of apartment. Those buyers paid for those apartments years ago, but they have not received any apartment units until now.
Regarding your concern about the Manager's inability to perform right issue due to the 9.8% rule, I think the concern is valid. There are, however, several other ways to preserve liquidity. The company can postpone dividend payment. They company can sell some of its assets.
Some of the USD loans given to Lippo Mall Trust yields around 8%, If I remember correctly. UHREIT's management is more cost sensitive. They don't buy assets if they are not able to find moderately cheap / fair value debt financing. I hope they can negotiate longer fixed term loans from the US banks in the future.