United Hampshire US REIT IPO Review – Recession Proof Supermarket REIT?

0

So I did a poll earlier this week, asking which one you guys preferred to read – (1) Impact of COVID-19 on markets, or (2) United Hampshire US REIT IPO Review.

The answer was quite clearly in favour of (1), but a big number of you guys said you wanted to hear about United Hampshire US REIT as well.

So let me try to see if I can cover both. More work for me, but these are very volatile times, and I owe it to you guys!

We’ll do the United Hampshire US REIT IPO Review today, and COVID-19 tomorrow.

Basics: United Hampshire US REIT IPO

United Hampshire US REIT is a supermarket REIT. They own supermarkets in the US (95% of income), and a small percentage in self storage.

Probutterfly has a pretty good summary, which I’ve set out below:

[United Hampshire US REIT] Hampshire REIT has a portfolio of 22 properties on the east coast of the US, consisting of 18 grocery and necessity-based retail assets and four self-storage properties. 21 of the properties are freehold and the exception is Wallington ShopRite which has a leasehold term expiring in 2040 with two consecutive ten-year extensions – in other words with the extension options in place, the tenure could be as long as 2060.

According to the preliminary prospectus, the nature of the grocery-anchored retail and self-storage trade mix is recession-resistant, cycle-agnostic and defensive attributes. Grocery and necessity retail make up about 95.4% of the REIT’s base rental income while self-storage makes up about 4.6%.

The annualised yield is forecasted is expected to be between 6.5% to 7.0% and the IPO portfolio occupancy will start at 95.2% with the WALE at a comfortable 8.4 years. Its grocery and fresh food anchor tenants are household names in the US such as Walmart, BJ’s Wholesale Club, Lowes Company, Stop & Shop, Giant Food and Wakefern Food Corp. Others include Home Depot, LA Fitness and PetSmart. Together, their top-10 tenants contribute an estimated 66.7% of the base rental income of the REIT.

The REIT’s sponsors are UOB Global Capital and the Hampshire Companies; the former is the global asset management subsidiary of United Overseas Bank Limited (UOB). Hampshire is a US based real estate manager with investments in industrial, multifamily (residential), groceries and self-storage properties.

Former StarHub CEO Tan Tong Hai sits as the independent chairman of the REIT’s board.

Here is a picture of where their assets are located.

Sponsor

The sponsor is UOB Global Capital and the Hampshire Companies. Neither has a track record of sponsoring REITs in Singapore, which is always tricky because you don’t know how it will turn out. They could turn out to be great sponsors, but they could also turn out not to.

Post listing stakes are set out below, which doesn’t look great. Each of UOB Global Capital and Hampshire will hold under 10% stakes post listing, and even lower if the over-allotment is exercised.

I get why they have to do this (US Tax Code requires them to hold less than 10% stake for tax transparency status), but seeing the numbers stack up like this, I can’t help but wonder whether this looks like a pseudo-exit for the sponsor. We’ll want to see how alignment with interests of unitholders holds up going forward.

Cornerstone investors are primarily private banking and high net worth individuals, which again is not amazing. I always prefer to see institutional clients in an IPO – but that said, most of them probably can’t take up a small cap IPO like this.

Assets

The lease expiry profile looks pretty good actually, with no big expiries coming up in the next 5 years. Looks like Sponsor really worked on this prior to listing.

Trade sector is dominated by grocery and wholesale, which lends this REIT it’s slightly more defensive profile.