Here’s what you need to know: an 9% dividend-paying Singapore REIT.
This is not your typical Singapore landlord. It does not own traditional retail, offices or industrial buildings in Singapore
All its 22 properties are located in the U.S. — the more affluent regions in the east coast. This Singapore REIT focuses on single storey “recession proof”, “e-commerce proof retail”. But I’ll explain later.
United Hampshire REIT (SGX:ODBU) listed itself at the height of the COVID pandemic last year. Its IPO price was at US$0.80 per unit. Because of COVID, shares fell sharply and is now yielding at a fat 9% dividend yield.
Source: ShareInvestor Webpro
Today, UHREIT’s market cap stands at US$337 million. Making this a tiny yet supercharged Singapore REIT.
The critical stuff about UHREIT
UHREIT owns grocery-anchored properties. What makes this different from a retail shopping mall is it has one big tenant in a single building.
This tenant is usually in a “recession proof”, “e-commerce proof” business — grocery, restaurants, gym clubs, discount stores and home improvement. The daily essentials that people need to buy.
In fact, 86% of UHREIT’s tenants are in these industries. And right now, UHREIT’s properties are 95% occupied.
Source: Company Presentation
These tenants are one of the biggest in their own niche.
Source: Company IPO Prospectus
According to Mr. Robert Schmitt, CEO said: “We have continued to experience resiliency for our Grocery & Necessity Properties, which are strip centers leased to cycle agnostic tenants providing essential services. The market has seen a recovery in retail foot traffic with the gradual opening of the economy. Compared to the malls, traffic at the strip centers has performed better throughout the pandemic and rebounded faster, with foot traffic now 4.0% above pre-pandemic levels.
Tenants continued to show their commitment to their omni-channel strategies by investing in shopping technologies and digitalisation such as cashierless checkout, digital pricing, and smart carts.”
In its latest financial results, UHREIT’s 1H2021 revenues grew 75% to US$26 million. It also grew its net profits by 82% to US$14 million. And continued to hold a strong rental collection of 99%. That’s why it could maintain a steady distribution per unit (DPU) of 3.05 cents per unit.
Here’s the other thing.
UHREIT’s tenants have a much longer lease than retail leases. These tenants, on average, rents for around eight years. I like this because there’s income visibility for investors.
And banks are more willing to lend money to UHREIT at a much lower interest rate.
What’s more, these leases that UHREIT hold are “triple net leases”.
Triple net leases are exactly what you’d see in Singapore healthcare REITs. UHREIT doesn’t pay for property, insurance and property expenses. Tenants do. That means investors get to keep a larger part of rental income.
This Singapore REIT’s growth is not over yet
REIT shares go up in two ways. First, a REIT must raise rent every year. UHREIT does it by pegging theirs to CPI, and collect a percentage of what tenants earns.
The second, a REIT has to buy more properties.
Up till now, UHREIT borrows little. Its gearing ratio is 37%.
Gearing ratio measures a Singapore REIT’s leverage. It’s simply taking its total debt divided by a REIT’s total assets. MAS caps all Singapore REIT’s gearing ratio to 50%. This is to prevent Singapore REITs from overborrowing and getting into trouble.
UHREIT is far from breaching MAS gearing limit.
UHREIT’s sponsor, The Hampshire Company is a 60+ years old mid-size U.S. property company. It owns and operates 275 properties in the U.S. with around US$2.1 billion worth of assets. This gives plenty of opportunities for UHREIT to buy more properties from its sponsor.
But what I don’t like about UHREIT
UHREIT’s self-storage properties are a huge rental drag.
Now, what is self-storage? Sometimes, families need more space to put their stuff or businesses require to store things that aren’t needed, like paper documents. So this is where self-storage comes in.
Occupancy rate for self-storage has yet to improve. Luckily, self-storage takes up just 10% of UHREIT’s business. In its latest financial 1H2021, self-storage segment contributes US$1.6 million in revenues.
Would I buy this Singapore REIT today?
Unlike buying U.S. stocks, UHREIT does not have a 30% withholding tax on dividends.
If you ask me, this is an interesting Singapore REIT. It’s a tiny Singapore REIT with a supercharged dividend yield.
Not many big funds will buy this because of the small market cap. But it provides a healthy yield for retail investors.
If I want some U.S. property exposure in my portfolio, yet not incurring more taxes, this is a good Singapore REIT to buy.
Sometimes investing can be simple.
Willie Keng, CFA
Founder, Dividend Titan
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