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United Hampshire US REIT IPO: What Singaporean Investors Should Know

profileKenneth Fong

It’s just the beginning of 2020 and guess what?

There’s a second real estate investment trust (REIT) that is about to IPO.

Hot on the heels of Elite Commercial REIT’s IPO is United Hampshire US REIT, Asia’s first U.S. grocery-anchored shopping centre and self-storage REIT.

Once the initial public offering (IPO) goes through, it’ll be the sixth REIT denominated in U.S. dollars to be listed here.

According to the prospectus, the projected distributable income is US$24.4 million (S$34.2 million) in the 10 months from 1 March (projected listing date) to 31 December 2020.

And US$30.3 million (S$42.4 million) in 2021.

The forecasted net property income is US$33.3 million (S$46.6 million) for the same 10-month period in 2020.

And US$41.7 million (S$58.4 million) in 2021.

Source: Giphy

Here’s what we know about United Hampshire US REIT’s impending IPO.

Note: all numbers quoted are based on the exchange rate of US$1.00 to S$1.40


TL;DR: The Deets of United Hampshire US REIT’s IPO

Here is an overview of United Hampshire US REIT:

  • United Hampshire US REIT focuses on Grocery & Necessity based retail properties and Self-Storage facilities
  • The U.S. focused REIT’s 22-strong portfolio contains 18 grocery and necessity-based retail properties and 4 self-storage properties (all located in the northeast of the U.S.)
  • The portfolio has a 95.2% occupancy
  • Growth for the REIT can potentially come from rental increases and acquisitions
  • The offer price is US$0.80 (S$1.12) per unit, and the closing date and time for the IPO is 10 March 2020, 12pm
  • United Hampshire US REIT’s distribution yield for 2020 is currently 7.4%, or 6.4% (excluding the top-up)

What’s United Hampshire US REIT About?

United Hampshire US REIT is a Singapore-established REIT which invests in a diversified portfolio of grocery-anchored and necessity-based (Grocery & Necessity) retail properties as well as self-storage facilities.

Once listed, United Hampshire REIT will become the sixth U.S. focused Singapore REIT.

The REIT’s initial portfolio will contain 18 retail assets and four self-storage assets which are located in the states of New Jersey, New York, North Carolina, Florida and Massachusetts (aka East Coast of the United States).

Source: United Hampshire US REIT IPO Prospectus

The following table shows the breakdown of properties in its portfolio:

PropertyStateTypeNet Lettable Area
(sq ft)
Occupancy as at 30 Sep 2019
(%)
Grocery & Necessity Properties
Garden City Square – BJ’s Wholesale ClubNew YorkWholesale Club121,000100.0
Garden City Square – LA FitnessFitness Club55,000100.0
Albany ShopRite – SupermarketGrocery & Necessity65,000100.0
Albany ShopRite – Gas StationGrocery & Necessity917100.0
Price Chopper PlazaGrocery & Necessity84,29599.8
Wallkill Price ChopperGrocery & Necessity137,79589.2
Hudson Valley PlazaRegional Centre with Grocery673,37994.8
Wallington ShopRiteNew JerseyGrocery & Necessity94,027100.0
Stop & Shop PlazaGrocery & Necessity84,167100.0
Towne CrossingGrocery & Necessity91,745100.0
Lawnside CommonsGrocery & Necessity151,076100.0
St. Lucie WestFloridaGrocery & Necessity317,651 (with
St. Lucie West Expansion)
94.7
Big Pine CentreGrocery & Necessity93,15090.9
Arundel PlazaMarylandGrocery & Necessity282,03598.1
Parkway CrossingGrocery & Necessity260,24299.1
BJ's QuincyMassachusettsWholesale Club84,360100.0
Fairhaven PlazaGrocery & Necessity80,23993.9
Lynncroft CentreNorth CarolinaGrocery & Necessity182,92591.3
Self-Storage Properties
Carteret Self-StorageNew JerseySelf-Storage73,77589.6
Millburn Self-Storage80,91857.8
Perth Amboy Self-Storage71,388-
Elizabeth Self-Storage80,575-

The total portfolio has an appraised valuation of US$599.2 million (S$838.9 million), as of 30 September 2019.

Note: Elizabeth Self-Storage was recently completed in January 2020. Perth Amboy Self-Storage is currently under development and is expected to be completed by 2Q 2020.

St. Lucie West, is also undergoing asset enhancement works for the St. Lucie West Expansion, which is targeted to be completed in 1Q 2021.

The REIT’s portfolio of 22 properties has a 95.2% occupancy.

Notably, the tenants — targeted by United Hampshire US REIT — are resilient to the impact of e-commerce.

These include, but are not limited to:

  • restaurants
  • home improvement stores
  • fitness centres
  • warehouse
  • clubs
  • and retailers with omni-channel platforms (rely on both physical and digital distribution channels to engage with their customers)

Timeline of United Hampshire US REIT IPO

United Hampshire US REIT is looking to raise gross proceeds of US$394.6 million (S$552.4 million) from the IPO.

The following shows the timeline of United Hampshire US REIT’s IPO:

Important Events for United Hampshire US REIT IPOTime and Date
Offering Price Per UnitUS$0.80
(S$1.12)
Units Offered87,829,600
(of which 7,500,000 units are for the Singapore public)
Opening time and date of IPO4 March 2020, 9am
Closing time and date of IPO10 March 2020, 12pm
Balloting of applications for IPO11 March 2020
Commence Trading
(Listing)
12 March 2020, 2pm

The minimum initial subscription is for 1,000 units.

If you’d like to, you can subscribe for a larger number of units in multiples of 100.

Note: unitholders are prohibited from directly or indirectly owning in excess of 9.8% of the outstanding units

Distribution Details

United Hampshire US REIT plans to distribute 100% of its annual distributable income for the period from its listing date to the end of the projection year 2021 (1 January 2021 to 31 December 2021).

Following that, the REIT will distribute at least 90% of its annual distributable income on a semi-annual basis.

 Forecast Year 2020Projection Year 2021
Distribution per unit
(US$ cents)
4.936.09
Distribution per unit
(S$ cents)
6.908.53
Offering price
(US$)
0.800.80
Offering price
(S$)
1.121.12
Distribution yield (%)7.47.6

Note: figures quoted above are with top-ups (more on this in a bit)

The first distribution — which will be for the period from the listing date to 30 June 2020 — will be paid on or before 30 September 2020.

All distributions will be declared in U.S. dollars.

And you will receive your distribution in equivalent Singapore dollars.

If you decide to receive your distribution in U.S. dollars, you will need to submit a Distribution Election Notice by the cut-off date.

On that note, distributions will be reduced if you do not submit the required US Tax forms.

In order to be exempted from 30% US withholding tax under the U.S. Internal Revenue Code.

You must establish your status under the U.S. Foreign Account Tax Compliance Act (FACTA) by completing an IRS Form W-8 and U.S. Tax Compliance Certificate.

Key Investment Highlights of United Hampshire US REIT

The following information is from the IPO prospectus.

PSA: as an investor, it is always healthy to take this information with a pinch of salt.

Stable and Sustainable Cash Flow

According to the REIT’s independent property market research consultant, Green State Advisors, U.S. consumption has grown at a steady rate of approximately 4% per annum over the last decade and is poised to continue growing.

Based on their market research, Grocery & Necessity and Self-Storage Properties are among the most recession-resistant, cycle-agnostic property types in the U.S.

Source: United Hampshire US REIT IPO Prospectus

In the U.S., neighbourhoods and community centres which cater to necessity-based spending are also often anchored by a supermarket (think: your neighbourhood NTUC FairPrice or Sheng Shiong) and are therefore more resistant to macroeconomic volatility and e-commerce disruption.

Self-storage facilities cater to life changes, which may occur at any time.

During economic downturns, families who downsize their homes will need more self-storage space for excess household items.

The REIT’s gross rental income is derived from mostly (triple net) leases to tenants with a weighted average lease expiry (WALE) of around 8.4 years.

Under these (triple net) leases, tenants are responsible for their share of all real estate taxes, building insurance, property and common area operating expenses.

The Grocery & Necessity Properties also have leases that are generally fixed (read: not dependent on underlying tenant sales).

Source: United Hampshire US REIT IPO Prospectus

On top of the long WALE, this income comes from a diversified tenant mix, which is primarily focused on e-commerce resistant sectors such as grocery, discounters, wholesale, home improvement, food & beverage, and fitness operators.

Source: United Hampshire US REIT IPO Prospectus

Overall, the REIT’s Grocery & Necessity and Self-Storage Properties, are also predominantly freehold.

With 21 out of 22 assets being freehold properties.

Strong Cash Flow and Growth Potential

Self-storage and strip centres currently provide attractive in-place yields (from contractual and lease arrangements) as compared to most other asset classes in the United States.

According to the REIT’s independent market research consultant, self-storage properties are forecast to experience positive rental growth and are therefore expected to outperform the overall strip centre segment.

Source: United Hampshire US REIT IPO Prospectus

The Grocery & Necessity Properties also enjoy stable high occupancies, driven by a tenant retention rate of 89.8% by leasable area retained over the two year period ended 30 September 2019.

Although self-storage space is used by both businesses and individual customers, 75% of users are individual consumers.

These tenants enter into rolling monthly leases (inclusive of rates and utilities) with an average stay of one to two years, with one to two rent increases per year.

Source: United Hampshire US REIT IPO Prospectus

Notably, self-storage same-store net operating income has increased at a CAGR of 4.6% over the last 24 years.

Outpacing inflation and major U.S. property sectors by 2.4% and 1.8% per year, respectively.

With Elizabeth Self-Storage completed in January 2020 and Perth Amboy Self-Storage to be completed in 2Q 2020.

These two newly complete properties will allow United Hampshire US REIT to ride on the favourable growth of the U.S. self-storage industry.

E-Commerce Resistant Portfolio

Despite online penetration of retail sales, brick and mortar stores still account for approximately 98% of grocery sales in the US.

This is largely due to:

  • High “last mile” logistics and delivery costs
  • Deep-rooted consumer attitudes toward fresh food shopping, and
  • That most grocery stores are located in convenient “last mile” locations.
Source: United Hampshire US REIT IPO Prospectus

Many tenants utilise their physical presence in these centres as part of their omni-channel retail strategies.

Using their locations in residential suburbs as “click and collect” or micro-distribution centres to fulfil online orders and process returns.

Ultimately, maintaining a brick-and-mortar presence has allowed for continued brand awareness, higher customer satisfaction, and higher sales.

High-Quality Portfolio

The REIT is focused on densely populated and affluent northeast markets with limited supply.

The northeast markets have 24% higher spending power per sq ft of retail space than the U.S. Top 50 Average.

Although the U.S. as ample retail real estate, this supply is not evenly distributed.

The northeast region has a lower retail space per capita than the U.S. Top 50 Average.

This is due to the scarcity of land and difficulty in obtaining planning permission.

Supply growth is therefore expected to be muted relative to other markets.

Best-of-Breed Tenants

The REIT’s Top 10 tenants include some of the largest grocers, wholesalers, home improvement retailers, and discount retailers in the U.S.

Grocery & Necessity Property% of Base Rental Income of Grocery & Necessity PropertiesMarket Capitalisation (US$bn)Info
BJ's Wholesale Club Holdings, Inc13.5%3.5Largest warehouse club in New England
Wakefern Food Corporation/ Inserra Supermarkets11.9%-Largest retailer-owned supermarket cooperative in the US
Ahold Delhaize10.5%27.7One of the largest supermarket groups in US and Europe (rated Baa1 by Moody's)
Lowe's Companies, Inc6.9%85.3Second largest home improvement retailer in the world (rated Baa1 by Moody's)
Walmart Inc./ Sam's Club5.8%337.9Largest retailer and food retailer in the world (rated Aa2 by Moody's)
LA Fitness5.6%-One of the largest gym chains in the US with ~700 locations
Home Depot USA, Inc4.9%254.3Largest home improvement retailer in the world (rated A2 by Moody's)
Price Chopper Supermarkets3.7%-Operates over 130 supermarkets across Northeast US
PetSmart, Inc2.0%-Largest specialty pet retailer of services and solutions for lifetime needs of pets
Burlington Stores, Inc1.9%13.2Fortune 500 off-price retailer (rated BB+ by S&P)

As of 31 December 2019, the share price of the top 10 tenants outperformed the S&P 500 since September 2017.

Having grown 63% compared to the 28% growth in the S&P 500 over the same period.

Source: United Hampshire US REIT IPO Prospectus

Cornerstone Investors, Board of Directors, Manager, and Sponsors

The REIT’s cornerstone investors include:

  • Kuang Ming Investments
  • Kasikorn Asset Management
  • Bangkok Life Assurance Public
  • Chiu Hong Keong and Khoo Yok Kee, managing director and executive director, respectively, of Pintaras Jaya Berhad (Malaysian piling and foundation specialist)

United Hampshire US REIT’s manager will be 50:50 owned by Hampshire U.S. Holdco, LLC, a wholly-owned subsidiary of The Hampshire Companies, LLC.

And UOB Global Capital LLC, a subsidiary of UOB.

Both sponsors have a long-standing partnership of more than 10 years.

They have jointly formed three funds with combined assets under management of approximately US$1.1 billion (S$1.5 billion; as at 30 September 2019) to invest in real estate assets in the U.S.

The REIT manager’s board of directors includes former StarHub CEO Tan Tong Hai, as an independent chairman.

Management Fee Structure for United Hampshire US REIT

The Management Fee that is payable to United Hampshire US REIT’s manager comprises two parts: the Base Fee and the Performance Fee.

The Base Fee is 10% of the REIT’s annual distributable income.

Whereas the Performance Fee will be based on and linked to the REIT’s distribution per unit (DPU).

Singapore REITs with a similar structure include Elite Commercial REIT (SGX: MXNU) and Mapletree North Asia Commercial Trust (SGX: RW0U).

This is a favourable (for investors) fee structure as the performance-based component will incentivise the manager to achieve income stability by ensuring the long-term sustainability of assets through proactive asset management strategies and asset enhancement initiatives.

It’s also worth noting that even though the Management Fee can be paid in cash or units.

For the Forecast Period of 2020 and Projection Year 2021, the REIT manager has elected to receive 100% of the Base Fee and 100% of the Performance Fee in the form of units.

Main Risks to Note for United Hampshire US REIT

Disclaimer: these are my musings and should not be construed as investment advice

Even though the portfolio’s tenants are being trumpeted for their e-commerce resilience.

I believe that savvy investors should look into the past performance and future plans of the various tenants in order to get a better idea of the prospects of the Grocery & Necessity as well as Self-Storage industry.

It’s even harder for Singaporean investors to really get a pulse on this because we cannot physically walk into their properties and observe how their business is like — less catching a flight out to the United States.

About the Grocery & Necessity Sector

As highlighted by United Hampshire US REIT’s market research consultant, the Grocery & Necessity sector will definitely benefit from the 4% per annum growth in the U.S.’s consumption rate.

It’s also great that current U.S. sentiments towards the sector are still largely anchored to brick and mortar stores.

However, that does not necessarily mean that these sentiments won’t change.

Because a myriad of imperatives could rock the apple cart of the status quo.

If you look globally, traditional grocery retailers are already seeing their sales and margins fall.

“By how much,” you ask?

More than 50% of the grocery sector’s economic profit vanished between 2012 and 2017.

Source: McKinsey Corporate Performance Analysis Tool

And all of this is thanks to:

  • consumers’ changing habits and preferences
  • intensifying competition, and
  • the emergence of new technologies.

Think about it.

Why would Amazon — a major online retailer — decide to expand its grocery business by acquiring Whole Foods Market in 2017?

Why would e-commerce giant, Alibaba, build an ecosystem, which runs the gamut from shopping to groceries?

Locally, even FoodPanda has ventured into the grocery business (I’m sure they’ve learnt much from Honestbee’s exit).

.

.

.

Looking back to the U.S., a 2020 Nielsen report reveals that 44% of American households are actively buying food both on- and offline.

This again underscores the fact that simply having a presence on- and offline isn’t going to cut it.

Today’s digitally-savvy consumers require more than that.

And that could come in the form of the evolution of fulfilment and auto-replenishment infrastructures.

Even future tech like robotically driven kitchens and 3D printed food at home might be plausible major disrupters down the road.

Source: Giphy

So unless these Grocery & Necessity tenants are prepared to shift to other formats and channels ON TOP of their traditional methods of distribution.

Their e-commerce resilience might be tested sooner than later.

About the Self-Storage Sector

Let’s face it.

Self-storage isn’t a big thing in Singapore.

However, the United States reportedly has a 90% share of self-storage inventory as compared to the rest of the world (read: a lucrative opportunity for investors looking to fuel its growth).

In fact, U.S. REITs have poured an enormous amount of capital into the construction of hundreds of thousands of new square footage.

According to the U.S. Census Bureau data on private construction spending, only US$241 million (S$336 million) was spent on mini-storage facility construction back in 2011.

By 2018, that number has increased to nearly US$5 billion (S$6.97 billion).

But analysts and investors are worried that the U.S. self-storage industry has attracted so much investment during an almost yearslong bull run that this glut of new storage facilities will exceed demand in the short-term.

This means that it might cause a decline in the almost decade-long high returns enjoyed by some of the largest players in the industry like Public Storage and Extra Space Storage.

Emphasis on ‘might’…

A High Initial Leverage Ratio

United Hampshire US REIT is expected to list with an aggregate leverage ratio of approximately 37% based on the offering price.

FYI: MAS’s current statutory gearing limit stands at 45%

Looking at the current REITs, most of them try to stay under 40%.

Which makes sense as it gives them sufficient wiggle room to borrow funds if it is urgently required.

An aggregate leverage ratio of 37% means that they only have three percentage points to play with (read: can’t take on too much debt to grow).

And since one of the growth strategies of the REIT is through “acquisition of quality income-producing properties”.

They might turn to fund-raising in the equity market in order to expand its portfolio.

About The Top-up (aka Income Support)

You’ll notice that under Distribution Details, I indicated that the figures quoted are with top-ups.

In fact, the prospectus also has a graphic detailing what the distribution yield would look like with and without a ‘top-up’.

Source: United Hampshire US REIT IPO Prospectus

If you’re wondering, “Simi top-up?”

Here’s why.

The top-up here refers to income support where the REIT sponsor assists in topping up for any difference between the desired and actual rental income for a stipulated period of time.

This cushions the yield of the REIT and is most commonly applied when a REIT has assets which are undergoing asset enhancement, or are currently in its post-completion phase or is in the process of securing new tenants.

In United Hampshire US REIT’s case, US$6.5million from the IPO proceeds will be used to provide income support to three properties:

  • St. Lucie West Expansion (undergoing asset enhancement works which will be completed by 1Q 2021)
  • Elizabeth Self-Storage (only completed in January 2020)
  • Perth Amboy Self-Storage (only completed in 2Q 2020)

The latter two are new properties whose net operating income have yet to achieve the level of more mature properties.

As such, a total of US$4.7 million will be put aside and to provide income support for up to four years upon their respective dates of completion.

The reason why I’m highlighting this is because I personally believe that United Hampshire US REIT’s distribution yield should not reflect the income support.

Once you remove this income support, the distribution yield for Forecast 2020 drops a full percentage point.

Here’s what the distribution yield looks like without the top-up:

 Forecast Year 2020Projection Year 2021
Distribution per unit
(US$ cents)
4.275.61
Distribution per unit
(S$ cents)
5.987.85
Offering price
(US$)
0.800.80
Offering price
(S$)
1.121.12
Distribution yield (%)6.47.0

Step-By-Step Guide to Subscribe to United Hampshire US REIT IPO

For starters, you’ll need to open a CDP account with SGX.

Next, you can either subscribe to the IPO through ATM or Internet banking.

Subscribing To an IPO Through Internet Banking

Step 1: Log in to your ibanking account. You can apply for IPOs through DBS, OCBC, or UOB’s ibanking platforms.

Step 2: After logging in, head over to the “Invest” or “Investments” tab — this varies slightly between platforms.

Step 3: For OCBC users, select “Initial Public Offering”; for DBS/POSB users, select “Electronic Shares Application (ESA)”.

Step 4: Choose the IPO which you would like to subscribe to.

Take note that there will be a non-refundable charge of $2 per application.

Do note that there will be a charge of $2 per application.

Unsuccessful or if your orders are partially filled, the remaining amount will be returned to your savings account.

Alternatively, you can head over to an ATM to subscribe to an IPO.

Subscribing To an IPO Through ATM

Assuming that you already have a CDP account with SGX.

Walk over to the closest DBS, OCBC or UOB ATM and follow the Electronic Shares Application instructions.

Likewise, you’ll be charged a non-refundable amount of $2 per application.

Note: for both methods, the remaining amount will be returned to your savings account if you’re unsuccessful or your orders are partially filled.

What Are Your Thoughts About United Hampshire US REIT?

Since you’re here, you’re OBVIOUSLY interested in REITs!

Did you know that there’s a pretty active group on our Seedly Community who actively discuss anything related to investing?

And, of course, REITs as well!

Yep.

Don’t be shy!

Find out what they’re talking about with regard to the United Hampshire US REIT IPO!

Disclaimer: The information provided by Seedly serves as an educational piece and is not intended to be personalised investment advice. ​Readers should always do their own due diligence and consider their financial goals before investing in any stock. 

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About Kenneth Fong
I threw all of my money into the longkang once... because I wanted to see my cash flow.
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