Favorable Interest Rate Environment Supports Growth

The report highlights that the Federal Reserve has cut interest rates by 25 basis points in December 2024, bringing the target range to 4.25% to 4.50%. Lower borrowing costs are expected to enhance United Hampshire US REIT’s financial flexibility and support growth. Projections for the Fed funds rate indicate a range of 3.50% to 3.75% by the end of 2025 and 3.25% to 3.50% by the end of 2026, providing a favorable backdrop for the REIT’s operations. [[2]]

Strategic Divestments Demonstrate Capital Recycling Efforts

The report notes that United Hampshire US REIT successfully divested properties, including Lowe’s and Sam’s Club in 2H24 and Supermarket at Albany in January 2025, at over 4% above valuation. This showcases the REIT’s disciplined capital recycling efforts to optimize portfolio value and financial flexibility. [[1]]

Resilient 2H24 Operational Performance

In the second half of 2024, United Hampshire US REIT reported a 0.4% year-over-year increase in revenue to US\$36.4 million, while net property income dipped 1.6% to US\$24.4 million, mainly due to divestments and higher property expenses. Distribution per unit (DPU) declined 4.2% to 2.05 US cents, reflecting higher finance costs. [[1]]

Strong Portfolio Metrics

The report highlights that the REIT’s grocery & necessity portfolio maintained a high occupancy rate of 97.5%, with a weighted average lease expiry (WALE) of 8.1 years. Its self-storage assets also saw occupancy improve to 93.1%, showcasing the resilience of the overall portfolio. [[1]]

Maintain Outperform Rating

The research team at KGI Securities reiterates its OUTPERFORM rating on United Hampshire US REIT, with a target price of US\$0.60. This valuation is supported by the REIT’s stable portfolio against the backdrop of uncertain macroeconomic conditions. [[1]]

Macroeconomic Outlook: Mixed Signals, Cautious Fed

The report delves into the broader U.S. economic landscape, noting that while inflation is gradually cooling, the Federal Reserve remains cautious, balancing inflation control with economic stability. Despite signs of slowing GDP growth, rising jobless claims, and declining consumer sentiment, the Fed is expected to implement a 25-50 basis point rate cut in 2025. Geopolitical risks, such as trade tensions, also pose challenges to the economic outlook. [[2]]

Favorable Interest Rate Environment Supporting Growth

However, the report highlights that the current interest rate environment is favorable for United Hampshire US REIT. With the Federal Reserve’s recent rate cuts and projections for further declines, the REIT’s borrowing costs are expected to decrease, enhancing its financial flexibility and growth potential. Additionally, the REIT’s well-hedged loan portfolio, with no maturities until November 2026, insulates it from interest rate volatility, allowing it to focus on growth initiatives. [[2]]

Strong Demand for Grocery-Anchored Strip Centers

The report notes that grocery-anchored retail properties remain highly resilient, with grocery store foot traffic increasing 12% from 2019 to 2024. Service-based tenants, such as coffee shops and medical centers, further boost footfall, reinforcing the sector’s long-term stability. Hybrid work arrangements have also shifted consumer behavior, increasing demand for localized shopping experiences. Despite strong demand, new strip mall construction remains constrained, giving existing landlords, including United Hampshire US REIT, strong pricing power to negotiate rent increases and secure long-term income growth. [[3]]

Defensive Asset Portfolio with Stable Cash Flow and Growth Potential

United Hampshire US REIT’s portfolio consists of 20 predominantly freehold grocery-anchored retail properties and two self-storage assets, primarily located on the U.S. East Coast. These properties have a high tenant retention rate of 92% and the REIT secured 35 new and renewal leases totaling 786,359 square feet in 2024, further solidifying cash flow stability. The REIT’s self-storage assets in the New York metropolitan area also remain well-occupied, benefiting from the sector’s undersupply. The report highlights the REIT’s ability to execute strategic divestments at a premium, demonstrating disciplined capital recycling to optimize portfolio value and financial flexibility. [[4]]

Attractive Valuation and Dividend Yield

The research team at KGI Securities maintains its OUTPERFORM rating for United Hampshire US REIT, valuing it at US\$0.60 using the Dividend Discount Model (DDM). This valuation is based on a 9.4% cost of equity and a 2.0% terminal growth rate, reflecting the REIT’s stable income profile and long-term growth potential. The report also notes the REIT’s attractive dividend yield, which stands at 8.5% in 2024 and is expected to rise to 9.0% in 2026. [[4]]