United Hampshire US Reit to acquire grocery-anchored assets for US$78.3m; proposes private placement to raise US$30m

UNITED Hampshire US Real Estate Investment Trust (UHReit) ODBU has proposed to acquire two grocery-anchored freehold assets in Pennsylvania and Virginia, United States, for US$78.3 million.

The acquisition is the Reit's first after its initial public offering in March, 2020 and is also its first entry into Pennsylvania and Virginia, it said in a bourse filing on Tuesday.

The purchase price comprises US$52 million for Penrose Plaza in Philadelphia, Pennsylvania and US$26.3 million for Colonial Square Shopping Center, Colonial Heights in Richmond, Virginia.

Post-acquisition, UHReit expects its portfolio value will grow 13.3 per cent to US$665.4 million from US$587.1 million, while its market capitalisation will increase 9.9 per cent to US$365.2 million from US$332.2 million.

The enlarged portfolio's weighted average lease expiry will also increase to 8.1 years, with 0.9 per cent of leases due in 2021 and less than 10 per cent of leases due for renewal each year from 2022 to 2025.

Chief executive officer of the Reit's manager Robert Schmitt noted that both assets are strategically located in neighbourhoods with limited competition and high barriers to entry for new retail development.

Furthermore, Mr Schmitt noted that US retail sales were up 7 per cent month on month in August and a further 15.1 per cent from year-ago figures. The Reit's properties also stand to benefit from the accelerated recovery in footfall along the East Coast as states there lifted Covid-19 measures earlier.

"The footfall is up tremendously at the open air centres, such as ours with the grocery anchors," he said, adding that 2021 is on track to see more store openings than store closings after a difficult year in 2020 which saw more closings and bankruptcies among retailers like Sears and Neiman Marcus.

In particular, UHReit is proposing to acquire Penrose Plaza at a price that is 5.8 per cent lower than its valuation. Mr Schmitt said that the sale was through a third party vendor in a bidding process and the seller is a consortium with Onyx Equities, a real estate investment firm, as its lead investor. The consortium had previously invested capital to reposition and stabilise its net operating income (NOI) when it lost Kmart as its anchor tenant.

The total acquisition cost will be financed with a combination of loans and proceeds from a private placement, the Reit's manager said.

The manager proposed a private placement to raise gross proceeds of no less than US$30 million on Tuesday.

Around US$28.9 million of the gross proceeds will be used to partially fund the acquisitions of Penrose Plaza and Colonial Square Shopping Center, while US$1.1 million will be used to pay the fees incurred in connection with the private placement.

The balance, if any, will be used for general corporate and/or working capital purposes.

The Reit plans to issue up to 56.5 million new units at an issue price range of between US$0.62 and US$0.64 per unit, to eligible institutional, accredited and other investors.

This represents a discount of between 4.5 per cent and 7.5 per cent to the volume weighted average price (VWAP) of 66.99 US cents per unit - for trades done on the preceding market day on Oct 4 up to the time the placement agreement was signed. It also represents a discount of between 1.9 per cent and 5 per cent to the adjusted VWAP of 65.24 US cents per unit.

The Reit manager's chief financial officer Gerard Yuen said that it chose to do a private placement over a rights issue as the number of units it is placing is relatively modest at 11.4 per cent of the base figure. Also, he believes that the private placement will be quicker and see tighter pricing than a rights issue and added that existing investors could still participate in the placement of the units too.

It expects the new units will be issued and commence trading on the Singapore Exchange (SGX) on or around Oct 14. They will rank pari passu with existing units.

The manager will also make an advanced distribution of the distributable income for the period from July 1 to the day immediately preceding the issue date for its existing units. The Reit's manager estimates the DPU will be between 1.73 US cents and 1.77 US cents.

UHReit's manager said it will make a further announcement on the actual quantum, which may differ from the estimate, after it finalises the management accounts for the relevant period.

Following that, the next distribution will comprise UHReit's distributable income for the period from the day the new units are issued to Dec 31, 2021, before resuming semi-annual distributions thereafter.

After the acquisition and private placement, Mr Schmitt said that the Reit's manager will continue to look for other acquisition opportunities along the East Coast in states such as Georgia and South Carolina where it currently does not have a presence.

If the acquisition had been completed on June 30 this year, UHReit's pro-forma aggregate leverage would have risen from 36.4 per cent to 40.3 per cent.

"After this year's valuations, we may be able to achieve some appreciation to bring that back in line but we'll have some debt headroom to do more acquisitions and we'll look for opportunities to do additional raises in the future," he said, adding that the Reit's manager is still looking to grow the Reit significantly in the next three years.

Units of the Reit on Monday closed at 66.5 US cents, down 0.5 cent or 0.8 per cent, before it called for a trading halt on Tuesday morning.

READ MORE: United Hampshire US Reit posts DPU of 1.78 US cents, meeting IPO forecast