Company Update: 6 March 2025
Capitalising on declining interest rates.
- Favourable interest rate environment. The Federal Reserve cut interest rates by 25bps 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.
Strategic divestments
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, demonstrating strong capital recycling efforts.
FY24 Financials Update
In FY24, United Hampshire US REIT (UHU REIT) reported a 1.4% YoY growth in revenue, reaching US$73.2mn compared to US$72.2mn in FY23. However, its net property income decreased by 1.7% YoY to US$49.8mn from US$50.6mn last year. This decline was attributable to the absence of revenue from the divested Lowe’s and Sam’s Club properties within Hudson Valley Plaza alongside higher property expenses during tenant transitions. Additionally, overall distributable income declined by 16.2% YoY to US$25.5mn, impacted by change in manager’s base fees with effect from 2H23 and higher interest expenses due to rising interest rates, refinancing of maturing loans, and less favorable new interest rate hedges. Despite these challenges, it benefited from ongoing work-from-home trends in the US and a shortage of self-storage facilities in the New York region.
Valuation & Action
We maintain an OUTPERFORM rating with an unchanged target price of US$0.60. This is based on our valuation model, which considers a terminal growth rate of 2.0% and a cost of equity of 9.4%. The proactive management positions the company well for further improvements to its portfolio, and its long-dated refinancing requirement enables it to remain stable for a longer period. Additionally, with a favourable interest rate on its loan, there is no pressure for early refinancing unless the interest rates decline below its current financing rate.
Risks
Economic slowdown, regulatory changes, and prolonged high interest rates.
