On the back of this, UHREIT’s strip centre occupancy had improved 0.5 percentage points q-o-q to 96.7% in 3QFY2022.
“Availability for neighbourhood and community strip centres both dropped 1.2 percentage points y-o-y to 7.1% and 5.4% respectively. Many retailers are renewing their leases due to high construction costs and a tight construction labour market,” says Koh.
Moving forward, consumers will devote a larger share of their wallets on day-to-day necessities at strip centres as their purchasing power is eroded by inflation, says Koh. In the month of September, for example, grocery sales increased by 6.8% y-o-y compared to 1% y-o-y for discretionary sales.
Tenants providing essential services such as supermarkets, grocery stores, convenience stores, pharmacies, medical supplies, home improvement stores, bank branches and pet stores accounted for 64% of UHREIT’s base rental income as of September.
Shopper traffic at UHREIT’s open-air strip centres have trended higher during summer, Koh highlights.
The REIT completed the acquisition of Upland Square Shopping Center in Pottstown, Montgomery County in Pennsylvania for US$85.7 million ($118.25 million) on July 28. The acquisition increased the size of UHREIT's portfolio by 6% and expanded its exposure to the state of Pennsylvania from 7.3% to 17.7% of base rental income.
The anchor tenant is Giant by Ahold Delhaize and three dominant national off-price retailers, namely Burlington, Ross and TJ Maxx. Upland Square provides an NPI yield of 6.5% while the acquisition is accretive to UHREIT’s pro forma 2021 DPU by 2.1%.
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Koh says UHREIT offers an “enticing and irresistible” yield spread, trading at FY2023 distribution yield of 10.8% which represents an attractive yield spread of 6.7% above the 10-year US government bond yield of 4.1%. The REIT trades at P/NAV of 0.66x.
As at 2.25pm, units in UHREIT are trading 1 cent higher or 2.06% up at 49.5 cents.
