Manulife US REIT - CGS-CIMB Research 2019-11-04: Boost From New Acquisitions

MANULIFE US REIT (SGX:BTOU)

Manulife US REIT - Boost From New Acquisitions

Manulife US REIT’s 3Q/9M19 DPU of 1.48/4.52 US cts is within our and consensus estimates, at 24.8%/75.7% of our FY19 forecast.
It benefited from positive reversions while the balance sheet indicators such as gearing remain robust post acquisition of 400 Capitol.
We maintain our ADD call with a DDM-based Target Price of US$1.12.

MANULIFE US REIT (SGX:BTOU)'s 3Q/9M19 DPU of 1.48/4.52 US cts was within expectations, at 24.8%/75.7% of our FY19 forecast. See Manulife US REIT Dividend History.
Manulife US REIT reported a 13.3%/11.8% y-o-y jump in gross revenue and NPI to US$45.7m/US$28.1m, largely thanks to contributions from Centerpointe acquired in May 19 and Penn and Phipps in Jun 18. However, DPU of 1.48 US cts was 2% lower y-o-y due to a slightly higher effective tax rate, increased interest cost from new acquisitions and refinancing exercise and a slight expansion in units base from an equity fund raising exercise for 400 Capitol. See Manulife US REIT Announcements.
Portfolio occupancy remained high at 97.3% at end-3Q.

Manulife US REIT continued to enjoy positive reversions for the c.33k sq ft of space re-contracted in 3Q, maintaining YTD average reversion in positive territory.
Looking ahead, Manulife US REIT has 1.7% of its leases due to be renewed in FY19 and a further 6.4% in FY20F.
A majority of Manulife US REIT’s properties are still 5-10% under-rented, hence we anticipate the positive trend to continue. This is in addition to the average inbuilt rental escalation of 1.9% across its portfolio, providing another driver for growth.

Gearing stood at 36.3% at end-3Q19. We expect gearing to trend up a little to 37.4% after completion of the purchase of 400 Capitol while average interest cost is expected to trend down to 3.39% from 3.43% at end-3Q19. 96.8% of its loans are on fixed rates and weighted average debt maturity is 3.1 years.
The robust balance sheet would enable Manulife US REIT to continue to look for acquisition opportunities in the US.

We maintain our ADD rating with a DDM-based Target Price of US$1.12. See Manulife US REIT Share Price; Manulife US REIT Target Price.
We continue to like Manulife US REIT for its growing and quality portfolio that is likely to continue to benefit from the US office rental upcycle.
Key re-rating catalysts include potential inclusion into the EPRA NAREIT Global Developed Index and exposure to the strengthening US$.
Downside risk is a the US economy which could dampen appetite for office space.

LOCK Mun Yee CGS-CIMB Research | EING Kar Mei CFA CGS-CIMB Research | https://www.cgs-cimb.com 2019-11-04

SGX Stock Analyst Report ADD MAINTAIN ADD 1.120 SAME 1.120