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


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.

3Q19 results highlights

  • 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.

Positive rental reversion with upside from inbuilt escalations

  • 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.

Strong balance metrics post 400 Capitol acquisition

  • 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.

Maintain ADD

  • 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