MANULIFE US REIT (SGX:BTOU)
Manulife US REIT - All I Want For Christmas Is Index Inclusion
- Manulife US REIT's 9M19 DPU grew 11.9% y-o-y to 4.52 Scts, in line.
- 3Q19 DPU fell 2% y-o-y to 1.48 US Scts due to timing difference between the new equity raised and the acquisition of Capitol.
- Operationally stable; occupancy rates resilient; positive rental reversions while new acquisition of Capitol is set to drive distributions from 4Q19.
- Potential inclusion in the EPRA NAREIT Developed Index may result in further yield compression.
What’s New
- MANULIFE US REIT (SGX:BTOU)’s 9M19 gross revenues and net property income rose 24.0% and 23.5% YTD to US$129.5m and US$80.5m respectively. This is mainly on the back of planned acquisitions of Centerpointe in May 2019 and Penn and Phipps properties back in June 2018. See Manulife US REIT Announcements; Manulife US REIT Latest News.
- Finance expenses rose 41.4% due to higher debt to part fund the acquisitions while the Figueroa mortgage loan was refinanced at a higher rate coupled with additional borrowings to fund capex and leasing costs.
- The manager also reported a fair value loss on investment properties of US$15.8m YTD 9M19 due to capex and leasing cost increasing more than the change in fair values.
- Tax expenses were lower due to reversal of past deferred tax expenses coupled with higher tax expenses incurred due to the Barbados structure incurred since the start of 2019. Therefore, distributable income grew 18.1% to US$60.7m in 9M19.
- Manulife US REIT's 9M19 DPU rose by a lower 11.9% to 4.52 Scts due to an expanded share base arising from the fund-raising (private placement) for Capitol in September 2019, which was subsequently acquired in October 2019.
- In 3Q19, Manulife US REIT's DPU dipped 2.0% y-o-y to 1.48 US Scts due to the timing difference between the new equity raised and the acquisition of Capitol. See Manulife US REIT Dividend History.
- Manulife US REIT's 3Q19 gross revenues and net property income rose by 13.3% and 11.8% to US$45.7m and US$28.1m respectively largely due to the new contribution from Centerpointe acquired in May 2019.
Gearing dipped slightly but expected to rise back to 37.4%
- Gearing dipped marginally lower to 36.3% as of end of September 2019 but is expected to increase back to c.37.4% post acquisition of Capitol due to debt drawn down to part fund the property.
- Weighted average cost of debt stands at 3.43% but is expected to head down to 3.39% post the acquisition of Capitol.
Operationally stable – positive rental reversions, occupancy maintained at 97.3%
- Through its planned acquisitions during the year, Manulife US REIT has diversified its portfolio to nine properties, expanded its tenant mix and reduced its tenant risks at the same time, maintained a long weighted average lease expiry (“WALE”) of 8.5 years, and kept occupancy rates high at 97.3%, above US Class A average occupancy of 88%.
- Manulife US REIT has renewed c.400,000 sqft of space YTD with positive rental reversions achieved in the portfolio.
All eyes on inclusion in EPRA NAREIT Developed Index
- We maintain our BUY call on Manulife US REIT and Target Price of US$1.10. See Manulife US REIT Share Price; Manulife US REIT Target Price.
- With the recent acquisition of 400 Capitol, Manulife US REIT continues to offer investors an interesting mix of high yield and growth.
- Potential indexation remains a near-term catalyst. In addition, management believes that the potential indexation will open doors to bigger and better deals as the quality of investor base improves with wider access to funding.
- See also recent SGX Market Update: Recent SGX Additions to FTSE EPRA Nareit Global Developed Index.
Derek TAN
DBS Group Research
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Rachel TAN
DBS Research
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https://www.dbsvickers.com/
2019-11-04
SGX Stock
Analyst Report
1.100
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1.100
