MANULIFE US REIT (SGX:BTOU)
Manulife US REIT - Stable Quarter, DPU Visibility
In line with MKE/street; BUY
- MANULIFE US REIT (SGX:BTOU)’s 3Q19 DPU of USD1.48ts was down 2.0% y-o-y, but inline with consensus and our estimates, due to an enlarged unit base (by 6.5%) resulting from the Capitol asset acquisition.
- Our DPU forecasts and DDM- based USD1.05 Target Price (COE: 7.6%, LTG: 2.0%) are unchanged. See Manulife US REIT Share Price; Manulife US REIT Target Price.
- We continue to favour Manulife US REIT for its DPU visibility, supported by stable income growth and low leasing risks. Valuation is compelling with DPU yields of 6.5-6.8% for FY19-20E vs 4.5-5.5% offered by its office S-REIT peers. See Manulife US REIT Dividend History.
- We see DPU upside as low 36.3% gearing supports further acquisitions, and potential re-rating as its inclusion in the FTSE EPRA NAREIT index is in sight.
Quiet quarter on leasing front
- Revenue and NPI rose 13.3% y-o-y and 11.8% y-o-y, boosted by the contribution from Centerpointe, acquired in May-19. 9M19 revenue, NPI and DPU achieved 76% of our full-year forecasts. Manulife US REIT's portfolio occupancy edged up to 97.3% from 97.2% in 2Q19. See Manulife US REIT Announcements.
- Leasing activity was slower at 32k sf in 3Q19 at a high single-digit rental reversion, according to management. This brought 9M19 to a total of 400k sf (10% of leases by NLA) at an 8.5-year WALE and +2.7% pa rental escalations. All assets, except for Michelson, are trading at 5-10% below market rents.
- We expect both occupancies and rents to be supported due to limited new supply in each sub-market.
Long WALE, low leasing risk
- Manulife US REIT's WALE was stable at 6.2 years with 62.3% of leases by NLA expiring in 2024 and beyond. WALE for its top 10 tenants (who make up 38.9% of its gross rental income) was higher at 6.9 years, while co-working tenancies comprised 1.9% of its gross rental income.
Strong balance sheet, further deal upside
- Gearing has risen steadily to fund six acquisitions since its May 2016 IPO but it remains at a comfortable 36.3% (37.4% post-Capitol as it was completed on 29 Oct), providing about USD250m more in debt headroom.
- We expect acquisitions to provide upside to DPUs, supported by its sponsor’s strong deal pipeline of real-estate assets concentrated in the US.
Chua Su Tye
Maybank Kim Eng Research
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https://www.maybank-ke.com.sg/
2019-11-05
SGX Stock
Analyst Report
1.050
SAME
1.050
