Manulife US REIT - Maybank Kim Eng 2020-02-05: More To Go


Manulife US REIT - More To Go

In line, growth fundamentals intact

  • MANULIFE US REIT (SGX:BTOU)’s 4Q19 DPU was down 5.9% y-o-y as its unit base rose 6.5% y-o-y due to the Capitol asset acquisition and was in line with MKE/consensus’ estimates.
  • We kept DPU forecasts mostly unchanged and rolled forward our DDM-based target price. See Manulife US REIT Target Price (COE: 7.1%, LTG: 2.0%). Its units have re-rated on stronger operational performance and following its entry into the NAREIT index in Dec 2019.
  • Valuation remains compelling at 5.9% FY20 DPU yield vs 4.5-6.0% offered by its office S-REIT peers, backed by high DPU visibility with stable income growth and low leasing risks. We see DPU upside with low 37.7% leverage supporting further acquisition opportunities. See Manulife US REIT Dividend History.
  • Maintain BUY.

Lower occupancies; leasing activity strong

  • Manulife US REIT's 4Q19 revenue and NPI rose 20.4% y-o-y and 18.9% y-o-y with earlier acquisitions – Centerpointe since May 2019 and Capitol since Oct 2019. Its portfolio occupancy dipped from 97.3% to 95.8% q-o-q, mainly due to Mchelson (from 96.0% to 90.1%) and Exchange (97.7% to 95.8%).
  • Leasing activity improved at 52k sf (from 32k sf in 3Q19) and gained traction in Jan 2020, with 70k sf leased/renewed at Plaza, Peachtree and Figueroa. This lifted committed occupancy to 96.4%. Its assets all mostly trade at 5-10% below market rents, except for Michelson. We expect both its occupancies and rents to be supported with limited new supply in each sub-market.

Long WALE, low leasing risk

  • Its WALE was lower at 5.9 years (from 6.2 years), with 54.4% of its leases by NLA expiring in 2025 and beyond. WALE for its top 10 tenants at 34.6% of its gross rental income was higher at 6.7 years (from 39.8% at 6.9 years as of end-Sep 2019) while its co-working tenancies comprised about 2.0% of gross rental income.

Strong balance sheet, further deal upside

Chua Su Tye Maybank Kim Eng Research | https://www.maybank-ke.com.sg/ 2020-02-05
SGX Stock Analyst Report BUY MAINTAIN BUY 1.15 UP 1.050