MANULIFE US REIT (SGX:BTOU)
Manulife US REIT - In A Good Position To Weather Challenges
- Manulife US REIT's 2Q/1H20 results were in line. Despite COVID-19 derailing the US economy, office assets have shown good resilience with occupancy uptick YTD and continued rental growth.
- With limited near-term lease expiries, strong assets, and good quality tenants, we believe Manulife US REIT is well positioned to weather market challenges. Its stable and attractive 8% dividend yield is attractive in current market conditions.
- Keep BUY and Target Price of USD0.90, 15% upside and c.8% yield.
Manulife US REIT's 1H20 DPU +0.3% y-o-y
- Manulife US REIT (SGX:BTOU)'s 1H20 DPU +0.3% y-o-y as lower Michelson contribution and car park income were offset by higher contributions from Centerpointe and Capitol. 2Q20 rent collection was healthy at 96% with Manulife US REIT providing limited rent deferment of 0.3% and abatement of 0.3%, mostly to its retail tenants.
- We do not anticipate the need for further large rent abatement/deferment barring the re-imposition of stringent lockdown measures.
No discernible leasing impact so far from WFH trend.
- Overall leasing momentum was fairly strong in 1H with ~217,300 sqf (1Q: 147,000, 2Q: 70,000 sqf) or c.5% of leases signed. About 50% were renewals, 8% expansion and 42% new leases, with demand stemming mainly from the finance and insurance, legal, real estate and technology sectors’ tenants.
- Overall occupancy improved 0.4ppt from Dec 2019 to 96.2% (1Q20: 96.3%). Asked on the changes in leasing structure, management noted that it has not seen any noticeable changes in terms of leasing structure, with tenants still willing to sign longer leases.
- Manulife US REIT also guided that based on the latest surveys, only 12% of employees prefer the work from home (WFH) option compared to 10% pre-pandemic. While flexible office space is likely to create some reduction in demand, it sees the impact to be partially offset by dedensification trends and limited supply.
Rent reversions were +7.9%
- Rent reversions were +7.9% as market rents are holding up fairly well so far. Six of its nine assets’ passing rents are still 2-19% below current market average rents and we do not see much downside risks except Michelson.
- Only 9.6% of its leases (by gross rents) are due for renewal up until 2021 – we expect flattish to slight positive rent reversions.
Portfolio value declined 3%
- Portfolio value declined 3% driven by lower rental growth assumptions by valuers (CBRE), with cap rates remaining largely steady.
Further savings in interest costs
- Further savings in interest costs with Manulife US REIT securing a maiden USD100m 5-year green loan to refinance its Peachtree asset at 1.85% pa. Overall weighted average interest cost has fallen 16bps (from end-2019) to 3.21% pa with 42% of its assets now unencumbered.
- Gearing, however, inched up to 39.1% (from 37.7%) on the back of valuation decline but is still well below the 50% limit.
- While US office transactions have slowed down considerably on the back of COVID-19, we believe management could relook acquisition opportunities in 4Q20 if market conditions stabilise.
- See Manulife US REIT Share Price; Manulife US REIT Target Price; Manulife US REIT Analyst Reports; Manulife US REIT Dividend History; Manulife US REIT Announcements; Manulife US REIT Latest News.
Vijay Natarajan
RHB Securities Research
|
https://www.rhbinvest.com.sg/
2020-08-04
SGX Stock
Analyst Report
0.900
SAME
0.900
