Manulife US REIT - CGS-CIMB Research 2021-02-08: Impacted By Provisions


Manulife US REIT - Impacted By Provisions

  • Manulife US REIT's 2H/FY20 DPU of US$0.0259/US$0.0564 below expectations at 42.3%/92.1% of our FY20F forecast.
  • Adopting a proactive leasing strategy with minimal lease expiries of 5.8% in FY21F.
  • Reiterate ADD with a lower DDM-based target price of US$1.00.

Manulife US REIT's 2H20 results highlights

  • Manulife US REIT (SGX:BTOU) posted a 1.2% y-o-y increase in 2H20 gross revenue to US$95.7m but NPI fell 8.2% y-o-y to US$53.7m due to lower rental income from Michelson and Peachtree, reduced portfolio carpark income and provision for expected credit losses from its retail and F&B tenants of US$3.6m, partly offset by contributions from Capitol acquired in 2019.
  • Manulife US REIT's 2H/FY20 DPU came in at US$0.0259/US$0.0564, -11.3%/-5.4% y-o-y, respectively. See Manulife US REIT's dividend history.
  • Excluding provision for credit losses and loss in carpark income, Manulife US REIT would have reported a y-o-y higher DPU for FY20. Manulife US REIT revalued its portfolio in 2H20 and recorded a 2% h-o-h portfolio valuation deficit.

Minimal FY21F lease expiries, proactive leasing strategy

  • Manulife US REIT's portfolio occupancy was lower q-o-q at 93.4% at end-FY20. The trust renewed/leased ~279k sqft of space in FY20 and achieved positive rental reversions of 0.1%. Excluding a mark-to-market lease, portfolio reversion would have been +4.7%. Demand came mainly from the legal, real estate, information, finance and insurance sectors.
  • Rental collections have remained strong, with an average 97% of rents collected, as at Jan 2021. Manulife US REIT provided for rent deferment of 0.6% and abatement of 0.5% of gross rental income as at end-FY20.
  • Manulife US REIT indicated that post-end-FY20 results, it has reached an agreement with the retail tenant to settle its arrears.
  • Looking ahead, Manulife US REIT has 5.8%/17.8% of portfolio gross rental income to be renewed in FY21F/22F and expects to achieve a modest positive reversion when these leases are re-contracted; it will also look to boost occupancy with flexible leasing options.

Enhancing prospects through exposure to high-growth tenants

  • Manulife US REIT indicated that as part of its strategy to enhance growth prospects, it is looking to boost its tenant exposure in high-growth sectors such as healthcare and tech, as well as business parks segments, to at least 20%, via joint ventures or acquisitions.
  • With a gearing of 41% as at end-FY20, Manulife US REIT has debt headroom of ~US$375m before reaching the limit of 50%, in our view.
  • On debt refinancing, Manulife US REIT is in advanced negotiations for sustainability-linked loans to refinance its FY21 debt expiries and anticipates enjoying interest cost savings when the refinancing exercise is completed.

Reiterate ADD rating

LOCK Mun Yee CGS-CIMB Research | EING Kar Mei CFA CGS-CIMB Research | 2021-02-08
SGX Stock Analyst Report ADD MAINTAIN ADD 1.00 DOWN 1.050