MANULIFE US REIT (SGX:BTOU)
Manulife US REIT - Maintaining Portfolio Resilience
- Manulife US REIT's portfolio occupancy stood at 92% at end-1Q21 with active renewal leasing activity during the quarter.
- Achieved lower average funding cost of 3% post debt refinancing.
- Reiterate ADD rating with a lower DDM-based target price of US$0.962.
Manulife US REIT's 1Q21 operational update
- Manulife US REIT (SGX:BTOU) delivered portfolio occupancy of 92% as at end-1Q21 while weighted average lease expiry (WALE) stood at 5.3 years. It renewed 270k sq ft or 5.8% of its portfolio lettable area space in 1Q21 at a 2.1% positive rental reversion. Its balance sheet metrics remained stable q-o-q with net gearing of 41.3% and interest cover of 3.9x at end-1Q21.
Active renewal leasing activity in 1Q
- While Manulife US REIT's portfolio occupancy dipped slightly in 1Q21 on a q-o-q basis due to some non-renewals, the 270k sq ft of leases it re-contracted during the quarter was nearly as high as the 279k sq ft it signed in the whole of FY20. The bulk of leasing demand came from renewals, mainly from the finance and insurance, administrative, advertising, and legal sectors.
- Manulife US REIT has 4.4% of its gross rental income to be renewed in the remainder of FY21F and another 13% in FY22F.
- Manulife US REIT’s portfolio rents are broadly in line with market rents and management indicated it expects rental reversions to be flat for the rest of FY21F. Although physical occupancies of its buildings are low at 5-25% as at end-Apr 2021, rental collections remained strong, with an average 98% of rents collected and rent abatement of 0.6% of gross rental income at end-1Q21.
Lower funding cost post refinancing debts due 2021
- Manulife US REIT refinanced a US$223.7m loan due in 2021F and extended the loan’s debt maturity profile to 3.4 years. At the same time, it achieved a lower average funding cost of 3% at end-1Q21 (vs. an average of 3.18% in 4Q20). We anticipate the impact of interest cost savings to be felt in the coming quarters.
- In terms of inorganic growth prospects, management indicated it would likely continue to look for opportunities, particularly in cities with growing tech presence and robust population growth fueled by job creation and lower cost of living.
Reiterate ADD rating for Manulife US REIT
- We revise down our FY21-23F DPU estimates by 2.44-4.4% for Manulife US REIT to bake in a longer frictional vacancy period given that leasing appetite remains largely renewal demand at present. Accordingly, our DDM-based target price for Manulife US REIT lowers to US$0.962. Our ADD call remains.
- See
- We continue to like Manulife US REIT for its resilient portfolio, with 96% of its leases by gross rental income having in-built rental escalations.
- Potential re-rating catalyst: better-than-expected rental reversions.
- Key downside risk: protracted slowdown in the US economy which could dampen the appetite for office space.
LOCK Mun Yee
CGS-CIMB Research
|
EING Kar Mei CFA
CGS-CIMB Research
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https://www.cgs-cimb.com
2021-05-11
SGX Stock
Analyst Report
0.962
DOWN
1.000
