MANULIFE US REIT (SGX:BTOU)
Manulife US REIT - Eyeing Growth
Strong leasing masks lower occupancy in 1Q21
- Manulife US REIT (SGX:BTOU) saw strong leasing momentum in 1Q21 at 5.8% of its NLA (up 4.6x q-o-q and 1.8x y-o-y), driven by renewals, as portfolio occupancy fell on the back of tenant downsizing and relocation activities.
- We see tailwinds from improving market fundamentals, with DPUs cushioned by low FY21-22 lease expiries, supported by its strong assets and quality tenancies. We have kept forecasts intact and see valuations undemanding at ~8% FY21 yield, backed by high DPU visibility with stable income growth and low leasing risks, and upside with acquisitions set to pick up pace.
- Maintain BUY on Manulife US REIT with DDM-based target price US$1.00 (COE: 7.6%, LTG: 2.0%).
Leasing activity jumped, on renewals
- Manulife US REIT's portfolio occupancy fell q-o-q from 93.4% to 92.0% in 1Q21, due to higher vacancies at Michelson and 400 Capitol. However, its properties continue to trade above the US Class A average 82.0% market occupancy.
- Management shared it had changed leasing agents, and thus executed 270k sf of leases (at 5.8% of its portfolio NLA), mostly from early renewals (at ~94% of leases), and at +2.1% rental reversion (from +4.7% in FY20), with demand mainly from the finance and insurance, administrative, advertising and legal sectors. 98% of rents were collected in 1Q21 (from 94% in 4Q20), with 0.6% of abatement provided to its F&B tenants.
Long WALE, rental recovery after FY21
- Manulife US REIT's WALE stayed at 5.3 years, with 49.4% of leases by NLA expiring in 2026 and beyond. WALE for its top ten tenants, which contributed 36.3% of gross rental income, was likely higher (at 5.6 years). The expiring leases in FY21- 22 at 17.3% of NLA have fallen from 23.8% in 4Q20.
- While new supply is seen in Atlanta and Washington DC, its well-placed, trophy assets should help cushion occupancies in FY21E, even as 12-month projected rental growth is at -2.5%, as the post-Covid recovery finds a firmer footing.
Growth upside from deals
- Manulife US REIT's gearing was stable at 41.3% (from 41.0% in 4Q20) with interest cover improving to 3.9x (from 3.5x). Borrowings (of S$250m) for Penn and Michelson due in FY21 were refinanced, reducing interest cost to 3.0% (from 3.18%) and extending its maturity from 3.3 to 3.4 years.
- With a 360m US$ debt headroom, management is likely eyeing larger deals (from third parties or JVs), as it pushes into US ‘magnet cities’ including the Sun Belt, to boost its ‘high-growth tenancies’ from 10% now to ~20%.
- See
Chua Su Tye
Maybank Kim Eng Research
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https://www.maybank-ke.com.sg/
2021-05-11
SGX Stock
Analyst Report
1.000
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