Manulife US REIT - UOB Kay Hian 2021-08-13: 1H21 Below Expectations; Attempting To Regain Occupancy Levels

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MANULIFE US REIT (SGX:BTOU)

Manulife US REIT - 1H21 Below Expectations; Attempting To Regain Occupancy Levels

• Manulife US REIT announced 1H21 DPU of US$0.027 (-12% y-o-y) was due to higher vacancies, rent abatements to tenants affected by COVID-19 and lower portfolio carpark income. Rental reversion was flattish in 1H21 and valuation of properties dipped slightly. However, leasing outlook appears to be improving while the group is still looking to diversify into high-growth trade sector tenants.
• Maintain BUY on Manulife US REIT with a target price of US$0.84.

Manulife US REIT's 1H21 results below expectations

• Manulife US REIT (SGX:BTOU) reported 1H21 DPU of US$0.027 (-12% y-o-y) while distributable income also fell to US$43m (-10% y-o-y). 1H21 DPU formed 45% of our full-year forecasts, missing expectations. Revenue was down to US$90.8m (-8% y-o-y; -5% h-o-h) mainly due to lower rental income from Michelson, Centerpointe and Capitol, arising from higher vacancies, rent abatements to tenants affected by COVID-19 and lower carpark income.
• Overall, Manulife US REIT's 1H21 NPI was down 10% y-o-y given the higher vacancy rates.

STOCK IMPACT

• Lower portfolio occupancy, though rate of decline is US REIT’s strategic approach. The US office sector remains a core part of Manulife US REIT’s portfolio and the group maintains that it will continue to be attractive post-pandemic. Manulife US REIT aims to build scale to enable resilience and capacity for growth, drawing on its sponsor’s support. Manulife US REIT will also attempt to manage capital and to focus on essential spending while keeping gearing at a reasonable level. The group continues to look into growth sectors such as tech, healthcare and the knowledge economy, which have growing office space demands.
• Gearing at manageable levels. Gearing levels are still manageable at 42.1% in 2Q21. The portfolio’s long WALE is also intact at 5.3 years.

EARNINGS REVISION & RISK

• Cut 2021-23 DPU by 3-4%. Given the lower occupancy rates at Michelson and Capitol, we trim our inability to diversify into growth sectors in office space.

VALUATION & RECOMMENDATION

• Maintain BUY with a lower target price of US$0.84, based on DDM (required rate of return: 8.0% terminal growth: 1.0%).
• See
  • Manulife US REIT's Share Price,
  • Manulife US REIT's Target Price,
  • Manulife US REIT's Analyst Reports,
  • Manulife US REIT's Dividend History,
  • Manulife US REIT's Announcements,
  • Manulife US REIT's Latest News.

SHARE PRICE CATALYST

• Better-than-expected rental reversion.
• Return to office in the US.

Lucas Teng UOB Kay Hian Research | Jonathan KOH CFA UOB Kay Hian | https://research.uobkayhian.com/ 2021-08-13

SGX Stock Analyst Report BUY MAINTAIN BUY 0.84 DOWN 0.870