Manulife US REIT - Maybank Kim Eng 2021-11-03: US Recovery Play ~ Occupancies, Rents Bottoming Out

SGinvestors.io

MANULIFE US REIT (SGX:BTOU)

Manulife US REIT - US Recovery Play ~ Occupancies, Rents Bottoming Out

• Manulife US REIT (SGX:BTOU) saw stronger leasing momentum in 3Q21 at 3.2% of its NLA (from 0.7% in 2Q21), with new leases contributing 32.3% of activity (from Jul to 25 Oct), versus 3.3% in 1H21.
• 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 with DDM-based target price (COE: 7.6%, LTG: 2.0%) for Manulife US REIT.

Leasing up, stronger growth outlook

• Manulife US REIT's portfolio occupancy was lower at 90.9% (from 91.7% in 2Q21) due mainly to tenancy downsizing and non-renewals, but remained above the US Class A average 80.6% market occupancy (versus 80.9% in 2Q21). Leasing activity picked up in 3Q21 with ~149k sf executed (versus ~35k sf in 2Q21 and ~270k sf in 1Q21), while ~37k sf at Michelson secured as at 25 Oct 2021, should lift its occupancy to 87.2% (from 80.4%).
• Expiring leases in FY21-22 have fallen to 12.6% of NLA, from 16.0% in 2Q21.
• Rental reversion was at +1.3% (from -3.7% in 2Q21 and +2.1% in 1Q21), and is expected to improve moderately in FY22.

Tailwinds from improving market fundamentals

• US leasing volumes jumped ~13% leasing momentum, and recovering carpark income, with the gradual pick-up in physical occupancies.

Eyeing AUM growth; upside from deals

• Manulife US REIT's gearing was stable atManulife US REIT’s acquisition strategy remains intact, and it is eyeing accretion from larger deals at 6.5-7.5% cap rates (from third parties or JVs) and possibly with its sponsor, as it pushes into US ‘magnet cities’ to boost its ‘high-growth tenancies’ from 10% now to ~20%.
• 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.

Chua Su Tye Maybank Kim Eng Research | https://www.maybank-ke.com.sg/ 2021-11-03

SGX Stock Analyst Report BUY MAINTAIN BUY 1.000 SAME 1.000