Manulife US REIT - Challenges Ahead
- Manulife US REIT (SGX:BTOU) reported 10.6%/2.8% growth in 1H22 gross revenue/NPI to US$100.4m/ US$57.6m, due largely to contributions from new acquisitions in FY21 and higher carpark income, partly offset by lower income from existing properties.
- Manulife US REIT's 1H22 DPU declined 3.3% y-o-y to US$0.0261 is slightly below at 45.3% of our FY22F forecast, due to an enlarged unit base from the Dec 2021 private placement.
- Portfolio occupancy slipped 1.6% pt q-o-q to 90%. Physical occupancy at Manulife US REIT’s buildings average 28% in Jul 22.
- Manulife US REIT signed 192k sqft of leases in 1H22 (2Q: 124k sq ft), of which 28.7% are new leases. It achieved a positive rental reversion of 1% for 1H (2Q: 0.1%) and maintains its guidance of low-to mid-single digit reversions for FY22F. Manulife US REIT has a balance of 4.8%/10.1% of leases due to expire in 2HFY22F/FY23F.
- Management indicated that its second largest tenant by NLA (net lettable area), TCW Group, has decided to vacate its space when its lease expires in Dec 2023. TCW occupies 189k sqft of space at Figueroa. Meanwhile, Quinn Emanuel plans to give up 71k sqft of its space at Figueroa from end-Aug 2022 but extended the lease for its remaining 64k sqft of space for 5.4 years from Sep 2023. We believe downtime would be needed to backfill the vacated spaces. The potential income vacuum as well as uncertainty over demand outlook as tenants adopt a hybrid work structure and rising tenant incentives are likely to drag on Manulife US REIT’s near-term prospects.
- Manulife US REIT’s weighted all-in cost of funds stands at 2.97% as at end-1H22. With 85.7% of its debt in fixed rate loans, Manulife US REIT indicated that for every 1% increase in funding cost, its DPU will decrease 0.079 Ucents.
- We lower our FY22-24F DPU estimates for Manulife US REIT by 10.2-14.3% as we factor in downtime to backfill the vacated space as well as temper our forward rent growth expectation. Accordingly, our DDM-based target price for Manulife US REIT is lowered to US$0.78. At a projected FY22F dividend yield of 8.6%, we believe much of the slower office sector outlook has been priced in.
Above is the excerpt from research report by CGS-CIMB.
Clients of CGS-CIMB may access the full report in PDF @ https://www.itradecimb.com.sg/.
LOCK Mun Yee CGS-CIMB Research | https://www.cgs-cimb.com 2022-08-04 2022-08-04
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