Manulife US REIT - CGS-CIMB Research 2022-11-03: Outlook Challenging, But Likely Priced In

Manulife US REIT - Outlook Challenging, But Likely Priced In

  • Manulife US REIT (SGX:BTOU) achieved a lower portfolio occupancy q-o-q at 88.1% as at 3Q22 (vs. 90% at end- 2Q22), due mainly to lower take-up at Figueroa as major tenant Quinn Emanuel downsized its space by 71k sq ft, partly offset by higher occupancy at Diablo.
  • Physical occupancy at Manulife US REIT’s buildings average 30+% as at end-3Q.
  • Portfolio weighted average lease expiry stood at 4.9 years as at end-3Q. Manulife US REIT signed 61k sq ft of leases in 3Q22 (254k sq ft year-to-date), of which ~57% are new leases. It achieved positive rental reversion of 4.3% in 3Q (+1.7% year-to-date) and maintained its guidance for positive mid-single-digit reversions for FY22F.
  • Manulife US REIT has a balance of 1.3%/10.1% of leases expiring in 4QFY22F/FY23F. With TCW Group deciding to vacate its space when its lease expires in Dec 2023, we anticipate that Manulife US REIT’s portfolio occupancy could come under pressure in the medium term.
  • Manulife US REIT’s portfolio repositioning strategy includes a hotelisation exercise at Peachtree in 1H23 involving a makeover for the grand entrance, lobby, conference centre, coffee bar/lounge and outdoor terrace area. Management expects this exercise to generate an IRR of 9%. In addition, Plaza is slated to embark on providing flexible space solutions such as spec suites and co-working spaces progressively from 3Q22. Manulife US REIT expects the two asset enhancement initiatives to cost a total of US$24.8m.
  • With end-3Q22 gearing at 42.5%, Manulife US REIT indicated that it will look to reposition, recycle and rejuvenate its portfolio. Its top priority would be to manage its gearing, including asset recycling. In addition, it has formed a Strategic Working Group to explore growth opportunities including potential pivot into other asset classes, as well as strategic partnerships, JVs or M&As.
  • We lower our FY22-24F DPU estimates for Manulife US REIT by 2.1-3.49% to factor in a higher debt cost. Our DDM-based target price is for Manulife US REIT lowered to US$0.69, due to reduced earnings estimates and higher cost of equity assumption of 8.44% (vs. 7.84% previously). Our forecast of 14.2% FY22F dividend yield prices in much of the slower near-term growth.

Above is the excerpt from research report by CGS-CIMB.
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LOCK Mun Yee CGS-CIMB Research | Natalie ONG CGS-CIMB Research | 2022-11-03
SGX Stock Analyst Report ADD MAINTAIN ADD 0.69 DOWN 0.780

Previous report by CGS-CIMB:
2022-08-04 Manulife US REIT - Challenges Ahead

Target prices by 3 other brokers at Manulife US REIT Target Prices.
Listing of broker reports at Manulife US REIT Analyst Report.

Relevant links:
Manulife US REIT Share Price History,
Manulife US REIT Announcements,
Manulife US REIT Dividends & Corp Actions,
Manulife US REIT News Articles


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