Manulife US REIT (SGX:BTOU)'s portfolio occupancy declined further by 2.8ppt q-o-q to 88.1% in 3Q22 (including leases signed up till 18 Oct 22) vs 90.9% in 2Q22, mainly due to Quinn Emanuel’s downsizing (71k sqft/~10% at Figueroa), highlighted previously.
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Manulife US REIT embarks on the hotelisation of its Peachtree asset, which will drive potential rents ~30% above passing rents. The estimated capex is US$18m over two years with an expected IRR of ~9%.
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Management expects portfolio occupancy to hold steady for the rest of the year, and maintains a positive outlook on reversions coming in at low to mid-single digits.
Observations at Manulife US REIT’s submarkets appear to suggest mixed signals, with leasing volume seeming sluggish but net effective rents rebounding off the low recently; subleasing has picked up recently. However, Manulife US REIT’s portfolio seems to see a stable trend in tenant incentives and low sublease space of 3.7% currently.
Physical occupancy remains at an average of 30%.
As part of its longer term strategy, management spoke about portfolio repositioning, recycling, and rejuvenation. Management highlighted that its top priority is capital management with a keen eye on gearing but said that its portfolio disposition is ongoing. Management could be open to portfolio diversification.
Manulife US REIT's gearing held relatively stable at 42.5% vs 42% in 2Q2022 but average cost of debt increased by 0.3ppt q-o-q to 3.34% in 3Q22.
Manulife US REIT will be refinancing its FY23 debt expiry of US$105m (~11% of total debt) by FY22.
Manulife US REIT – Valuation & Recommendation
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Above is an excerpt from a report by DBS Group Research. Clients of DBS may access the full PDF report @ https://www.dbs.com/insightsdirect/.
