Manulife US REIT - DBS Research 2022-11-03: When The Going Gets Tough, The Tough Get Going

• 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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Rachel TAN DBS Group Research | Derek TAN DBS Research | https://www.dbs.com/insightsdirect/ 2022-11-03 SGinvestors.io

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