Manulife US REIT - UOB Kay Hian 2023-08-16: Unit Price Near Capitulation; Upgrade to BUY

• 1H23 distributable income of US$37.9m was in line with our expectations but distribution was halted as Manulife US REIT breached financial covenant.
• The strategic review is still ongoing. Manulife US REIT is continuing to scout for equity infusion from strategic investors and work on divestment of Phipps Tower at Atlanta, Georgia to sponsor Manulife Insurance.
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Manulife US REIT's 1H23 results

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• NPI margin narrowed 1.8ppt y-o-y to 55.6%. Manulife US REIT's gross revenue and NPI dipped 0.8% y-o-y and 3.9% y-o-y respectively in 1H23 due to lower occupancies across the portfolio and the sale of Tanasbourne at Hillsboro, Oregon in Apr 23. Property operating expenses increased 3.3% y-o-y due to higher repair & maintenance, property taxes and utilities. Interest expense increased 45% y-o-y due to rising interest rates.
• Smaller non-renewals in 2Q23. Portfolio occupancy eased slightly by 1ppt q-o-q to 85.1% as of Jun 23 due to non-renewals at Diablo at Tempe, Arizona and Capitol at Sacramento, California. It achieved positive rent reversions of +3.7% (1Q23: +5.0%, 2Q23: -2.5%) and long WALE of 7.6 years for 443,000sf of leases executed in 1H23.
• Negative impact from mid-year review. Manulife US REIT's aggregate leverage has surged 7.2ppt q-o-q to 56.7%. Weighted average interest rate increased slightly by 12bp q-o-q to 4.10% as of Jun 23.
• Manulife US REIT's NAV per unit was US$0.40 after accounting for revaluation losses of US$280m or 14.6%. Direct cap rates have expanded 0.73ppt to 7.06% for the mid-year review.

Leasing momentum continues to moderate.

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Jonathan KOH CFA UOB Kay Hian Research | https://research.uobkayhian.com/ 2023-08-16 SGinvestors.io

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