“We see tailwinds from strengthening US fundamentals, but have cut our DPUs by 5% on lower occupancies,” explains Chua. “DPU visibility remains high, and well-cushioned by its low FY2022-2023 lease expiries and quality tenancies.”
“We see valuations undemanding at approximately 8.7% FY2022E yield, with upside from acquisitions, as management deepens its ‘high-growth’ sector assets under management (AUM),” he adds.
According to Chua, portfolio occupancy rose to 92.3% (from 90.9% in 3QFY2021), driven by its three new properties - Diablo Technology Park and Tanasbourne Commerce Center, two suburban office campuses; and Park Place, comprising two class-A office buildings, that were 93.4% occupied.
“Rental reversion was at -0.8% for FY2021 (versus +1.3% for 9MFY2021) and would have been stronger at +3.3%, excluding Michelson. Management is guiding for similar low-to-mid single-digit positive reversion into FY22,” Chua says.
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With Manulife US REIT’s new assets at approximately US$202 million, backed by ‘high-growth tenancies’, have pushed AUM up approximately 11% h-o-h to $2.2 billion, and gearing from 42.1% to 42.8%, while cap rates were stable at 5.50-7.50%.
“Management is keen to push ahead on acquisitions with an estimated $333 million debt headroom (at 50% limit), but with gearing at an historical high, we see likely recycling opportunities as part of near-term portfolio rejuvenation priorities, before it makes another sizeable deal,” says Chua.
CGS-CIMB Research analysts Lock Mun Yee and Eing Kar Mei have also remained relatively positive on Manulife US REIT with an “add” rating and lowered target price to 89 US cents from 91.8 US cents.
They have also cut their DPU estimates for the FY2021 to FY2023 by 0.16-0.4% after the REIT’s 2HFY2021 results as they believe the new leases that were signed in the latter part of FY2021 are “likely to start to contribute to earnings from 2HFY2022”.
“We continue to like Manulife US REIT for its resilient portfolio however, with 96% of its leases by gross rental income having built-in rental escalations,” say the analysts.
Some risks that the analysts see include protracted slowdown in the US economy which could dampen appetite for office space.
RHB Group Research analyst Vijay Natarajan has also kept his “buy” rating on Manulife US REIT with a lowered target price of 86 US cents from 90 US cents, with the REIT’s FY2021 results coming in slightly below his estimates.
“While its operational numbers have been impacted since the onset of the COVID-19 pandemic, we see clear signs of its occupancy rate stabilising and rental outlook improving however,” says Natarajan.
“Management also plans to divest some assets and recycle capital into high-growth markets, thereby rebalancing its portfolio. Its valuation remains undemanding, at 0.9 times price to book ratio (P/BV) with an approximate 9% FY2022 yield,” he adds.
As at 3:08pm, units in Manulife US REIT are trading at 65 US cents.
Photo: MUST
