Manulife US REIT
Price target:
CGS-CIMB “add” 86 US cents
DBS Group Research “buy” 88 US cents
Tech, healthcare acquisitions likely as Manulife US REIT explores growth
Analysts remain positive about Manulife US REIT (MUST) following a dip in its portfolio occupancy in 1QFY2022 ended March as the REIT explores inorganic growth opportunities this year.
MUST achieved a lower portfolio occupancy q-o-q at 91.6% at end 1QFY2022, compared to 92.3% at end 4QFY2021, due to lower occupancy at Figueroa, Peachtree, Exchange, Centerpointe and Capitol properties but partly offset by improved take-up at Michelson.
Physical occupancy at MUST’s buildings averaged 32%–34% for April and May, up from 25.3% in 1QFY2022. Portfolio weighted average lease expiry stood at five years as at end 1QFY2022.
Balance sheet metrics remained stable q-o-q with gearing at 42.8% and interest cover of 3.4x.
In a May 9 note, CGS-CIMB Research analyst Lock Mun Yee is maintaining “add” on MUST with a lower target price of 86 US cents ($1.20), down from 89 US cents previously. The new target price represents a 43.3% upside.
“We keep our FY2022–2024 DPU estimates unchanged post update. However, we tweak down our target price due to a slightly higher cost of equity assumption of 7.84%, up from 7.58% previously. At a projected FY2022 dividend yield of 9.6%, much of the slower near-term growth has been priced in, in our view,” writes Lock.
In terms of capital management, MUST’s weighted all-in cost of funds stands at 2.86% as at end 1QFY2022. MUST has obtained refinancing commitment for US$207 million of debt maturing in FY2022.
With 86.5% of its debt in fixed-rate loans, MUST indicated that for every 1% increase in funding cost, its DPU would decrease by 0.075 US cents.
“While its near-term focus is on improving leasing and portfolio occupancy, management will continue to explore inorganic growth opportunities and increase its exposure in growth cities or tenants in growth sectors, including exploring portfolio optimisation strategies to enable capital recycling for growth,” says Lock.
Meanwhile, UOB Kay Hian Research analysts Llelleythan Tan and Jonathan Koh have kept “buy” on MUST with an unchanged target price of 80 US cents, lower than that of CGS-CIMB.
With a debt headroom of about US$360 million at 50% gearing, Tan and Koh reckon MUST may add on acquisitions from emerging industries, such as tech and healthcare, as their next focus.
“Improving tenant sentiment was seen as new leases formed 54.0% of leases signed in 1QFY2022. MUST executed about 68,000 sq ft of leases in 1QFY2022, with strong positive rental reversion of +3.9%,” write Tan and Koh in a May 10 note.
Weighted average lease expiry (WALE) remained steady at 5.0 years, slightly down from 5.1 years in 4QFY2021 as 49.4% of leases by net lettable area (NLA) are expiring in 2027 and beyond.
Total expiring leases for 2022 by NLA softened to 6.2% from 8.0% in 4QFY2021.
Two of MUST’s top 10 tenants by gross rental income (GRI) have a lease expiring in 2023, with one tenant intending to vacate by December 2023. However, these leases have rents 9.9% below market rates, indicating possible positive rental reversion.
They add: “Management has already started searching for possible tenants to take up the space after 2023, mitigating any loss in rental income.”
In a May 10 note, DBS Group Research analyst Rachel Tan maintains “buy” on MUST with a target price of 88 US cents.
“MUST is now placed on a better playing field post index inclusion in the FTSE EPRA Nareit Developed Asia Index where it will likely herald a virtuous cycle of greater investor visibility. Following this, we have already seen higher trading liquidity and yield compression for MUST. Given a strong execution and acquisition track record, we believe MUST will continue to command a premium to its peers,” writes Tan. —