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Analysts still positive on Manulife US REIT despite slow 3Q20

Lim Hui Jie
Lim Hui Jie • 3 min read
Analysts still positive on Manulife US REIT despite slow 3Q20
Analysts are positive on Manulife US REIT (MUST), despite a dip in 3Q portfolio occupancy.
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Analysts from CGS-CIMB, RHB Group Research and PhillipCapital have maintained their “buy” and “add” ratings on Manulife US REIT (MUST), despite a dip to the Trust’s portfolio occupancy.

Portfolio occupancy declined 1.9 percentage points q-o-q to 94.3%, largely due to known expiries unrelated to Covid-19 and a slowdown in leasing demand.

RHB analyst Vijay Natarajan maintained an unchanged target price of 90 cents, as he remains confident that “MUST’s high quality and well diversified office assets backed by a
strong tenant base will weather the crisis”.

Natarajan adds that there are “minimal lease expiries till 2021”, with MUST signing about 217,300 sq ft of leases (no new leases signed in 3Q) at +7.9% rent reversion year-to-date.

“Looking ahead, only 1.9%/6.7% of leases (by gross rental income) are due for renewal in 4Q20/2021, mainly across Michelson, Capitol and Figueroa,” he says.

In addition, he said management is currently in early negotiations with tenants and expects the majority of these leases to be renewed. With limited competing supply in its submarket and average portfolio rents (excluding Michelson) still 6% below market, MUST expects rent reversion to stay positive in low single digits.

Read Also: Manulife US REIT reports 'strong' balance sheet, 'resilient' WALE in 3Q business update

CGS-CIMB analyst Lock Mun Yee has given an unchanged target price of $1.05, and said portfolio rents remain “slightly below market” and management indicated it expects to lease/renew at largely flat reversions.

She also noted that rental collections have remained strong, with an average 94% of rents collected in 3QFY2020. Rent collection stands healthy at 98% YTD, with slow collections mainly from food & beverage (F&B), lifestyle and retail tenants.

Lock also said she likes MUST for its resilient portfolio, with 60% of its tenants from the finance, legal, tech, and healthcare sectors as well as the government, and 96% of its leases by gross rental income having inbuilt rental escalations.

PhillipCapital analyst Natalie Ong raised her target price to 92 cents from 90 cents, and said this was because MUST is expecting about US$3 million ($4.04 million) of interest savings expected from refinancing.

MUST has about US$223.7million or 26% in borrowings, at a 3.2% interest up for renewal in FY2021, and Ong highlighted that refinancing earlier in the year was done at a rate of 1.85%. As such, they are expecting about US$3 million per annum in interest savings in FY2021.

Lock concurs, and anticipates interest cost savings when the 2021 loans are refinanced, pointing out MUST’s gearing stood at 39.9% at end-3Q20, while interest coverage ratio was at 3.7x. Average debt cost is at 3.21% at end-3Q20.

As at 11.32 am, shares of MUST were trading at 73 cents, with a price to book ratio of 0.93 and dividend yield of 8.28%

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