SINGAPORE (May 11): Analysts are keeping a positive stance on Manulife US REIT (MUST) for its resilient portfolio.
On May 8, MUST announced its 1Q20 operational updates, which saw occupancy increase to 96.5% from 95.8% q-o-q, with a WALE of 5.7 years. The REIT also updated that the lockdown in US is set to ease. During the lockdown, all nine of its offices remained open with 5-10% occupancy.
RHB Group Research has kept its “buy” recommendation on MUST with a new target price of 90 cents from 88 cents previously. The REIT is also one of RHB’s top pick.
In a Monday report, analyst Vijay Natarajan says, “Manulife US Real Estate Investment Trust’s 1Q operational updates point to a healthy US office market prior to the rapid escalation of Covid-19 in the US.”
While the US economic and office outlook have deteriorated sharply, recent easing of lockdown raises some hope.
Nonetheless, the REIT has in hand good asset quality, strong tenant profile and minimal near-term lease expiries that help mitigate risks. Recent rollback of tax structure also provides additional savings.
So far, MUST has seen minimal impact from Covid-19, but a clearer picture is likely to emerge in the months to come.
MUST has received some rent relief requests from tenants but it does not sees merit in all. It has so far provided rental deferment for only 2% of tenants (by rental income) – majority in the F&B segment in its office buildings – and currently, does not intend to provide rental waiver.
Meanwhile, a vast majority of April rents has been collected. Two of three co-working tenants have paid April rent.
CGS-CIMB has similar sentiments and is maintaining its “add” call on MUST with a target price of US$1.05 from US$1.15 previously.
“We continue to like MUST for its resilient portfolio, with 60% of its tenants from finance, legal, tech, healthcare and government tenants,” says analyst Lock Mun Yee in a Friday report.
Looking ahead, MUST has a remaining 4% of portfolio gross rental income due to be renewed in FY20 and a further 6.1% in FY21. The trust has guided that rental reversions are expected to be flat for the rest of FY20.
With the US lockdown set to ease gradually, management indicated that cleaning and hygiene remain top priority across its properties and it would also continue to focus on expense reduction.
Meanwhile, gearing stood at 37.7% at end-1Q20, while interest coverage ratio is at 3.8 times. It has also received commitment to refinance its Peachtree loan due in Jul 2020 and management expects to achieve lower refinancing cost than existing levels. Some 95.1% of its loans are on fixed rates and MUST has undrawn committed facilities of US$95.5 million.
“While MUST would likely continue to selectively look for inorganic growth opportunities, market transactions have remained relatively quiet,” says Lock.
As at 12.00pm, units in MUST are trading 2.8% higher at 72 US cents or about 0.9 times FY20 book with a dividend yield of 8.8%, according to CGS-CIMB’s estimates.
