Manulife US REIT Analysis @ 13 November 2020

Basic Profile & Key Statistics

Manulife US REIT (MUST) is a pure office REIT that owns 9 properties in U.S.

Performance Review

There is no financial statement released in this quarter due to the adoption of half-yearly reporting.

YTD rental reversion is positive at 7.9%. Occupany dropped from 96.2% to 94.3%.

MUST is in the midst of refinancing loans for 2021, which is expected to have interest cost savings. There is no detailed update for AEIs in Figueroa and Exchange; but both are expected to complete this year.

Lease Profile

Occupancy dropped from 96.2% to 94.3%. WALE is long at 5.5 years where the highest lease expiry of 56.5% falls in 2025 and beyond, without breakdown. All of MUST properties are freehold.

Debt Profile

Gearing ratio increases slightly from 39.1% to 39.9%. Cost of debt is high at 3.2% despite all secured debt. Fixed rate debt is high at 92.7%. Interest cover ratio is slightly low at 3.7 times. WADE is short at 2.6 years where the highest debt maturity of 26.5% falls in 2021. 

Diversification Profile

Top geographical, top property and top tenant contributions are low at 34.6%, 18% and 6.1%. Top 10 tenants contribution is slightly low at 34.7%. 

Key Financial Metrics

Property yield and distribution on capital are high at 5.9% and 4.5% respectively. Management fee is competitive in which unitholders receive US$ 8.40 for every dollar paid to the manager. Distribution margin is moderate at 47.9%. 

Trends

Flat - DPU, Property Yield, Distribution Margin

Downtrend - NAV per Unit, Interest Cover Ratio

Interest cover ratio is stabilized since 1Q 2019. Note that the actual 3Q 2016 DPU is 2.01 for the period between 20 May 2016 to 30 September 2016, for a fair comparison, I have annualized it to 3 months period to around 1.38. 

Relative Valuation

i) Average Dividend Yield  - Average yield at 7.15%,  apply the annualized past 4 quarters DPU of 5.99 cents will get US$ 0.84. 

ii) Average Price/NAV - Average value at 1.03, apply the latest NAV of US$ 0.763 will get US$ 0.785.

Author's Opinion

Favorable	Less Favorable
Long WALE	High Cost of Debt
100% Freehold Property	0% Unsecured Debt
Well Spread Debt Maturity	Short WADE
Low Top Geographical Contribution	NAV per Unit Downtrend
Low Top Property Contribution
Low Top Tenant Contribution
High Property Yield
Competitive Management Fee
High Distribution on Capital

MUST fundamental remains healthy, albeit with a drop in occupancy.

U.S. office occupancy is dropping since 4Q 2019. However, for MUST, there is only 1.9% and 6.7% lease expiry (by GRI) for this year and 2021. This softening of demand likely wouldn't affect MUST performance much.

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*Disclaimer: Materials in this blog are based on my research and opinion which I don't guarantee accuracy, completeness, and reliability. It should not be taken as financial advice or a statement of fact. I shall not be held liable for errors, omissions as well as loss, or damage as a result of the use of the material in this blog. Under no circumstances does the information presented on this blog represent a buy, sell, or hold recommendation on any security, please always do your own due diligence before any decision is made.