Brokers' take: Analysts keep 'buy' on Manulife US Reit despite FY21 results missing expectations

MAYBANK Securities and RHB have lowered their target prices (TP) for US office-based real estate investment trust (Reit) Manulife US Reit BTOU after it missed some expectations in its second half and full-year FY2021 results.

This is despite both brokerages maintaining their "buy" calls in separate reports on Thursday (Feb 10), on the back of stabilising occupancy rate, completed and possible acquisitions and divestments in the high-growth sector and the manager's positive rental reversion guidance for FY2022.

Maybank Securities analyst Chua Su Tye trimmed his TP to US$0.95 from US$1, following a cut of 5 per cent to distribution per unit (DPU) estimates. He still views DPU visibility as high and believes it will be well-cushioned from the Reit's low FY2022-2023 lease expiries, with only 8 per cent net lettable area expiring in FY2022.

Although the FY2021 results were a miss in his view, Chua said valuations are undemanding at 8.7 per cent FY2022 yield.

He also sees potential upsides from the 3 US properties that were snapped up by Manulife US Reit in late-December 2021, which boast "high growth" tenancies that pushed assets under management up 11 per cent to S$2.2 billion half on half.

While the manager is keen to push ahead on acquisitions, he cautioned that gearing is at a historical high of 42.8 per cent and unitholders are thus more likely to see recycling opportunities as part of near-term portfolio rejuvenation priorities, before the Reit makes another sizeable deal.

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Meanwhile, RHB analyst Vijay Natarajan cut his TP to US$0.86 from US$0.90, lower than Chua's current target, as the results were slightly below projections. This includes a 6 per cent environment, social and governance (ESG) premium applied to the TP's intrinsic value based on RHB's inhouse methodology, which Natarajan credited to the Reit's well-defined interim ESG targets.

Like Chua, Natarajan also called valuation undemanding at 9 per cent FY2022 yield. While he likewise trimmed FY2022-2023 DPU estimates by 5 per cent, he expects DPU going up 3 per cent year on year in FY2022, a turnaround from its 5 per cent decline in the last 2 years.

On the possibility of further acquisitions, he warned that gearing was on the high side, and that loans worth around US$200 million are due for renewal this year, although there may be slight interest savings as these loans were secured at a much higher cost of 3.4 per annum.

At the same time, DBS Group Research has maintained its S$0.88 TP on "buy" in a Wednesday report, as it believes the Reit is poised to ride on the office recovery post-Omicron through its new acquisitions, despite the setback from Covid-19's newer variants.

The research house noted key positives of improving portfolio occupancy and expiry leases in FY2022 staying 2.1 per cent below market rents, although it was concerned by larger occupancy declines persisting in some buildings.

Units of Manulife US Reit closed at US$0.65, up 3.18 per cent or US$0.02, on Thursday. 

READ MORE:

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• Undervalued Reits: selling assets trumps mergers

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