Manulife US REIT‘s (SGX: BTOU) share price (technically known as unit price for REITs) is right now at US$1.04.
Using the 10-step guide to pick the best Singapore REITs, let’s explore why Manulife US REIT is attractive to me.Â
As a summary, here are the 10 steps I use to pick the best Singapore REITs:
- Growth in Gross Revenue and Net Property Income
- Growth in Distribution Per Unit
- Property Yield of Between 5% and 9%
- Gearing Ratio of Below 40%
- Interest Coverage Ratio of Above 5x
- Healthy Portfolio Occupancy Rate
- Positive Rental Reversions
- Presence of Growth Prospects
- Acceptable Price-to-Book Ratio
- Distribution Yield of Above 5%
Business Background
Manulife US REIT debuted on the Singapore stock market on 20 May 2016.
Its investment strategy is to invest in a portfolio of income-producing office real estate as well as real estate-related assets in key markets located in the United States.
Its current portfolio comprises of nine prime, freehold, and Trophy or Class A office properties strategically located in densely populated US metropolitan cities.
The REIT believes that Trophy and Class A assets provide strong income contributions in upcycles and remain resilient during downturns as compared to Class B and lower class business park properties.
As of 31 December 2019, the portfolio’s value stood at US$2.1 billion.
Manulife US REIT’s sponsor is Manulife, which is part of a leading Canada-based financial services group.
1. Gross Revenue and Net Property Income (NPI) Check
Check for: Increasing gross revenue and NPI
Manulife US REIT has a 31 December financial year-end.
The following table shows Manulife US REIT’s gross revenue and NPI growth from 2017 to 2019:
| 2017 | 2018 | 2019 | Compound Annual Growth Rate (CAGR) | |
|---|---|---|---|---|
| Gross revenue (USS$' million) | 92.0 | 144.6 | 177.9 | 39.1% |
| Net property income (USS$' million) | 58.4 | 90.7 | 110.8 | 37.7% |
The splendid growth in both gross revenue and NPI was mainly due to property acquisitions over the years.
Manulife US REIT’s tenant base is well-diversified with no single tenant contributing more than 5.9% of gross rental income.
Furthermore, the REIT’s top 10 tenants have a long weighted average lease expiry of 6.7 years, and the majority of them are either public-listed companies or headquarters.
Those characteristics give Manulife US REIT income stability.
Verdict: Pass
2. Distribution Per Unit (DPU) Check
Check for: Increasing DPU
Next is the DPU check.
Manulife US REIT’s DPU has climbed over the past three years as well, as seen below.
| 2017 | 2018 | 2019 | CAGR | |
|---|---|---|---|---|
| Distribution per unit (US cents) | 5.77 | 5.57 | 5.96 | 1.6% |
Verdict: Pass
3. Property Yield CheckÂ
Check for: Property yield of between 5% and 9%
For 2019, Manulife US REIT had an NPI of US$110.8 million and a portfolio value of US$2.1 billion. This translates to a property yield of 5.3%.
Manulife US REIT passes this criterion too.
Verdict: Pass
4. Gearing Ratio Check
Check for: Gearing ratio below 40%
As of 31 December 2019, Manulife US REIT had a gearing ratio of 37.7%, which is below my limit of 40%.
Verdict: Pass
5. Interest Coverage Ratio Check
Check for: Interest coverage ratio above 5 times
Manulife US REIT fails this criterion as its interest cover ratio was only around 4x (NPI of US$110.8 million divided by finance expenses of US$26.2 million).
Verdict: Fail
6. Portfolio Occupancy Rate Check
Check for: Healthy portfolio occupancy rate
As of 31 December 2019, Manulife US REIT’s portfolio occupancy rate stood at a respectable 95.8%, way above the market average of 88%.
The following chart shows the individual property occupancy rates:
Verdict: Pass
7. Rental Reversion Check
Check for: Positive rental reversions
Around 445,200 square feet of leases (9.5% of the portfolio’s leases by net lettable area) were renewed in 2019, with a positive rental reversion of 0.5% for the renewals.
Excluding marked-to-market leases for its Michelson property, rental reversion would be much higher at 12.1%.
Verdict: Pass
8. Growth Prospects Check
Something noteworthy about Manulife US REIT is that 96% of its portfolio by income has rental escalations that average 2% per year. This gives the REIT organic growth.
Also, asset enhancement initiatives (AEIs) can help to increase future rental income. AEIs refer to the revamping of a property to enhance its value.
On that note, Manulife US REIT’s Figueroa property is undergoing a US$8.0 million AEI (lobby renovation, cafĂ© addition and exterior landscape). The AEI is expected to be substantially completed in the first quarter of 2020.
Another property, Exchange, is also undergoing AEI (lobby renovation, security/life safety system updates and new glass wall feature) at a tune of US$12.0 million. The AEI is also expected to be completed in the 2020 first-quarter.
Overall, although there may be short-term hiccups, I feel the US economy will continue doing well over the long-term. This would enable Manulife US REIT to carry on with its growth trajectory. 
Source: Manulife US REIT investor presentation
Verdict: Pass
9. Price-to-Book Ratio Check
Check for: Acceptable price-to-book ratioÂ
At Manulife US REIT’s unit price of US$1.04, it is valued at a price-to-book (PB) ratio of 1.3x.
Over the past three years, its average PB ratio stood at around 1.1x.
With Manulife US REIT’s current PB ratio higher than the average, I think the REIT is overvalued.
Verdict: Fail
10. Distribution Yield Check
Check for: Distribution yield to be above 5%Â
At Manulife US REIT’s unit price of US$1.04, it has a distribution yield of 5.7%, which is a pass.
Verdict: Pass
The Final Verdict
Manulife US REIT has a final score of 8/10.
Manulife US REIT has a portfolio of quality freehold properties with high occupancy rates.
Most of its leases also have rental escalations.
Those characteristics, on top of the healthy economic outlook in the US, make Manulife US REIT an attractive REIT at the moment.
Even though Manulife US REIT has a higher-than-average PB ratio, I wouldn’t mind paying up for it given its overall performance.
I might invest in Manulife US REIT with a 2% portfolio weighting (if I’m looking to increase my income from my dividend portfolio).
What Are Your Thoughts on Manulife US REIT?
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Disclaimer: The information provided by Seedly serves as an educational piece and is not intended to be personalised investment advice. ​Readers should always do their own due diligence and consider their financial goals before investing in any stock.Â
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