US office trust Manulife US REIT continues to see resilience and faces minimal impact from work-from-home policies, say UOB Kay Hian analysts Loke Peihao and Jonathan Koh in a September 29 note. The analysts are maintaining their “buy” call on the company with a target price of 85 US cents ($1.16)
Manulife US REIT (MUST) properties are typically located in capital cities such as Atlanta (in Georgia State), Sacramento (in California), and Washington, D.C., supported by a highly educated workforce and growing population.
Its portfolio comprises nine prime freehold Trophy (2) and Class A (7) properties, providing strong income in upcycles but remaining resilient in downturns. The pandemic era also means a preference for a highly integrated live-work-play environment, as office workers want easy access to workplaces and avoid taking public transport, say Loke and Koh.
MUST has a relatively longer WALE (Weighted Average Lease Expiry) of 5.7 years by net lettable area, when stacked against other Singapore office REITs, such as Keppel Pacific Oak US REIT (5.0 years), Keppel REIT (office: 4.6 years), CCT (office: 3.6 years), Suntec REIT (Singapore office: 3.14 years).
Loke and Koh also note that the US office market is different compared with Singapore. Where office leases are usually longer at five, 10 and 15 years with no break clauses and early terminations in the US, the norm in Singapore is three years.
See: 'Buy' Manulife US REIT, Keppel Pacific Oak US REIT on strong fundamentals: RHB
In terms of gross rental income, legal tenants (22%) are the largest, and unlikely to consolidate spaces as the majority has right-sized. The finance and insurance (19.9%) sectors have seen resilience in terms of low unemployment rate of 3.1% (vs 8.4% in the US in August), and may possibly see increased take-up of office space due to stricter social distancing measures.
Excluding Amazon, the majority of retail trade are in children’s apparel (10%) which is considered to be essential retail as children outgrow their clothes quickly. The top 10 tenants (35% in terms of gross rental income) are mainly listed entities, government and headquarters, highlighting the credit tenants in its portfolio, say Loke and Koh.
See also: Manulife US REIT in good position to weather challenges
Unlike Asia, most of US employees already have access to work-from-home benefits, say the analysts, defined as at least a day of the week of working from home, which has risen from 28% to 54% between 2011 and 2020. Due to well-established norm, the pandemic only resulted in an incremental 2% of US workers to work-from-home.
As at 1.34pm, units in Manulife US REIT are trading at 0.5 US cents higher, or 0.68% up, at 74 US cents ($1.01).
