The articles in the blog are intended for informational purposes only, with the aim of encouraging thoughtful discussions. The articles should not be relied upon as financial advice. Please read the important disclaimer at the bottom of the page before proceeding.

Things I've learnt from Manulife Reit's Corporate Presentation


Attended the Manulife Reit (“MUST”) Corporate Presentation earlier today organized by SmartKarma and SGX. Thought it would be useful for current and potential investors if I summarized the key points that were discussed during the presentation, as well as management’s responses to some of the questions raised by the participants.

Firstly, some generic information about MUST. MUST was listed on the SGX in 2016 with three properties. Since then, MUST has grown its AUM via acquisitions, and now owns a total of nine office assets across the US.

As of 31 Mar 2021, MUST’s key financial metrics include a gearing ratio of 41.3%, weighted average interest rate of 3.18%, weighted average debt maturity of 2.1 years and a 3.5x interest coverage ratio. Portfolio metrics as of 31 Mar 2021 include a 92% occupancy rate, 5.3 years WALE, and 2.1% annual portfolio rental escalations.

There were a few questions regarding the impact of Covid-19, and management indicated that they believe offices will still be relevant post-covid, as they expect the hybrid work arrangement to be the dominant model going forward. MUST’s tenants have gradually started bringing their employees back to office, with the physical occupancy of MUST’s properties gradually increasing from 13% in Jan 2021 to 20% as of May 2021. Across the US, a number of large employers are expecting to begin recalling employees back to offices by fall 2021. Management also disclosed that as a result of lower physical occupancy, carpark income has declined significantly.

The question of whether MUST was considering acquisitions was also raised, and a few questions were focused on the possibility of diversifying into other sectors such as logistics and data centres, as these were the beneficiaries of Covid-19. Management indicated that they are open to reviewing potential acquisitions across sectors, but the key would be that these would have to be yield accretive. They are also open to acquiring properties with single tenants, which they previously did not consider, if these single tenants are in high growth sectors and possess strong credit metrics, such as leading tech companies like Facebook or Google. In addition, other typical attributes such as long WALEs and high occupancy rates are also a must. (Following the publication of this article, MUST's IR team reached out to clarify the points which are highlighted in red. I think this is commendable and shows their proactiveness as they are the first IR team to have reached out after I have written an article on a company.) This is because they believe that MUST has built up a substantially diversified portfolio and can afford to take on the risks of a single tenant property.

There was a question regarding the age of MUST’s properties, as 6 out of 9 properties are aged 30 years and older. Management shared a bit of context regarding US properties as compared to Singapore properties. In Singapore, it may be common for us to see buildings facing en bloc sales once the properties age reaches ~20 years. Whereas in the US, buildings are generally well maintained even if they are 30-40 years old. Management also mentioned that MUST provides tenant improvement incentives which incentivises tenants to fitout common areas as well, which keeps the entire building well maintained.

Another point that management shared was the construction costs in the US are generally higher than Singapore, thus it would be less finically viable to tear down buildings once they reach ~20 years old for redevelopment. It would also be good to note that all of MUST’s properties are freehold, thus they would not face lease decay like leasehold properties.

There was a question regarding the issue of MUST trading at a higher yield as compared to Singapore office Reits. Management attributed this to the fact that MUST’s properties are located in the US, hence there is the uncertainty factor among local investors, but hopes that the yield spread will compress over time. However, in my view, I believe that MUST and other US office Reits are actually fairly priced. Prime Reit and KORE are also trading at ~7-8% yields, and are trading close to their book values. This means that investors are valuing the Reits’ units at a similar level as professional valuers’ valuations. Conversely, if we look at Reits such as Keppel DC or Mapletree Industrial which are trading at premiums to their book values, one would have to wonder whether it is the professional valuers who are wrong, or the investors who are wrong. My view is that as investors are chasing yield in a low yield environment, investors have place an emphasis on yield as compared to other metrics such as price to book ratios.

With MUST trading at a ~7.5% yield, management mentioned this relatively high cost of equity is a hurdle when looking for potential acquisitions, as it means that the cap rates of acquisition targets has to be high enough such that the ideal debt and equity mix would result in a yield accretive acquisition. Personally, I think that if we look at S-Reits such as Ascendas Reit or Mapletree Industrial, which trade at a high premium to their book values, it is much easier for them to make yield accretive acquisitions due to the lower cost of equity. For example, if the Reit’s units are trading at a yield of ~5%, then issuing units to acquire a property that is yielding 6% would most likely be accretive. Whereas for a Reit that is trading at a ~7% yield, acquiring the same property that is yielding 6% would require a much more aggressive debt load to ensure that the acquisition is yield accretive.

Lastly, management shared that at the point of IPO, the majority of the investors were individuals, possibly due to the relatively smaller size of the REIT. Management noted that MUST’s subsequent growth in AUM and the addition to the NAREIT index has helped lift its profile, resulting in a greater number of institutional investors among its shareholder base.

That’s all that I’ve gathered from today’s corporate presentation. Hope this would be informative.

Tiger Brokers Promotion

Tiger Brokers is running a promotion (limited to first 6,000 signups), offering new users who make an initial deposit of at least S$2,000 a free Apple share and 180 days of 60 commission free trades. Tiger Brokers Singapore is licensed by MAS and many of my friends have started using the platform - because of its simple user interface and low commission fees. Do not miss out on this great promotion!

If you’re keen to sign up, please click on the following link or use my referral code DUQ8NI to sign up.


Moomoo Promotion

New users with Moomoo (ending 2nd August) also stand to receive 1 free Apple share (upon deposit of 2,700 SGD), 1 free NIO share (upon completion of 5 trades), 180 days of commission free trades and free access to US stock market Level 2 market data. Do not miss out on this too!

If you’re keen to sign up, please click on the following link for my referral to sign up.


Disclaimer: This article is intended for informational and discussion purposes only, and do not constitute financial advice. When in doubt, please contact a licensed financial adviser.

Note: At the time of writing, I do not have a position in Manulife REIT. This may change from time to time without updates to this article.

If you enjoy my articles, please 'Like' my Facebook Page at: 

No comments:

Post a Comment