Fifth Arrow Investment: MANULIFE US REIT....... COVID-19 Crisis

The World stock markets swing between fear and greed so dramatically for the past weeks. I had not seen such extreme volatility before in the market since the Great Financial Crisis in 2008. Let's refer to the Greed/Fear indicator. Right now the we are at the extreme fear due to all the uncertainty surrounding the COVID-19.

The market does not like uncertainty due to difficulty in prediction what is going to happen next. Is the virus situation going to get worst and when will it going to recovered? No one know the answer but we can decide what to do next. The market crisis always provide great opportunity to invest but the question is:
Do you have the courage to take the leap?

Today, I would like to write about MANULIFE US REIT. This SGX counter caught my attention when it got furiously sold down US withholding tax crisis in 2018. So, here are my analysis and thought for this stock. Hope you will enjoy reading it and profit from it!

Valuation Assessment

I would like to assess the valuation for this REIT from 2 perspectives:

1) Net Asset Value and P/BV

The net asset value currently stood at USD0.80 per unit based on the latest annual report. Gearing ratio is 37.7%. Based on last Friday closing price, the P/BV is around 0.75 which is way under value. MUST had been trading about 1.1 times P/BV for the most part of 2019. This is really a once in the lifetime chance to trade at this low valuation since its IPO.

2) Market participation in public offering

Back in 2019, there have been 2 trench of new shares offering at MUST for acquiring new asset such as 400 Capitol, California mentioned below. First, the new share under private placement of 91,325,000 units at USD$0.876 per share was fully subscribed. Second, new share under Preferential offering of 72,855,000 units at USD$0.86 per share was also fully subscribed. You can determined the real demands as the investor's willingness to participate at much higher price because they saw the potential of higher valuation for this REIT. So buying at the current price which is much lower than the new private placements share last year is a very good bargain deal.

Portfolio Risk Assessment

This REIT had shown strong profit growth mainly through new acquisitions since IPO and had WALE more than 5 years. Long WALE is a good indicator that this REIT will likely able to mitigated short term crisis like COVID-19 successfully. It should able to maintain a healthy occupation rate with secured rental rate during the WALE period. This should removed some of the renewal risk and downward adjustment to the rental rate.

MUST properties are classified as either Trophy or Class A which reflects the excellence quality of assets. The tenure of all its buildings are listed as freehold, which mean the asset valuations should be stable and the income should not be affected by the age of the buildings. I don't see much long term risk associate with asset valuations at this moments.

To sum up what I like about this REIT:

1. High dividends yield. >10%.
2. Good book value, P/BV is very low.
3. Good sponsors > Manulife.
4. Good asset quality and freehold - Reduced long term risks.
5. Long WALE- Reduced shot term risks.
6. Benefit from strong US economy and currency.

Perfect trade - Profit from market inefficiency

Previously, MUST was hit by US withholding tax crisis, rumor about US imposing 30% Tax on US REIT. The share price took a hit dropping from 95cents to 70cents. I took this opportunity to buy at the peak of the crisis and benefit from the recovery after the crisis over. Very similar setup trade that I have done for KEPPEL KBS US REIT trade. You can refer to my previous blog for the details.

The links : KEPPEL KBS US REIT...... Take the JUMP!

You can refer to my previous blog for the details. I would not want to repeat the details again here.

The Best time to buy is now?

This stock always trade at premium due to the strong sponsor and asset quality. So the best time to buy a quality stock at a cheap valuation is when there is a crisis. This COVID-19 had cause this stock to plummet to the level that never seen before since IPO.

At this valuations, this is a bargain of a lifetime. Yes, you may think it is too risky to buy now as COVID-19 situation in US is getting worst, it may cause many business to shuttered its doors and domino effects on the broader economy. Well, Success always favors those who take risk and after every storm there is a rainbow.