SINGAPORE (Aug 10): RHB Research is keeping Manulife US REIT (MUST) at “buy” with a marginally higher target price of US$1.00, from 99 US cents previously.
“MUST is a preferred pick in overseas mid-cap REITs for its high yield, organic rent growth, and exposure to a rebounding US office market,” says RHB analyst Vijay Natarajan in a Thursday report.
According to Natarajan, Manulife US REIT offers an attractive FY18F yield of 7.1%. This is more than 100 basis points above the average among Singapore office REITs, he says.
In addition, Natarajan notes that there is room for positive rent growth ahead as average rents across MUST’s office properties are currently 5-15% below the market.
Other key drivers for organic growth include inbuilt rent escalations of close to 2.5% per annum, occupancy improvements, and asset enhancement initiatives (AEI) contributions, he adds.
Meanwhile, strong backing by sponsor Manulife, which has reiterated its full commitment to growing the REIT, could see MUST deliver inorganic growth via acquisitions.
“Despite yield compression and strong liquidity in the market, MUST sees a good potential to grow via acquisitions,” says Natarajan. “Additionally, its sponsors’ strong brand name and financial position should help MUST in closing third party deals.”
RHB’s positive stance on MUST comes after the REIT posted a strong set of results in 2Q17.
The first pure-play US office REIT listed in Asia, it reported distribution per unit (DPU) of 1.58 US cents for the quarter, some 7.5% higher than the IPO prospectus projection of 1.47 US cents.
Net property income in 2Q17 came in 3.7% above projection at US$12.8 million ($17.4 million).
See: Manulife US REIT reports 1H17 DPU of 3.23 cents, 8% higher than forecast
“We tweak our FY18-19F DPU by 1-2% factoring in lower than expected financing costs and higher rent growth,” says Natarajan.
As at 12.12pm, units of Manulife US REIT are trading 2 US cents higher at 94.5 US cents.
