SINGAPORE (Aug 11): DBS is maintaining its “buy” call on Manulife US REIT a with a target price of US$1.07 ($1.46).
Besides having an attractive 7.0/7.7% yield in FY17/18 and exposure to the favourable demand and supply fundamentals in various US office markets, the REIT also has in-built annual rental escalations of around 3% as well as a healthy 7% DPU CAGR over FY17-19.
See: Manulife US REIT reports 1H17 DPU of 3.23 cents, 8% higher than forecast
In a Thursday report, analyst Mervin Song believes that Manulife US REIT deserves to be traded at a higher P/B of about 1.20-1.25 despite consensus being bullish on Manulife US REIT’s US exposure, pegging target prices at P/B of about 1.10x.
The group has shown its ability to execute on DPU accretive acquisitions, such as its latest 500 Plaza Drive purchase and upside risk to its portfolio values as demonstrated by portfolio revaluation gains over the past 12 months.
“Moreover, in our view an additional growth premium is justified, given Manulife US REIT’s DPU CAGR is two to three times higher that of other listed REITs in Singapore,” says Song.
The analyst believes that additional acquisitions will remain a key share price re-rating catalyst moving forward as gearing is expected to stabilise at 33-34% level after the acquisition of 500 Plaza Drive and given the group’s available headroom.
“We understand markets that are of interest are core submarkets that enjoy demand from a diversified type of industries (i.e. manufacturing, financial, technology and law firms) which imply stability across market cycles,” says Song.
As at 3.11pm, units in Manulife US REIT are trading at 94 US cents.
