SINGAPORE (Nov 29): DBS Vickers Securities is reiterating its “buy” call on Manulife US REIT with a lower target price of 99 US cents ($1.33) compared to US$1.07 cum rights.
This comes after incorporating the REIT’s recent US$313.2 million acquisition of the Exchange – a 30-storey Class A office building that is also the REIT’s second acquisition of the year – and its recent rights issue to raise funds for the acquisition.
See: Manulife US REIT gets go-ahead for acquisition of 10 Exchange Place and rights issue
In a Thursday report, lead analyst Mervyn Song says he continues to like Manulife US REIT for its exposure to the US office upcycle, quality portfolio of freehold properties, and a management which has delivered close since the REIT’s listing a year and a half ago, in addition to close to 21% total returns expected from the REIT over the coming 12 months.
See: Manulife US REIT's 3Q 17 DPU of 1.60 US cents beats forecasts
DBS has nonetheless reduced its FY17-19F distribution per unit (DPU) estimates to 5.34-6.01 US cents respectively to factor in the impact of the additional shares on issue as well as higher assumed borrowing costs.
Despite the continued upward trend and increasing competition in the US office market, Song believes the REIT remains an attractive investment opportunity, underpinned by the thesis of rising rents and capital values that remain intact.
“During our recent visit to Manulife US REIT’s properties in Atlanta, Los Angeles, New Jersey and Orange County, as well as meetings with various property brokers, we learnt that rents in Manulife US REIT’s key markets, while likely to moderate from the high growth achieved over the past few years, generally remains on an upturn,” he notes.
“More importantly, Manulife US REIT’s properties continue to be well positioned to capture the upside in rents as passing rents remain below market rents and its properties are located near amenities and transport links,” adds the analyst.
As at 3.10pm, units in Manulife US REIT are trading 5.2% higher at 91 US cents, giving it an FY18 distribution yield of 7.9%.
