SINGAPORE (May 30): Maybank Kim Eng is maintaining Manulife US REIT (MUST) at “buy” saying strong leasing management know-how and proactive AEI will help drive stronger rental growth prospects.
The reaffirmation follows a visit by Maybank analysts to MUST properties in Atlanta and New Jersey, and based on meetings they had with US-based property brokers.
“We continue to favour MUST for its DPU visibility supported by stable income growth and low leasing risks,” says analyst Chua Su Tye in a Wednesday report.
Chua says the four properties he visited were either well located within the CBD or command prime spots in their respective micro-markets.
The analyst also came away impressed by the quality of assets, strong tenancies, and the leasing and AEI know-how demonstrated by its property manager John Hancock.
The properties are well-equipped with on-site amenities which should help in tenant retention, even as there is a 5-14% yield gap between existing and market rents, mainly for its Atlanta properties.
“We see its assets as well-placed and for rents to rise by up to 3-5% in 2019- 20E on tight supply,” says Chua.
Driven by strong macro-economic fundamentals, the US office sector has been on an expansionary mode with the net absorption in many of its key cities matching rising new supply.
See: Manulife US REIT declares 22.8% higher 1Q DPU of 1.51 US cents on enlarged portfolio
Meetings with property brokers also suggest long-term growth prospects for Atlanta, as continued population and job growth supports occupancies and rents, albeit at a moderating pace in 2019.
While the New Jersey market remains competitive, MUST’s assets are best-in-class on location and 10 Exchange Place should see yields rise post-AEI with co-working, technology and finance sector tenants leading leasing activity.
Maybank has kept forecasts and DDM-based target price intact at US$1.00 ($1.38).
“MUST’s valuation remains compelling with DPU yields of 6.9- 7.2% FY19-20E vs 4.6-5.7% offered by its office S-REIT peers,” says Chua.
“Post its Centerpointe deal, low 36.8% gearing should support acquisition growth opportunities and DPU upside. ‘Buy’,” he adds.
As at 3.27pm, units in Manulife US REIT are up 0.5 cent at 86 cents.
