SINGAPORE (May 2): RHB Research is keeping its “buy” call on Manulife US REIT (MUST) with an unchanged target price of US$1.00 following “another steady quarter” in 1Q18.
MUST posted an 8.5% decline in distribution per unit (DPU) to 1.51 US cents for the 1Q ended March, mainly due to an enlarged unit base following a rights issue.
However, gross revenue jumped 57.1% to US$31.2 million ($41.3 million) in 1Q18, while net property income (NPI) grew 54.0% to US$19.7 million.
See: Manulife US REIT posts 8.5% drop in 1Q DPU to 1.51 US cents on enlarged unit base
The improvements were “on the back of inorganic contributions from Plaza and Exchange,” says analyst Vijay Natarajan in a Wednesday report.
“Its recent acquisition of Penn and Phipps are expected to be completed by 2Q18, and should contribute positively in 2H18,” he adds.
MUST in April announced it is acquiring two office properties –1750 Pennsylvania Avenue (Penn) in Washington DC, and Phipps Tower (Phipps) in Buckhead, Atlanta – for a total of US$387 million.
See: Manulife US REIT acquires two properties from sponsor for US$387 mil
While MUST is currently finalising the funding structure for the acquisition, Natarajan believes this is most likely to be a combination of perpetual securities (perps) and fixed debt.
In addition, he believes the threat of faster rate hikes is mitigated by MUST’s 100% fixed-debt profile.
“While the expectation of more US Federal Reserve rate hikes generally has a negative impact on yield instruments like REITs, we note that rate hikes are coming on the back of a robust US labour market and office demand, which should benefit MUST’s DPU growth,” Natarajan says.
As at 12.29pm, units of Manulife US REIT are trading half a cent lower at 94.5 US cents. This implies an estimated price-to-earnings ratio of 14.6 times and a dividend yield of 6.2% for FY18.
