SINGAPORE (May 3): Maybank Kim Eng and RHB Research are reiterating their “buy” calls on Manulife US REIT (MUST) with the respective target prices of US$1 and 96 US cents.
Both research houses are positive on the REIT’s US$122 million acquisition of Centrepointe I & II in Virginia, USA – a deal which is set to be DPU- and yield-accretive, and adds to the trust’s overall portfolio weighted average lease expiry (WALE).
In a Thursday report, Maybank analyst Chua Su Tye says MUST’s valuation is compelling now that it offers DPU yields of 6.8-7.1% for FY201E, versus the 4.6-6.5% offered by its office S-REIT peers.
In particular, he likes the Centrepoint for its historical above-market occupancies, premium rental rates compared to other properties in its sub-market, and diversified tenant base with 100% of its leases with embedded rental escalations of 2.5-3% per annum.
He sees further DPU upside with a low gearing of 36.8% post the Centrepointe acquisition, which will help to support even more acquisitions going forward.
“We expect acquisitions to provide DPU upside, backed by USD101-284 million debt headroom and its sponsor’s strong deal pipeline of real-estate assets concentrated in the US,” says Chua.
Likewise, RHB analyst Vijay Natarajan sees MUST’s valuations as attractive with the REIT trading at 1 times price-to-book value, versus the S-REITs average of 1.1 times.
He views the deal as highly accretive to MUST’s pro-forma FY18 DPU at +3.3%, and thus has revised his FY19-21F DPU estimates higher by 2-3% to factor in the latest acquisition contributions.
Further, Natarajan believes the anticipated setup of Amazon’s corporate headquarters nearby in Arlington, Virginia, will also help to “fuel a multi-sector office, residential, hospitality and retail boom” in the area – which is likely to benefit Centrepointe in turn.
“The property’s rent has been generally at a 10-25% premium to the market over the last eight years due to its superior attributes. While we do not foresee a near-term rental uplift, its strong market positioning, long WALE, and good quality tenants provides comfort in terms of earnings visibility,” notes the analyst.
As at 11:26am, units in MUST are trading flat at 87 US cents, implying a 6.8% Dec-19F dividend yield according to RHB estimates.
