SINGAPORE (Feb 6): UOB Kay Hian is starting coverage of Manulife US REIT with a "buy" as an up-and-coming institutional player with a US$1.3 billion ($1.7 billion) portfolio of prime freehold assets.
In a Monday report, analyst Loke Peihao says Manulife US REIT has ample opportunities for acquisition-led growth by tapping on its strong sponsor which manages over US$15 billion in real estate AUM globally.
See: Manulife US REIT declares flat 4Q17 DPU of 1.42 cents on rights issue
The acquisition of 10 Exchange Place from sponsor Manulife Financial Corporation led to an immediate yield-accretion of 2.2% and has further room for 6% revaluation gains.
Manulife US REIT also offers a tax-efficient institutional vehicle to gain exposure to the burgeoning US commercial market, says Loke.
Parking its assets in US sub-REITs that qualify for portfolio interest exemption also reduces US taxes while distributions to the Singapore REIT remain tax-exempt.
According to Loke, there is limited new supply and stable demand across the Northern New Jersey, Orange County, Los Angeles and Atlanta submarkets that Manulife US REIT operates in. About 75% of its leases have annual rental escalations of 2.8% on average.
As at end Dec 2017, the REIT's portfolio has a healthy 96% occupancy and long WALE of 5.9 years.
Recently, Manulife US REIT's market cap breached the US$1 billion threshold. Loke says this could lead to better valuations as the improved liquidity attracts bigger institutions and fund managers.
Manulife US REIT offers a yield of 6.5%, which is about 150bp higher than their Singapore peers’ despite the latter having mostly leasehold properties.
As at 1.53pm, units in Manulife US REIT are down 3 cents at 90 US cents, giving a forecast FY18 distribution yield of 6.7%.
