RHB Group Research analyst Vijay Natarajan has kept his “buy” call and target price of 43 US cents (57.96 cents) on Manulife US REIT (MUST) BTOU after Mirae Asset was identified as the preferred bidder to buy MUST's manager along with a stake in the REIT.
The manager of MUST, on March 15, confirmed that it was in discussions with Mirae, a leading South Korean asset manager. Mirae has a presence in 13 countries and assets under management (AUM) of over US$198 billion as at end-December 2022.
To Natarajan, the outcome, should it materialise, will be a “positive catalyst” in his view as the deal will address several issues such as MUST’s gearing and future growth trajectories.
“We assume Mirae will subscribe for the maximum 9.8% stake or [around] 174 million new units. This works out to a new issuance share price of 48 US cents, i.e. a 13% discount to its net asset value (NAV), based on above proceeds,” says the analyst.
“Such a transaction will result in pro forma (FY2022) distribution per unit (DPU) and NAV dilutions of 9% and 1%,” he adds.
More importantly, Natarajan points out that Mirae’s assuming debt repayment will lower MUST’s gearing to just below 45%, which is the official threshold limit for REITs with an interest coverage ratio (ICR) below 2.5x. MUST’s latest ICR stands at 3.1x.
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In his report dated March 16, Natarajan has kept his earnings unchanged. His target price includes a 6% premium due to MUST’s high environmental, social and governance (ESG) of 3.3 out of 4.0.
As at 10.53am, units in MUST are trading 0.5 US cent higher or 1.89% up at 27 US cents.
