SINGAPORE (Apr 26): Analysts are keeping their “buy” calls on Manulife US Real Estate Investment Trust (Manulife US REIT), after the group reported a strong start to the year.
Manulife US REIT, or MUST, saw its DPU climb to 1.51 US cents for the 1Q19 ended March, 22.8% higher than the 1.23 US cents DPU declared the same quarter a year ago.
1Q19 gross revenue rose 28.5% to US$40 million ($54.5 million) on the back of revenue contribution from Penn and Phipps properties acquired in June 2018, while net property income grew 27.7% to US$25.1 million.
See: Manulife US REIT declares 22.8% higher 1Q DPU of 1.51 US cents on enlarged portfolio
“Manulife US REIT’s 1Q19 results are slightly above estimates. The continued improvement in portfolio occupancy is a testament to its asset quality and capable management team,” says RHB Group Research analyst Vijay Natarajan in a report on Friday, adding that MUST remains one of the brokerage’s top picks in the REITs sector.
“Rental reversions have been largely positive (on top of rate escalations) since listing, aided by strong market fundamentals and its market positioning,” he adds.
RHB has a target price of 94 US cents on MUST.
Over at DBS Group Research, lead analyst Mervin Song believes spot rents in MUST’s key markets generally still on an uptrend, which should bode well for the group.
“MUST indicated that rents at a majority of its properties are 5-14% below market which provides opportunities to increase rents as leases come up for renewal,” Song says in a Friday report. “This combined with 94% of leases having annual escalations of 2.5-3.0% should underpin a positive outlook for MUST’s earnings ahead.”
In addition, Song notes that MUST trades on an attractive 6.7-6.8% yield based on its current share price. And he sees further upside if MUST refinances its debt below the assumed 4.5% interest rate.
“Based on our understanding of current market conditions, we believe MUST should be able to secure a five-year facility at around 3.95%,” says Song. “Thus, we maintain our positive stance on MUST and retain our ‘buy’ call and target price of 92 US cents.”
Meanwhile, Maybank Kim Eng Research analyst Chua Su Tye agrees that MUST should see steady yield growth with 94% of leases backed by rent escalations, and supported by the 5-14% gap between existing and market rents.
“Net absorption has been strong against rising new supply, and backed by macro-economic fundamentals,” Chua says.
While MUST’s gearing has risen steadily to fund four acquisitions since its IPO in May 2016, Chua believes the REIT still has room to grow on the back of its sound balance sheet and strong sponsor pipeline.
“[Gearing] remains at a comfortable 37.6%, or US$260 million in debt headroom,” Chua says. “We expect acquisitions to provide upside to DPUs, supported by its sponsor’s strong deal pipeline of real-estate assets concentrated in the US.”
Maybank is keeping its target price of $1.00 on MUST.
As at 4.23pm, units in MUST are trading half a US cent higher at 87 US cents, up around 10% year to date.
According to DBS valuations, this implies an estimated price-to-earnings (PE) ratio of 16.7 times and a dividend yield of 6.8% for FY19F.
