SINGAPORE (May 3): DBS is maintaining its “buy” call on Manulife US REIT (MUST) with a higher target price of US$1.01, up from US$0.95 previously.
In a Tuesday report, analyst Mervin Song cites exposure to an improving US office market as the main upside catalyst for the REIT.
According to Song, MUST continues to provide an attractive prospective 7.6% yield, in-built rental escalations and exposure to favourable demand and supply fundamentals in the various US office market where its properties are located.
"This translates to a 12% DPU growth in FY17 on an annualised basis, one of the highest among Singapore REITs,” says Song.
To recap, MUST made a strong start to the year, with 1Q17 DPU coming in at 1.65 US cents, 8.6% above IPO forecasts.
The double-digit rental reversions it has achieved since listing also indicate that MUST’s properties in Midtown Atlanta and Downtown Los Angeles submarkets continue to see increasing rents, expansionary tenant demand, higher employment opportunities and also a lack of competitive new supply.
“Apart from upside when leases are due, about 86% of leases by net lettable area (NLA) have annual rental escalations of about 3%,” says the analyst.
Looking ahead, strategic acquisitions are expected to be MUST’s next catalyst for growth.
With the manager adopting a disciplined strategy towards acquisitions and with the recent decline in gearing to 33-34%, MUST is also well positioned to execute on DPU-accretive acquisitions.
“Markets that are of interest are core submarkets that enjoy demand from a diversified type of industries (i.e. manufacturing, financial, technology and law firms) which imply stability across market cycles,” says Song.
Units of MUST are trading 1 cent higher at 85 cents.
