SINGAPORE (Nov 6): RHB is maintaining Manulife US REIT at “buy” with 98 US cents target price as overall office market dynamics remain positive in the near-term.
DPU growth ahead would be driven by contributions from recent acquisitions and positive rent growth, says RHB. Rent reversions are also expected to stay firm as portfolio rents are still below current market rents.
“Maintain ‘buy’. Manulife US REIT remains one of our Preferred Picks among mid-cap REITs. We have adjusted our DPU figures to fully reflect the effects of a rights issue,” says analyst Vijay Natarajan.
According to Jones Lang LaSalle’s 3Q report, overall Class A rent growth in the US slowed 120bps but remained positive at 2.5% y-o-y.
More importantly, the micro-market supply across Manulife US REIT’s portfolio locations remains limited.
As average rents across its office properties are still 5-10% below the current passing rents, he also expects rent reversions to stay positive in the mid-single digit level for next year.
“Key to note is that rent reversions are in addition to the inbuilt rent escalations of ~2-3% pa,” says Natarajan.
The acquisition of 500 Plaza Drive (Plaza) in New Jersey was completed in July with maiden contributions recorded in 3Q.
The property, with a high occupancy of 98.9% and long weighted average lease to expiry (WALE) of 8.6 years, was acquired at a healthy NPI yield or more than 7%.
More recently, Manulife US REIT completed the acquisition of 10 Exchange Place in Jersey City.
The two acquisitions in quick succession shows management’s ability to deliver inorganic growth despite the competitive landscape and cap rate compression, says RHB.
Meantime, Keppel-KBS US REIT would be listing a portfolio of 11 office assets across seven major cities. The REIT is expected to commence trading on 9 Nov.
“We view the listing favourably as it would help Asian investors gain a better understanding of the US office market and broaden investor base,” says the analyst.
Although Keppel-KBS US REIT offers FY18 indicative yields of 6.8% which is slightly higher than Manulife US REIT, Natarajan believes Manulife US REIT’s Class A assets and good location attributes deserve a premium.
Units in Manulife US REIT are trading at 90 US cents with a dividend yield of 6.1% for FY17.
