Manulife US REIT expected to continue to ride on strong U.S. office market

SINGAPORE (May 4): Following its better-than-forecasted 1Q results, Manulife US REIT (MUST) is expected to remain solid, according to RHB Research.

“Improvement [was] seen in all quarters,” says RHB analyst Vijay Natarajan in a Wednesday report. “We expect MUST to continue benefitting from the strong underlying fundaments in the US office market with its strategically located three freehold US office properties.”

In the first quarter ended March, MUST beat its IPO forecasts by 8.6% to deliver distribution per unit (DPU) of 1.65 US cents (2.3 Singaporean cents) on the back of higher occupancy, rental increase from rent review, and lower interest costs.

According to Natarajan, MUST offers superior FY17F-18F dividend yields of 7.5% and 7.6%, respectively, which is 100-150 basis points above the average offered by Singapore office REITs.

To this end, RHB is keeping its “buy” call on Manulife US REIT with an unchanged price target of 96 US cents.

“Office fundamentals in the US remain strong,” says Natarajan. Driven by limited supply and improving office demand, rent reversions are expected to remain positive in mid-single digits, he adds.

Natarajan expects MUST to acquire “at least one yield accretive office property in 2017”, which could further boost DPU growth.

“Near-term acquisitions are expected to be around US$100-150 million, likely targeting key secondary cities to provide portfolio diversification,” he says. “Gearing remains comfortable at 34.2% providing funding flexibility.”

Units of Manulife US REIT were trading at 85 US cents at midday trading today. — theedgemarkets.com.sg

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