SINGAPORE (Feb 7): Manulife US REIT (MUST) on Tuesday announced that its 4Q17 DPU came in flat at 1.42 US cents (1.88 cents), matching its IPO forecast
This brought FY17 DPU to 5.77 US cents, 1.7% lower than 5.87 US cents which was projected for the REIT.
Gross revenue came in at US$29.3 million for the quarter, 51.5% higher than the previous year, while net property income (NPI) was US$18.4 million, 54.1% higher than last year.
See: Manulife US REIT declares flat 4Q17 DPU of 1.42 US cents on rights issue
In a Wednesday report, RHB is maintaining its “buy” call on MUST with a target price of 98 US cents.
The REIT has made two key changes to its existing tax structure in light of the recent US tax reforms.
The changes would results in the replacement of existing US sub-REITS with entities that will directly hold individual office assets, and the incorporation of a Barbados entity which will allow it to enjoy the withholding tax exemptions on the interest and principal amount of shareholder loans.
However, the net impact of changes is expected to be minimal as additional local taxes would have to be paid in Barbados.
Meanwhile, the REIT’s management is actively seeking for acquisition opportunities in key US cities, targeting Grade-A/trophy quality assets, which it views as less vulnerable to market cycles.
“While MUST has limited leases due for renewal this year, we expect management to proactively renew some of its 2019 leases this year,” says RHB analyst Vijay Natarajan.
On the supply front, the analyst notes that the micro-market supply across locations where the group’s assets are remains limited. And as average rental rates across its office properties are still 5-10% below current passing rates, Natarajan expects rental reversions to stay positive, at mid-single digits.
“While the market is slightly concerned over the impact of faster-than-expected US Fed rate hikes, we note that this is on the backdrop of a stronger US job market and higher wage growth, which is positive for office demand,” says Natarajan.
Likewise, DBS is keeping its “buy” call on MUST with a slightly higher target price of US$1.00.
The research house likes MUST as it is a “REIT that delivers”.
Since MUST’s listing 1.5 years ago, it has delivered with DPU exceeding IPO forecasts, property values increasing by over 10%, and the ability to identify DPU-accretive acquisitions.
In a Wednesday report, analyst Mervin Song says, “With the recent US tax cuts expected to spur economic activity and demand for office space, we believe MUST remains an attractive investment as its original investment thesis of rising rents and improving capital values remain intact.”
The analyst also believes that with the REIT’s available debt headroom, additional acquisitions will remain a key share price re-rating catalyst going forward.
“We understand markets that are of interest are core submarkets that enjoy demand from diversified industries which imply stability across market cycles,” says Song.
The REIT also announced that it has planned to double the size of its assets under management to US$2.6 billion over the next few years.
Although the analyst reckons that some investors may react negatively to this, he is supportive of this growth strategy, as the REIT has shown financial discipline thus far and is able to identify DPU-accretive acquisitions.
Song also views that an enlarged portfolio will bring further diversification benefits and the resultant market cap should bring about higher yield over time.
Moreover, with the US already on a multi-year upturn, it is best for MUST to seize opportunities now rather than wait.
MUST is also boosting its competitive position by undertaking asset enhancement initiatives (AEI) at its Figueroa and Exchange properties over the coming year.
As at 11.38am, units in MUST are trading 2.2% higher at 93 US cents or 1.1 times FY18 book with a dividend yield of 6.5%.
