SINGAPORE (Sept 5): RHB says Manulife US REIT’s acquisition of 10 Exchange Place in New Jersey will further diversify its portfolio both geographically and in terms of tenant mix.

The target is a freehold Class A property that is well located, with prominent frontage along the Hudson river waterfront and offers excellent connectivity to New York City.

The property’s pro-forma FY16 NPI yield of 5.7% also has upside potential from rental growth as average rents are well below market.

“Maintain ‘buy’ and target price of US$0.98, with a 13% upside from theoretical ex-rights price of US$0.87,” says analyst Vijay Natarajan in a Tuesday RHB report.

The acquisition will be partly funded by a rights issue with the remaining to be funded by debt.

The rights units are priced at US$0.695 each, an attractive 26% discount to closing price, says Natarajan.

According to RHB, the current average in-place rent of US$38.20 psf is attractive vs 1Q17’s average asking rental of US$46.30 psf, offering room for positive rent reversions.

Additionally, rental growth is likely to be supported by a lack of visible supply pipeline in the sub-market.

Management says half of leases expiring at the end of this year are unlikely to be renewed. However, the impact is likely to be offset by the potential signing of a new tenant which is in advanced negotiations to occupy the entire top floor.

The majority of current leases have mid-term/periodic rent escalations, which management guided to be ~10% increase, from the 6-10th year of the lease period.

Post-acquisition, no single tenant would account for 6.7% of cash rental income with top 10 tenants accounting for about 47.7%, down from 64.1%.

The concentration of law firm will also decline to 27.8% from 36.7%, with two new trade sectors -- transportation & warehousing, professional & technical services -- being added to the portfolio.

As at 10.26am, units in Manulife US REIT are trading at 94 cents.

Manulife US REIT's 10 Exchange Place acquisition to help diversify its portfolio, tenant mix

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