Manulife US REIT started at Add by CGS-CIMB

U.S. five dollar currency notes bills; taken September 2018.

CGS-CIMB started Manulife US REIT at Add with a US$1.12 target price, pointing to its distribution per unit (DPU) yield of 6.6 percent, above the Singapore office REITs’ around 4.5 percent to 6.4 percent.

“We like the REIT for its exposure to the rising office rental market in the U.S.,” CGS-CIMB said in a note Thursday. “Manulife US REIT (MUST) stands out as the leading U.S.-centric office S-REIT, backed by a portfolio of nine trophy or Class A properties and 184 quality tenants. The portfolio is well diversified, spread across five of the top 15 major U.S. metropolitan areas by population and GDP statistics.”

“Having a strong sponsor in Manulife Financial Corp., with a significant network and industry expertise, sets it apart from its peers, in our view,” the brokerage added.

DPU visibility is backed by a weighted average lease expiry of 6.2 years and high portfolio occupancy of 97.2 percent as of end-June, as well as built-in rental escalations of 2 percent a year, the brokerage said.

The REIT also has inorganic growth from the Penn and Phipps properties acquired last year and the Centrepoint and 400 Capital properties acquired this year, CGS-CIMB said.

The brokerage estimated the REIT would see above-sector average DPU compound annual growth rate of 5.1 percent over 2018 through 2021.

The projected 6.6 percent DPU yield this year is an around 480 basis point spread over the U.S. 10-year Treasury bond yield and a 490 basis point spread over the Singapore 10-year bond yield, the brokerage said. U.S.-listed office REITs have an average dividend yield of 3.6 percent to 3.8 percent, the note said.

“With the recent equity fundraising, MUST’s free float market cap has increased to US$1.3 billion, which qualifies it for potential inclusion into the FTSE EPRA NAREIT Global Developed Index. We see this as a significant upside catalyst, in addition to a strengthening U.S. dollar,” CGS-CIMB said.

The units ended Friday up 0.55 percent at US$0.92.

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