Manulife US Real Estate Inv - DBS Research 2016-07-05: From strength to strength

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MANULIFE US REIT BTOU.SI 

Manulife US Real Estate Inv - From strength to strength

• Unique exposure to US freehold office properties which are at the cusp of a sustained recovery.
• Reputable Sponsor with a sizeable presence and proven track record in real estate in the US.
• 8% DPU growth in the midst of slowing SREIT market.
• Initiating coverage with BUY with TP of US$0.91.

Freehold properties leveraged to US office recovery. 

• Manulife US REIT (MUST) offers investors a unique opportunity to invest in high quality freehold properties in the US, where the real estate market outlook is favourable and the economy is recovering. 
• The initial portfolio comprises three Class A or Trophy buildings – Figueroa, Michelson and Peachtree located in the prime areas of 
  1. Downtown Los Angeles, 
  2. Irvine, Orange County and 
  3. Midtown, Atlanta respectively. 
• With 15.6% of leases due to expire over FY16-17F, MUST is well positioned to capture the improvement in market rents which according to Colliers is projected to rise by 1.5%-23.0% over 2015-2017 in the areas where MUST’s properties are located.

Long WALE with inbuilt growth. 

• MUST offers strong cashflow visibility with a weighted average lease expiry (WALE) by net lettable area (NLA) of 5.7 years. Beyond a stable income base, the initial portfolio also provides steady organic growth as c.80.2% of leases by NLA have annual rental escalations of between 2.5%-3.5%.

Backed by strong sponsor with robust track record in the US. 

• MUST’s Sponsor is Manulife Financial Group, whose real estate arm has over 70 years worth of experience managing multi-billion dollar global real estate portfolios with particular expertise in the US. 
• Leveraging on its Sponsor’s skill sets across the real estate value chain as well as strong acquisition track record, MUST is well placed to take advantage of acquisition/inorganic opportunities.

Initiating coverage with BUY. 

• We initiate with a BUY recommendation with a DCF-based TP of US$0.91. 
• MUST offers an attractive combination of high yield (6.8-7.3%) and growth. MUST is projected to deliver 8% DPU growth which compares favourably to the average 2% growth on offer by the S-REIT market.

Mervin Song CFA DBS Vickers | Derek Tan DBS Vickers | http://www.dbsvickers.com/ 2016-07-05

DBS Vickers SGX Stock Analyst Report BUY Initiate BUY 0.91 Same 0.91