MANULIFE US REIT
BTOU.SI
Manulife US Real Estate Inv - Recovery not priced in yet
- New loan agreements have lower than expected interest cost of 2.46% versus IPO guidance of 2.8%.
- 3% uplift to FY16-18F DPU.
- Raise TP to S$0.93 from S$0.91.
Play on exposure to the US property market which is in the early stages of recovery.
- We maintain our BUY call with a revised TP of S$0.93. We continue to like Manulife US REIT (MUST) for its exposure to the Atlanta and Los Angeles office markets which are in the early stages of recovery.
- Based on Colliers estimates, market rents where MUST’s properties are located are projected to rise 1.5%-23.0% over 2015-2017.
- In addition, we see potential for MUST’s valuation to catch up with its US peers.
- Since listing, MUST has been a laggard with its share price only up 3% versus the US office REIT index which has risen 11%.
Long WALE of 5.7 years with inbuilt growth.
- MUST’s long WALE of 5.7 years (by NLA), which is longer than the majority of Singapore office REITs, provides strong cashflow visibility.
- In addition, 80.2% of leases by NLA have annual rental escalations of between 2.5-3.5% and 18.9% have provisions for mid-term or period rent increases. Thus, the REIT provides investors with an inbuilt growth platform.
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.
Valuation:
- We raise our DCF-based TP to US$0.93 from US$0.91 after lowering our WACC to 6.2% from 6.4% as we incorporate a lower cost of debt.
Key Risks to Our View:
- Lower than expected rental income. The key risk to our view is lower than expected rental income arising from the non- replacement/renewal of leases and/or slower than expected recovery in office rents in the US.
Mervin Song CFA
DBS Vickers
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Derek Tan
DBS Vickers
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http://www.dbsvickers.com/
2016-07-18
DBS Vickers
SGX Stock
Analyst Report
0.93
Up
0.91
