Manulife US REIT - DBS Research 2016-10-10: Wait no longer

Manulife US REIT - DBS Vickers 2016-10-10: Wait no longer MANULIFE US REIT BTOU.SI

Manulife US REIT - Wait no longer

  • Site visit to properties and meetings with property brokers give us increased confidence on REIT’s ability to beat forecasts.
  • Portfolio located in key submarkets that enjoy strong operational dynamics.
  • Acquisitions to further diversify geographic and tenant exposures.

Play on exposure to the US property market which is in the early stages of recovery. 

  • We maintain our BUY call and TP of S$0.93. 
  • We continue to like Manulife US REIT's (MUST) strong organic growth prospects (CAGR of 5% over FY16-17F) which is one of the highest among REITs in Singapore. The expected strength of the USD/SGD exchange rate could potentially result in inflows into the stock.

Increased confidence on the REIT’s ability to beat forecasts post site visit. 

  • Our recent visit to properties in the US and meetings with various property brokers indicate that market fundamentals remain firm. 
  • We believe that MUST's properties in Midtown Atlanta and Downtown Los Angeles submarkets will continue to see steadily increasing rents, continued expansionary tenant demand, increased employment opportunities and also a lack of competitive new supply. 
  • Apart from upside when leases come due, 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.
  • The REIT is expected to deliver consistent stable growth.

Acquisitions to be the next driver of growth. 

  • The manager has been disciplined towards acquisitions and we believe that any executed acquisitions will be accretive to distributions.
  • Apart from that, we expect any acquisition to diversify the REIT’s geographic earnings base and tenant concentration.
  • Markets that are of interest are core submarkets that enjoy demand from a diversified type of industries (i.e. manufacturing, financial, technology and law firms) which imply stability across market cycles. We have not priced in acquisitions in our forecasts.


  • TP is maintained at US$0.93 based on DCF. 
  • The stock offers an attractive FY16-17F 6.8-7.4% yield.

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 nonreplacement/renewal of leases and/or slower-than-expected recovery of office rents in the US.

Derek Tan DBS Vickers | Mervin Song CFA DBS Vickers | 2016-10-10
DBS Vickers SGX Stock Analyst Report BUY Maintain BUY 0.93 Up 0.930