SINGAPORE (Nov 23): RHB Singapore is initiating coverage on Manulife US REIT with a "buy” recommendation with a target price of 96 US cents (S$1.37) (RM4.28).

As the first and only listed US office REIT in Asia, Manulife US REIT’s portfolio comprises three US freehold office properties with a total value of about US$813.2 million.

“We believe Manulife US REIT offers a compelling value proposition for yield-hungry cum growth-oriented investors,” comments analyst Vijay Natarajan in a Wednesday report.

According to the analyst, one the benefits the REIT offers includes high FY17F and FY18F dividend yields of 8% and 8.1% respectively, which stands a good 100 basis points (bps) above the office S-REITs average.

He also notes strong pipeline assets to drive inorganic growth, as well as clear visibility of distribution per unit (DPU) growth with 84% of the REIT’s portfolio leases having inbuilt rental escalation clauses averaging 3% per annum.

While the US Federal Reserve (Fed) rate hike generally has a negative impact on yield instruments such as REITs, Natarajan believes this may be mitigated on Manulife US REIT as it would concide with a pick-up in the US economy and office demand.

“The rate hike would also result in the strengthening of the USD, benefitting Asian investors… Manulife US REIT refinanced its IPO bridge loan facility to a 4-year fixed-term loan at a lower interest cost of 2.46%, thus shielding it from higher borrowing costs,” he elaborates.

Lastly, the analyst highlights Manulife US REIT’s “tax-efficient structure” as the REIT aims to receive 100% of its income in the form of interest or principal repayments on its shareholder loan, which is exempt from tax in both the US and in Singapore.

“[Manulife US REIT] offers the best proxy for investors looking to benefit from a rebounding US economy and stable USD exposure,” states Natarajan.

As at 11.30am, units of Manulife US REIT are trading 0.6% higher at 80 US cents. —

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