The property’s pro-forma FY16 NPI yield of 5.7% also has upside potential from rental growth as average rents are well below market.
“Maintain ‘buy’ and target price of US$0.98, with a 13% upside from theoretical ex-rights price of US$0.87,” says analyst Vijay Natarajan in a Tuesday RHB report.
The acquisition will be partly funded by a rights issue with the remaining to be funded by debt.
The rights units are priced at US$0.695 each, an attractive 26% discount to closing price, says Natarajan.
See also: SAC Capital initiates ‘buy’ on Sanli Environmental after $105.3 mil contract win from PUB
According to RHB, the current average in-place rent of US$38.20 psf is attractive vs 1Q17’s average asking rental of US$46.30 psf, offering room for positive rent reversions.
Additionally, rental growth is likely to be supported by a lack of visible supply pipeline in the sub-market.
Management says half of leases expiring at the end of this year are unlikely to be renewed. However, the impact is likely to be offset by the potential signing of a new tenant which is in advanced negotiations to occupy the entire top floor.
See also: CGSI downgrades Grab to ‘hold’ ahead of 2QFY2025 results, expects consumer spend to slow in 2H2025
The majority of current leases have mid-term/periodic rent escalations, which management guided to be ~10% increase, from the 6-10th year of the lease period.
Post-acquisition, no single tenant would account for 6.7% of cash rental income with top 10 tenants accounting for about 47.7%, down from 64.1%.
The concentration of law firm will also decline to 27.8% from 36.7%, with two new trade sectors – transportation & warehousing, professional & technical services – being added to the portfolio.
As at 10.26am, units in Manulife US REIT are trading at 94 cents.
