Brokers’ take: RHB lowers Manulife US Reit’s target price following Oregon property divestment

RHB Research has lowered its target price for Manulife US Real Estate Investment Trust (Manulife US Reit) from US$0.43 to US$0.40.

The research house maintained its “buy” call on the Reit in a report on Thursday (Apr 13), a day after the Reit divested its office campus in Hillsboro, Oregon for US$33.5 million.

This is the second time in two months that RHB has dropped the target price for Manulife US Reit.

Tanasbourne, the divested property, is Manulife US Reit’s smallest asset.

The Reit is expected to book a net loss of US$400,000 from the divestment.

To factor in the asset sale, analyst Vijay Natarajan lowered his FY23-FY25 distribution per unit forecasts by 4 per cent to 5 per cent.

The new target price also incorporates a lower governance score to reflect a “lack of clear communication of challenges faced in some of (the Reit’s) assets and delayed sponsor support”, along with leaner margin assumptions on expectations of higher tenant incentives.

The analyst also flagged market concerns over how Mirae’s proposed subscription to Manulife US Reit’s new unit issuance would be dilutive, as the Reit is trading well below its net asset value of US$0.55.

“We acknowledge and share similar concerns, but will await for the final deal proposal to evaluate the merits of such a transaction,” he said.

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Brokers’ take: RHB lowers target price for Manulife US Reit amid sharp valuation decline

Manulife US Reit divests Oregon property for US$33.5 million; still in talks with Mirae for sale of manager

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While Natarajan is concerned about the divestment of a property which is “among (the Reit’s) best-performing assets” with full occupancy, he maintains that the sale is a choice that “fits the time constraints” as the sale of a bigger asset could take three to six months.

Thus, he believes that Manulife US Reit’s recent unit price correction has been overdone, as deteriorating US office conditions and the Reit’s ongoing refinancing concerns “does not justify” the plunge.

“(Manulife US Reit’s) debts are from local (Singapore) lenders, are fully unsecured, and it faces no immediate refinancing issue,” he noted.

Units of the Reit closed 0.5 per cent or US$0.001 higher at US$0.185 on Thursday.