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

RHB Research has slashed its target price on Manulife US Real Estate Investment Trust (Reit) : BTOU 0% to US$0.43 from US$0.64 on concerns of sharp valuation declines in the Reit’s portfolio, as the US office market remains in a “state of flux”.

The research house maintained a “buy” call on the Reit.

On Tuesday (Jan 3), analyst Vijay Natarajan noted that the Reit traded at a more than 40 per cent discount to its marked-down book value.

Natarajan also highlighted the “worse-than-expected” 10.9 per cent decline in the valuation of the Reit’s portfolio as at end-2022, along with the subsequent rise in the Reit’s gearing ratio to near regulatory limits.

With the Reit’s gearing ratio at 49 per cent – just below the 50 per cent limit mandated by the Monetary Authority of Singapore – Natarajan expects one possible area of support to be the Reit’s sponsor, Manulife.

A positive outcome from the Reit’s ongoing strategic review would be Manulife providing financial assistance through acquisitions or equity funding, Natarajan said.

GET BT IN YOUR INBOX DAILY

Start and end each day with the latest news stories and analyses delivered straight to your inbox.

Sign UpVIEW ALL

He added: “We believe possible options for the sponsor are (to) set up a real estate fund to buy some of Manulife US Reit’s assets, or take a stake in the assets based on their latest valuations.”

“It could also underwrite equity fund-raising at a premium, although the maximum 10 per cent stake cap limits such options.”

The analyst lowered his FY2023 to FY2024 distribution per unit estimates by 15 per cent, after factoring in the need for Manulife US Reit to conserve cash by trimming the dividend payout ratio to 90 per cent, from 100 per cent currently. Occupancy rate and financing assumptions were similarly revised.

Natarajan derived the target price of US$0.43 after lowering the Reit’s terminal growth assumption to 1.5 per cent, down from 2 per cent previously.

Units of the Reit traded at US$0.285, down 5 per cent or US$0.015, as at 1 pm on Tuesday.