Brokers’ take: Analysts lower Manulife US Reit target price amid higher financing costs

CITING higher financing costs, analysts have lowered their target prices for Manulife US Reit while maintaining their "buy" calls.

CGS-CIMB reduced its target price from US$0.78 to US$0.69 as they revised their earnings estimates on the Reit, coupled with a higher cost of equity assumption. Its analysts Lock Mun Yee and Natalie Wong also lowered their forecasted distribution per unit (DPU) for FY2022 by 2.1 per cent to US$0.05, noting that the Reit's all-in cost of funds rose to 3.3 per cent, with interest cover of 3.4 times as the quarter ending Sep 30.

Meanwhile, RHB lowered its target from US$0.78 to US$0.64 after factoring in higher-than-expected financing costs, in particular for the refinancing of loans amounting to US105 million maturing in 2023. The brokerage believes interest cost for this tranche is likely to come in between 100 and 150 basis points higher than the current 3.3 per cent. It forecasts a DPU of US$0.052 for FY2022.

Manulife US Reit had on Wednesday (Nov 2) reported a drop in portfolio occupancy to 88.1 per cent, from 90 per cent as at end-June. RHB analyst Vijay Natarajan noted that a "flight to quality" trend, with tenants more willing to pay higher for good quality office spaces, could improve the leasing momentum moving forward.

However, CGS-CIMB said that the Reit's occupancy could come under pressure in the medium term, with major tenant TCW Group deciding to vacate its space in the Figueroa property when its lease expires in December 2023. Lock and Wong also highlighted that the protracted slowdown in the US economy could dampen appetites for office space.

In maintaining RHB's "buy" call, Natarajan noted that the challenges faced by gateway city offices have been priced in, with units of the Reit trading at a "distressed valuation" of 0.5 times price to book value (P/BV) multiple, and with a projected forward yield of about 15 per cent.

As at the midday trading break on Thursday, units of Manulife US Reit remained unchanged at US$0.355.



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