Brokers’ take: Analysts lower targets for Manulife US Reit as occupancy rates disappoint

ANALYSTS from various brokerages were disappointed by Manulife US Reit ’s H1 performance, which saw distribution per unit (DPU) slip due to lower occupancy in its portfolio. This led to a cut in target prices across the board, though they remained largely bullish on the office Reit’s future performance.

RHB analyst Vijay Natarajan noted the return-to-office activities involving its gateway portfolio have been slower than expected and weak compared to that of secondary growth markets.

“This uncertainty has resulted in slow leasing momentum and downsizing by existing tenants, although Manulife US Reit’s long lease profile and limited upcoming lease expiries mitigates some of this impact,” he said.

The brokerage on Friday (Aug 5) adjusted its target price to US$0.78 from the earlier US$0.83 but maintained a “buy” call on the belief that the current uncertainties have already been priced in.

CGS-CIMB echoed similar sentiments as its target price was lowered to the same as that of RHB’s, while reiterating an “add” call on the Reit, noting that its H1 DPU of US$0.0261 came in slightly below its FY2022 forecast.

Analyst Lock Mun Yee believes the potential income vacuum from expiring leases, uncertainty over demand outlook as tenants adopt a hybrid work structure, and rising tenant incentives are likely to drag on Manulife US Reit’s near-term prospects. 

Factoring in the downtime needed to backfill the vacated spaces, Lock also lowered her FY2022 to FY2024 DPU estimates by 10.2 to 14.3 per cent and tempered forward rent growth expectations.

Potential rerating catalysts include better-than-expected rental reversions and faster-than-expected ramp-up in portfolio occupancy, she added.

Separately, Maybank also maintained its “buy” call on Manulife US Reit, but lowered its target price to US$0.85 as it expects better rental reversions and an improved performance for the second half of the year.

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Analyst Chua Su Tye was slightly more upbeat on a recovery in US offices in H2, supported by rising physical occupancies and higher leasing volumes.

“Strong asset management know-how is key in our view, and we see management prioritising asset enhancement initiatives and adding flex-space, to support yields on its trophy assets, as demand eases with hybrid work arrangements,” said Chua.

However, with a relatively higher gearing of 42.4 per cent, Maybank’s Chua and RHB’s Natarajan opined there was little room for near-term acquisition growth.

Downside risks, said CGS-CIMB’s Chua, could come from a protracted slowdown in the US economy, further dampening appetite for office space.

Manulife US Reit units were trading 1.7 per cent or US$0.01 lower at US$0.585 as at the midday trading break on Friday.