RHB Reduces Manulife US REIT’s Target Price Due To Sharper Value Drop Of Its Office Assets
USA – Due to concerns over the significant fall in the valuation of Manulife US REIT’s office properties, as the US office sector remains in a “state of flux,” RHB Research has lowered its target price for the trust, reported The Business Times on Tuesday afternoon (3 January, SGT)
Nonetheless, the research house maintained its “buy” call on Manulife US REIT.
On Tuesday, RHB Research analyst Vijay Natarajan disclosed that the trust’s units are trading at a discount of over 40 percent compared to its marked-down book value.
Moreover, the 10.9 percent drop in the valuation of the Manulife US REIT property portfolio as of the end of 2022 was “worse-than-expected”. The trust’s leverage ratio also rose to 49 percent, just shy of the 50 percent cap required by the Monetary Authority of Singapore (MAS).
Still, Natarajan believes it’s possible that the trust’s sponsor, Manulife, may step in to help. A potential result of the REIT’s ongoing strategic review could see Manulife giving financial assistance via acquisitions or equity funding.
“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,” he explained.
“It could also underwrite equity fund-raising at a premium, although the maximum 10 percent stake cap limits such options.”
However, Natarajan slashed his expected distribution per unit (DPU) for Manulife US REIT for FY2023 to FY2024 by 15 percent. This is because he thinks the trust would conserve cash by trimming the dividend payout ratio from 100 percent at present to 90 percent. Manulife US REIT’s average occupancy rate and financing assumptions were also reduced by a similar amount.