UNITS of Manulife US Real Estate Investment Trust : BTOU +29.31% (Reit) jumped as much as 31 per cent on Monday (Nov 6) amid heavy trading, extending gains recorded on Friday.

 

The heavy trading came as investors digest the Reit&rsquo s business update on Friday. The Reit&rsquo s manager announced that it is on track to conclude negotiations with lenders by the end of 2023, along with the potential introduction of a sponsor support package which could help with the Reit&rsquo s liquidity.

 

Separately, DBS Group Research upgraded the Reit to &ldquo buy&rdquo from &ldquo fully valued&rdquo as it senses a trading opportunity for investors. The Reit&rsquo s units could re-rate as discussions to resolve its debt covenant breach will likely approach a resolution, analysts said.

 

The counter reached a two and a half-month high of US$0.076 during the afternoon trading session, rising US$0.018 as at 3.24 pm. The last time the Reit&rsquo s units closed near this level was Aug 23. Manulife US Reit was also the second most traded counter by volume at the time, with 49.1 million units changing hands.

 

DBS maintained its target price of US$0.10 on Manulife US Reit, which implies a potential upside of 31.6 per cent from the counter&rsquo s 3.24 pm trading price.

 

CGS-CIMB, meanwhile, retained its &ldquo add&rdquo call and target price of US$0.25, which implies a potential upside of 228.9 per cent.

 

Since Manulife US Reit&rsquo s unit price collapse last year, the counter further retreated by two-thirds since July following the breach of its financial covenants and impact on distributions, DBS said in a research report on Monday.

 

&ldquo Given that (the unit) price has overshot on the downside, it is currently trading at a highly discounted valuation that could be worth a shot,&rdquo said DBS analysts Rachel Tan and Derek Tan.

 

That being said, the unit price performance came against a backdrop of high unit price volatility, which, in turn, would be driven by news, reactions to it and market sentiment, they added.

 

The DBS research team holds the view that talks to resolve the debt covenant breach are likely approaching a resolution, which could re-rate the counter from its current price-to-book (P/BV) ratio of below 0.2 times.

 

Although uncertainty over the outcome of its lender negotiations remains a near-term overhang on the Reit&rsquo s unit price, CGS-CIMB believes its current FY2023 P/BV of 0.13 times has accounted for its operational and financial challenges.

 

It noted that gearing could remain elevated in the near term, given that US office values are still under pressure for the 2023 financial year. It has kept its FY2023-2025 distribution per unit estimates unchanged.

 

Manulife US Reit owns office properties in the US, including 1750 Pennsylvania Avenue NW in Washington, DC.