RHB Bank Singapore analyst Vijay Natarajan is keeping his &ldquo trading buy&rdquo with an unchanged target price of 12 US cents (16.17 cents) on Manulife US REIT (MUST) after its entire management team is to be replaced.

 

CEO William &ldquo Tripp&rdquo Gantt, deputy CEO Caroline Fong and chief financial officer (CFO) Robert Wong will step down on June 30.

 

Instead, John Casasante, who was from DWS (formerly RREEF), has been appointed as the new CEO cum chief investment officer (CIO). Mushtaque Ali, who was from Manulife Investment Management, will be the new CFO.

 

Natarajan observes that Casasante has over 25 years of commercial real estate experience with DWS, Cushman & Wakefield, and Lincoln Property.

 

While at DWS, he held various real estate management portfolios including those in the western US with a net asset value (NAV) of US$15 billion ($20.22 billion).

 

Ali, he adds, was also involved during the initial setting up of MUST and is familiar with the REIT&rsquo s structure.

 

On March 21, after cleaning the slate, chairman Marc Feliciano, who is also the global head of real estate and private markets at the REIT&rsquo s sponsor, bought his first stake into the REIT, snapping up 3.6 million units at 6.45 US cents and another 0.8 million units at 7.8 US cents per share five days later.

 

Independent director Veronica Julia McCann also bought 4 million units at 5.93 US cents per share on March 21 and another 2.2 million units at 6.774 US cents a day later.

 

To Natarajan, the shares, which were purchased from the open market, denotes a &ldquo show of confidence&rdquo .

 

In his view, the execution of its disposition plans with target asset sales of US$100 million by the 2QFY2024 ending June 30 or the 3QFY2024 to reduce its gearing to below 45%, is a key next step for the REIT.

 

&ldquo MUST has segregated its portfolio into three tranches, with Tranche 1 assets &ndash which are in weaker submarkets and have contributed to the bulk of the valuation declines &ndash as key focus for disposal. 

 

&ldquo Meanwhile, MUST will look at maximising returns for Tranche 2 and 3 assets via leasing and portfolio optimisation initiatives. It also recently paid down USD$50 million of loans from its cash reserves, which will reduce pro-forma gearing to 57%,&rdquo adds Natarajan, whose target price remains pegged at 0.35 times of MUST&rsquo s FY2024 book value.

 

&ldquo While the US office market remains challenging, there are signs of bottoming, with [a] continuing flight to quality trends based on JLL&rsquo s US office outlook report &ndash a view similarly shared by the largest asset managers, e.g. Brookfield and Blackstone,&rdquo says the analyst.

 

Natarajan previously downgraded the REIT to &ldquo trading buy&rdquo from &ldquo buy&rdquo on Feb 9 as he sees a &ldquo long road ahead&rdquo in the recovery of the REIT. 

According to The Real Deal, a real estate website, Brookfield Properties is selling 777 South Figueroa Tower, formerly one of its trophy office towers in Downtown Los Angeles, for about half of the outstanding debt on the property. 

 

According to Bloomberg, South Korea-based investment firm Consus Asset Management is in a deal to buy the 1 million-square-foot tower for about US$145 million. This translates into US$145 per square foot. The property is around 50% leased.  

 

Brookfield defaulted on US$319 million in loans tied to the 52-story tower in 2023 after rising interest rates squeezed profits from the building. The firm put the property up for sale in the autumn of 2023, The Real Deal says, adding that Brookfield is believed to have received at least 15 offers on the tower. 

 

Manulife US REIT&rsquo s (MUST) building Figueroa is in the same sub-market as the subject of the Brookfield transaction. MUST&rsquo s Figueroa was last valued at US$194.4 psf as at Dec 31, 2023, or US$139 million. Its occupancy rate was at 81.9% as at end-2023. 

 

Figueroa is part of the tranche 1 properties that MUST&rsquo s manager plans to divest.   Based on the resolution approved by unitholders on Dec 14, 2023, the terms of the Disposition Mandate requires the sale of certain Tranche 1 Assets and/or Tranche 2 Assets to raise minimum aggregate net sale proceeds of US$328.7 million by June 30 2025. 

 

The other tranche 1 assets are Centerpointe, last valued at US$75.8 million, Diablo (US$52 million and Penn (US$108 million). 

 

A haircut on any of these tranche 1 valuations would be cutting it very fine for MUST to achieve US$328.7 million in net sale proceeds.  

 

Nonetheless, The Real Deal says sale numbers are picking up. In December, three office properties, each in a different segment of greater Los Angeles, were sold. 

 

Kennedy Wilson sold 400 and 450 North Brand Boulevard in Glendale for US$60 million, or US$136 psf. Carolwood bought the AON Center, a Downtown Los Angeles office tower, for about US$134 psf and Harbor Associates bought 1640 South Sepulveda Boulevard in Westwood for US$271 psf. According to The Real Deal, each transaction was significantly lower than the previous one. 

 

However, the Brookfield transaction at US$145 psf is an improvement on AON Center, both being in Downtown Los Angeles. Occupancies and outlook for occupancies makes a lot of difference to valuations based on discounted cash flow. The occupancy of 777 South Figueroa Tower at 50%, give or take, is a lot lower than MUST' s Figueroa at 81.9%.