08 Mar 2024 06:09

 

RHB on Tuesday (Feb 13) downgraded (Manulife US Reit) to &ldquo trading buy&rdquo from &ldquo buy&rdquo and cut its target price on the counter slightly to US$0.12 from US$0.13.

 

The downgrade comes as the research team expects occupancy levels to remain weak in the near term, although management noted a &ldquo pick-up&rdquo in leasing momentum.

 

After lowering its occupancy and backfilling assumptions, RHB revised its net property income (NPI) forecasts downwards, by 10 per cent for FY2024, and by 11 per cent for FY2025.

 

Its target price of US$0.12 is now 0.35 times the Reit&rsquo s FY2024 book value. It also implies a potential upside of 96.7 per cent from the counter&rsquo s last trading price of US$0.061 as at 10.45 am on Tuesday. Units of Manulife US Reit were up 3.4 per cent or S$0.002 at the time.

 

Unlike a &ldquo buy&rdquo call, which expects share prices to exceed 10 per cent in the next 12 months, &ldquo trading buy&rdquo recommendations expect share prices to exceed 15 per cent in the next three months with an uncertain long-term outlook.

 

The Reit&rsquo s top-line results for the second half year ended Dec 31, 2023, also beat RHB&rsquo s expectations.   Revenue for the second half grew 6.2 per cent to US$108.5 million, while NPI improved by 6.7 per cent year on year to US$59.2 million.

 

The manager attributed the stronger numbers to higher lease termination fees, which were partially offset by asset divestments, as well as lower rental and recoveries income as a result of a higher portfolio vacancy rate.

 

Portfolio valuation was also down 8 per cent to US$1.4 billion from six months earlier, mainly from the Tranche 1 assets that the Reit wants to sell. Management, however, believes valuations could be bottoming out, a sentiment echoed by RHB.

 

&ldquo We believe valuations are nearing bottom and have sufficiently priced in the considerable market weakness after a decline of some 35 per cent since 2020,&rdquo RHB analyst Vijay Natarajan noted.