Morgan Stanley cuts Lineage to “equal weight” as demand fails to recover

Investing.com -- Morgan Stanley (NYSE:MS) on Monday downgraded Lineage Inc. (NASDAQ:LINE) to “equal weight” from “overweight” and reduced its price target to $50 from $75, citing weaker-than-expected demand, softening pricing, and growing risks to earnings guidance. 

The stock has dropped 41% over the past year, compared with a 4% gain in the broader REIT sector, according to Morgan Stanley.

Same-store net operating income (NOI) fell 7.9% year-over-year in the first quarter of 2025, a sharper drop than the 0.6% decline in 2024. 

Adjusted funds from operations (AFFO) per share rose 6.2% in the quarter but decelerated from 72.9% growth in the previous quarter. 

Lineage indicated that second-quarter same-store NOI will decline at a similar pace as the first, citing seasonality and weak demand trends.

USDA cold storage inventory, a key indicator of market demand, declined 4.1% year-over-year in April, worsening from a 2.7% drop in March, and remains at 8.8 billion pounds, 11% below previous peaks. 

Morgan Stanley noted that earlier expectations for inventory restocking in 2025 have not materialized as inflation and macroeconomic uncertainty continue to weigh on consumption and tenant behavior.

Tariffs have added to the uncertainty, with about 15% of Lineage’s U.S. throughput volume tied to imports and exports. 

Management reported widespread tenant hesitancy to make leasing commitments due to tariff-related concerns.

Morgan Stanley cut its 2025 and 2026 AFFO estimates by 1.6% and 3.7%, respectively, to $3.38 per share for 2025, 1.2% below consensus and 3.4% below company guidance of $3.50. 

The brokerage expects 2025 same-store revenue to decline 2.4%, with a 3.1% rise in same-store NOI, while projecting 2026 same-store revenue growth of 2.8% and NOI growth of 1.4%.

Operating leverage is eroding as occupancy and pricing declines outpace cost savings. Economic occupancy is forecast to fall to 82% in the second quarter, down from 84.7% a year earlier, with storage revenue per economic pallet declining 3.1% year-over-year.

Lineage has executed $650 million in acquisitions over the past 12 months and maintains a $2 billion development pipeline. 

However, with leverage at 5.9 times EBITDA, near the upper end of its target range, Morgan Stanley expects the company to be more selective in pursuing external growth.

The recent retirement of Lineage’s chief financial officer adds further uncertainty as the company searches for a successor with public market experience.

Morgan Stanley lowered its valuation multiple to 14.8 times projected 2026 AFFO from 21.3 times previously, reflecting Lineage’s slower expected growth versus industrial peers trading at 17 to 26 times.

Its discounted cash flow analysis implies an equity value range of $47 to $53 per share. The analysts said they await clearer signs of demand stabilization before becoming more positive.