The manager of Manulife US REIT BTOU says it has completed the divestment of its Tanasbourne property located in Hillsboro, Oregon to John Hancock Life Insurance Company for a consideration of US$33.5 million ($44.6 million), according to an April 12 Singapore Exchange (SGX) filing.
The acquirer is a wholly-owned subsidiary of the REIT's sponsor, The Manufacturers Life Insurance Company.
The property is a 132,851 sq ft office campus comprising three flex-office buildings constructed between 1986 to 1995 and refurbished in 2015, 2017 and 2020. As at Dec 31, 2022, the property is 100.0% occupied with a weighted average leased to expiry of 3.8 years.
MUST acquired Tanasbourne for US$33.85 million in November 2021, along with two properties in Arizona. To fund the acquisition of the three properties, which cost a total of US$201.6 million, MUST undertook debt financing and issued 154,084,000 new units in a US$100 million private placement in December 2021. Originally planned for US$80 million, an upsize option was fully exercised, with units issued at 64.9 US cents per new unit.
As at end December 2022, the REIT’s aggregate leverage was 48.8%. Given its aggregate leverage levels, the manager is seeking to maximise liquidity to provide the option of using cash balances to fund capital expenditure, which are necessary as part of leasing, instead of funding via debt and increasing interest costs. The manager says this divestment will allow it additional liquidity to operate the portfolio with greater flexibility.
The net proceeds of the divestment will be used at manager’s discretion for working capital, funding capital expenditure or repaying debt.
See also: Stresses in foreign S-REITs calls into question global REIT listing hub
Talks with Mirae ongoing
Meanwhile, the manager says discussions with its potential acquirer Mirae Asset Global Investments are still ongoing. “Whilst the structure and terms of the transaction are still being discussed, Mirae has expressed that Mirae and its affiliates would subscribe for an aggregate of more than 9.8% unitholding in Manulife US REIT.”
In support of the transaction, MUST’s sponsor, The Manufacturers Life Insurance Company, is also considering a possible subscription for new units to maintain its existing 9.1% unitholding following the issuance of new units to Mirae.
See also: What are MUST’s options as gearing nears 50%?
That said, the manager says it has not entered into any binding agreements. The transaction does not involve Mirae acquiring the sponsor’s existing units in MUST. The issuance of new units to Mirae and its affiliates will be subject to approval of unitholders of MUST, and the sponsor and its associates will abstain from voting in such a resolution.
MUST units plunge 12.6%
Ahead of the announcements on April 12, units in MUST plunged 12.6% on April 11 to close at 17.2 US cents, drawing an SGX query.
The recent moves are part of the manager’s strategic review, unveiled last year and led by financial adviser Citigroup Global Markets Singapore. The REIT’s gearing remained high throughout 2022 but came under increased scrutiny in December when an overall decline in portfolio valuation brought aggregate leverage just shy of the 50% limit.
Asset dispositions continue to be challenging with the prevailing negative sentiment around the US office sector, says MUST’s manager of its strategic review. “Factors such as the rising interest rate environment, uncertainty around tenant space requirements as well as limited buyer access to credit financing have contributed to low levels of capital market activity in the US office sector, which makes sizeable asset dispositions difficult, especially in the more challenged submarkets.”
MUST’s manager says potential mergers were not considered owing to execution risks, and without immediate capital injection, the option does not address the REIT’s high gearing
That said, equity fund raising remains an option, says the REIT’s manager, noting however that equity markets are “currently volatile due to inflation and high interest rates”.
On such strategic transactions with third parties to recapitalise MUST, the manager says it weighs a number of factors: US real estate presence and track record, financial strength and commitment to Manulife US REIT, any other existing conflicts of interest and ability to provide Manulife US REIT access to an identified pipeline to effect a potential pivot strategy.
As at 9.16am, units in MUST are trading 0.8 US cents higher, or 4.65% up, at 18 US cents.
