On March 15, Manulife US REIT's manager announced that it is "currently in discussions with Mirae Asset Global Investments to explore a potential transaction which may involve the acquisition of shares of Manulife US Real Estate Management Pte. Ltd. (MUST's manager), and the subscription of new units in Manulife US REIT."
According to a news report by Maeil Business News Korea, Mirae Asset is likely to pay 200 billion won ($206 million, US$153 million) for MUST’s manager and Manulife’s stake in the REIT. Now though, market watchers are wondering if the US$153 million is for a stake in the manager, part of the 9.8% stake owned by Manulife, and new units in MUST.
MUST owns a portfolio of 12 office buildings in the US. In Dec 2022, after a valuation exercise, MUST's portfolio was marked down by almost 10% to US$1.9 billion, causing its aggregate leverage to rise to almost 49%.
US office REITs face twin challenges of lower occupancy, and higher costs for their capital expenditure, given the accelerated pace of rate hikes by the Federal Reserve in 2022.
On Feb 24, MUST's manager announced that payment of the management and property fees that it is entitled has been deferred because the fees paid in units would "not be in compliance with the unit ownership limit" of 9.8%.
As an approximate gauge, managers' valuations are based on their fees and AUM, with around 4x to 5x a reasonable price, and 10x management fee a high price. In FY2022, MUST's base management fee was around US$8.8 million.
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DBS Group Research says the move is positive for MUST. "While the devil’s in the detail, Mirae Asset could likely be subject to the ownership limit of below 10%, similar to its current sponsor unless special exemption is obtained. Post the potential acquisition, it will be interesting to see how Mirae Asset will add value as another sponsor to MUST," DBS says.
Market observers and bankers who are not involved in the transaction believe that there is likely to be a "preferred placement" to Mirae Asset.
Mirae Asset has been engaged actively in global merger and acquisitions for growth, the Korean report says. In 2018, Mirae Asset acquired Global X, a U.S. exchange traded fund issuer and in 2022, ETF Securities, an Australian ETF management firm. The AUM of Global X reached 45 trillion won at the end-December 2022, up from 8 trillion won in 2018.
The news report adds that Mirae Asset will focus on REITs along with high-growth ETFs for future growth.
