The manager of Manulife US REIT (MUST) announced, on Dec 30, that the real estate valuation of its portfolio has declined by 10.9% to US$1.95 billion ($2.62 billion) based on the year-end valuations for 2022. This is compared to the US$2.18 billion valuation as at Dec 31, 2021.
The lower valuations were attributed to the higher discount rates and capitalisation rates for some of the REIT's properties. This is on the back of the volatile macroeconomic environment and “idiosyncratic” risks at the property level such as higher vacancy rates and, or weak submarket fundamentals.
The lower valuations were also attributed to the “continued weakening of occupational performance in the submarkets” where MUST’s properties are located. The continued weakening was due to the slowdown in demand and leasing activity, which is leading to higher concession package assumptions needed to attract new or retain tenants, giving rise to higher leasing costs, says the REIT manager.
On this, the REIT says its aggregate leverage will be approximately 49%, still within the regulatory limit of 50%. This is taking into account additional borrowings, fair value changes in investment properties and certain projections in the value of other total assets from June 30 to Dec 31. The REIT’s projected interest coverage ratio will be approximately 3.1 times as at Dec 31.
The decline in valuation will not affect the financial covenants the REIT has. It will, however, see MUST’s net asset value (NAV) decreasing by US$237.4 million or 13 US cents per unit.
In its filing, the manager says it is exploring options to reduce the REIT’s aggregate leverage. Citigroup Global Markets was previously appointed by the strategic working group comprising senior members of the REIT manager and the board of the manager to “undertake a review of a variety of options available to Manulife US REIT to enhance unitholder value”.
See also: CICT's manager proposes to acquire ION Orchard at $1.85 billion, subject to EGM
(1) In the case of Figueroa, the valuation as at year end 2022 is reflective of the occupancy plans of the property’s two largest tenants, Quinn Emmanuel and TCW Group, with the former executing a renewal and downsize while the latter plans to vacate at the end of their lease term (31 December 2023). Figueroa makes up 44% of the portfolio valuation decline as at year end 2022.
Units in MUST closed 1 US cent higher or 3.33% up at 31 US cents on Dec 29.
