Manulife US REIT

(30-11-2023, 01:02 PM)CY09 Wrote: Hi Owq,

What i am curious is that if halting is a problem, why not do an immediate repayment now via a rights issue

On top of a 10% EIR loan from Manulife US, there is US corporate tax issues to be paid when distribution is halted. Why not pay the distribution and do a rights issue. This way the REIT circumvents the corporate taxes and saves money for all. The downside is that the REIT manager may get diluted because they are not able to participate in the rights. But if this is the case, that means the REIT manager is planning for itself and not thinking what's best for all.

This is just my guess, but a rights issue that is not underwritten by either Sponsor or bank is tricky as the amount raised is uncertain, especially in such a distressed state. Would shareholders save the REIT? Furthermore, such a plan requires the consent of the Lenders who is unlikely to agree to such an uncertain fund raising. A sponsor loan (not that I agree with this high interest rate) would provide immediate visibility.

Hi I do not think the fund raising is uncertain. If a share price can be priced at an adequate discount value, it can achieve its needed financing.

A $150 million fund raising via a "2 rights for 1 share" or "3 rights for every 1 share" yields the same outcome and if an investor participates fully, he/she will not be diluted. Furthermore, providing shareholders with the option of being able to sell their entitlements in the open market enables non investors or vulture funds to start accumualting a stake at discounted prices (should shareholders throw in the towel). Via this 2 avenues generated from the fund raising exercise, it is likely MUST can achieve its desired funding.

How can funding be certain when there is no sponsor or financial institution to mop up untaken rights? There is a huge difference between "likely to happen" and "certain to happen".

Heads will roll in the corporate setting if people decide to roll the dice on not differentiating the above. An investor can take risks (you live and die by the sword) but corporate heads can't afford it. If the latter does it, it is not professional-speak and just sets up the probability of been blamed if the adverse outcome is the one been materialized. In anyways, without a back stop, the odds of existing shareholders willing to "throw more good money over bad money" are not high as the equity raising via rights is from a position of weakness.

Financial institutions are paid (well) for providing the certainty of fund raising. Would it be probable that none of the financial institutions are willing to do it, or the costs for the financial institutions to do it are much higher than the current proposed financing terms?

Then pherhaps one way is to do a 2 tranche approach.

First raise rights for US$150 mil without underrwriting; if the raised amount falls short, then Manulife US sponsor led loan of EIR 10.7% comes into the picture. My view is that an equity injection has 2 benefits: (i) it ensures that leverage and Interest coverage ratio can improve quickly, (ii) it gives shareholders the ability to participate and sell off entitlements

Hence after tranche 1, manulife moves onto the 2nd tranche to cover the shortfall which is to accept the high interest loan from Manulife US. Do remember that Manulife US REIT has to repay the sponsor loan which means it has a timeframe to raise cash to repay the loan, an equity raising is a cash injection with no timeline

I feel such an approach is fair, helps the REIT to recapitalise and reduces the need to put more buildings on sale from a position of weakness.

https://links.sgx.com/FileOpen/MUST%20-%...eID=782298

Another round of downard valuation. All in all MUST suffered a 22% decline as compared to US's 21.1% valuation decline. The other thing shareholders may notice is that a few of its buildings are pretty old built in 1980s or earlier. I am not sure if this will mean more cash needs because old buildings may mean more refurbishment needed or simply a tear down and re build.

What hurts the most is that even with 1 building divestment and the repayment of $50 million loan, the revised leverage ratio is at 58% (much above the 50% leverage ratio). If the US office space continues to worsen, the cycle of divestment by MUST will result in many buildings sold at low values.

https://www.theedgesingapore.com/news/re...isposition

For half of the debt amount, Brookfield has received a lot of offers for its 777 South Figueroa Tower. The property was valued at US$632 million in 2020 and is now sold at 25% of its value at US$145 million

MUST has a figueroa property which forms 40% of its tranche 1 asset to be sold. The LA office market is known to be one of the worst segments in USA, however, I do feel MUST should be able to sell this Figueroa LA property at 80% of the debt it is attached to or approx US$120 mil. Its worth noting MUST had approved the circular to sell Figueroa at any value of at least US$106.2 million. Figueroa road has recently become a crime hot zone as well and this is affecting sentiments. In turn, this means more of Tranche 2 assets might have to be sold down to meet its delever target.

All in all, my thoughts is that MUST could be down to 3 properties after it is delevered. Best case is that MUST sells its Tranche 1 and 2 of its Tranche 2 buildings (plaza + capitol sold, centrepoint remains). Its going to be a very small REIT in order to nurse itself to good health

Not vested but just in case this is useful

https://www.bloomberg.com/news/articles/...ckout=true

"The Toronto-based life insurer reported a 12% year-over-year decrease in the value of its income-producing commercial office properties globally, which totaled C$4.83 billion ($3.56 billion) as of Dec. 31. Including minority-ownership in certain real estate funds, Manulife had C$6.3 billion in global office holdings last year, about a quarter of which are in the US.
North American office investments represented about 40% of Manulife’s portfolio of alternative long-duration assets a decade ago, Chief Investment Officer Scott Hartz said during a February earnings call. That figure has now dwindled to about 10%, owing to the growth of other investments and the divestment of some office properties.
Manulife doesn’t anticipate significant sales of its office properties amid the market slump, Simpson said. “Would we look to increase the exposure at this point in time? Absolutely not,” Simpson said. “Is there a vibrant liquid market we could sell into and realize a lot of value? No.”"

(28-03-2024, 08:48 PM)CY09 Wrote: https://www.theedgesingapore.com/news/re...isposition

For half of the debt amount, Brookfield has received a lot of offers for its 777 South Figueroa Tower. The property was valued at US$632 million in 2020 and is now sold at 25% of its value at US$145 million

MUST has a figueroa property which forms 40% of its tranche 1 asset to be sold. The LA office market is known to be one of the worst segments in USA, however, I do feel MUST should be able to sell this Figueroa LA property at 80% of the debt it is attached to or approx US$120 mil. Its worth noting MUST had approved the circular to sell Figueroa at any value of at least US$106.2 million. Figueroa road has recently become a crime hot zone as well and this is affecting sentiments. In turn, this means more of Tranche 2 assets might have to be sold down to meet its delever target.

All in all, my thoughts is that MUST could be down to 3 properties after it is delevered. Best case is that MUST sells its Tranche 1 and 2 of its Tranche 2 buildings (plaza + capitol sold, centrepoint remains). Its going to be a very small REIT in order to nurse itself to good health

Would it be fair to say that assuming the South Figueroa Tower is sold at 25% value and 80% of the MUST Figueroa property is 120 Million, then realistically, it can sell at around about 37-40 Million i.e.,25% of its 150 Million value? Would not the valuation decrease since there is now a nearby tower which has sold at a price? Would that not increase the leverage ratio?

In 2020, Figueroa of MUST was valued at US$337 million. Brookfield's was US$632 million and now sold at 25% of its value, while at 50% occupancy rate.

MUST's figueroa is at 81% occupancy rate. So i do feel MUST's Figueroa can fetch about 35% of its 2020 value. This places it at US$117 million

In the heart of hearts, I applaud Manulife REIT managers for not answering the below question directly, because it could have came from a competitor or a prospective buyer/s themselves!

ANNUAL GENERAL MEETING ON 18 APRIL 2024 RESPONSES TO SUBSTANTIAL AND RELEVANT QUESTIONS FROM UNITHOLDERS

Question:
What is the status of your disposition plan? When do you expect to execute your divestments? Any challenges or obstacles hindering the process? Please give an update with regards to the execution of the Recapitalisation Plan, especially the sales of Tranche 1 assets. How are we progressing on the plan? How many prospective buyers have the REIT spoken to? How many prospective buyers have had a look at the REIT's properties?

Answer:
Transaction volumes for office sales in the U.S. remain slow, largely due to a lack of available lending in the market and a wide bid-ask spread between buyers and sellers. Interest rates have been the biggest unknown in U.S. commercial real estate, and the stabilisation and eventual lowering of rates will be key to a resumption of a normal capital markets environment. Late in 2023, the market widely expected that the U.S. Fed would begin lowering rates in early 2024. The market anticipated that this would lead to an increased number of transactions as expectations realign and the bid-ask gap narrows due to a stabilising cost of capital. However, expectations for rate reductions have been pushed back to later in 2024 and the improvements that were hoped for in capital market conditions have been similarly delayed. Still, transactions are happening, and there are all-cash buyers actively pursuing deals in the market. These buyers are typically bargain-hunting, looking to purchase high-quality assets at attractive prices.

In the midst of these challenging conditions, we have identified some Tranche 1 and Tranche 2 assets that have attractive attributes for buyers in the market. There are currently two properties which we are analysing for potential disposition. The process of broker selection has begun on these properties. Once brokers are selected, a marketing and sale process will begin in the subsequent weeks and bids would be solicited as soon as practicable. The completion of a property sale would depend on several factors. All-cash buyers could potentially close the sale more quickly, as they would not be reliant on securing debt financing prior to closing.

AGM Q&A
https://links.sgx.com/FileOpen/Manulife%...eID=796300