Manulife US REIT Portfolio 30 June 2022

Goodbye Manulife US REIT

Goodbye Manulife US REIT

Goodbye Manulife US REIT. This week, I made my first stock transaction which was selling off Manulife US REIT from my stock portfolio. It was a painful loss but I decided to proceed after certain considerations. I will share more of them below.

On 25th November 2022, Manulife US REIT announced that they have appointed Citigroup Global Markets Singapore as its financial advisor in relation to the strategic review of Manulife US REIT.

One of the reasons for them doing so is that COVID-19 has changed the working culture in the United States of America. In U.S, many companies are practicing hybrid working arrangements whereby employees are working from home. As such, companies are either reducing their office spaces or seeking sort of flexible working spaces.

On 30th December 2022, the worst news came whereby the real estate valuation of the portfolio of Manulife US REIT (based on the year end 2022 valuations) has declined by 10.9% or US$237.4 million to US$1,947.0 million (versus US$2,184.4 million as at 31 December 2021).

  • The decline in valuations is largely due to the following factors:
    Higher discount rates and capitalisation rates for certain properties reflecting risks posed by the volatile macroeconomic environment as well as idiosyncratic risks at the property level (i.e., higher vacancy or weak submarket fundamentals).
  • Continued weakening of occupational performance in the submarkets where the properties are located due to 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.

This put Manulife US REIT in a difficult position whereby the expected aggregate leverage rose to approximately 49%, just 1% below the regulatory 50% limit.

What Manulife US REIT May Do To Reduce Leverage?

#1 Sell off their assets

Selling off some of their assets is a possible way to stay within regulatory limits. As to which one they will sell, I have no idea but you can take a look at the list below.

#2 Public or Private Placements

Since aggregate leverage is all about Debt, there is also a possibility of Manulife US REIT raising funds through public or private placements though the later may stand a higher chance. It is unlikely public investors like us still have the confidence in Manulife US REIT.

Investor’s confidence is reflected in the poor performance of its stock price.

#3 Distribution Per Unit (DPU) Payout

Manulife US REIT may hold the upcoming Distribution Per Unit (DPU) payout and use the money to reduce their debt. Alternatively, they may offer Distribution Reinvestment Plan (DRP) to unitholders.

Summary of Goodbye Manulife US REIT

None of the above options work out for me as all of them is surely to impact the Distribution Per Unit.

The fundamentals have deteriorated. As such, I have decided to bite the bullet and divest Manulife US REIT from my stock portfolio. This is a good lesson learnt on paying attention to the gearing ratio when investing in REITs.

I will use the money from the transaction to invest in other REITs.

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