Why is a good sponsor is important for REITs? Manulife US REIT has been in the lime light recently. I have previously divested Manulife US REIT because of its high leverage. As at 31 December 2022, Manulife US REIT’s aggregate leverage was 48.8%.
On 11th April 2023, the manager responded to queries raised by Singapore Stock Exchange (SGX). The Manager of Manulife US REIT shared that they are in the process of negotiating a transaction with Mirae Asset Global Investments (“Mirae”).
As per the 12 April 2023 Update on Strategic Review, Manulife US REIT have made clear that the Sponsor Manulife is considering a possible subscription for new units to maintain its existing 9.1% unitholding post any equity issuance. They have stated that: “The Mirae Transaction does not involve Mirae acquiring the Sponsor’s existing unitholdings in Manulife US REIT“.
The issuance of new units to Mirae and its affiliates will be subject to approval of unitholders of Manulife US REIT and the Sponsor and its associates will abstain from voting in such resolution.” In others words, the Sponsor Manulife is not seeking a “golden parachute” by selling its stake to a third party as some other market commentators have suggested.
Meanwhile, the Mirae transaction terms and structure are also under discussion, so the market should avoid speculating on pricing. Furthermore, Mirae and its affiliates have gone beyond the Sponsor’s existing regulatory limit of 9.8% and has agreed to subscribe for an aggregate of more than 9.8% unitholding in Manulife US REIT, as put forth by the announcement, further demonstrating its support for the REIT during this critical period.
Below is the share price of Manulife US REIT.
On 12th April 2023, the manager made an announcement on the disposition of its asset Tanasbourne to its Sponsor for US$33.5 million.
After taking into account the divestment related expenses, the net proceeds from the divestment of Tanasbourne are approximately US$33.1 million.
The resulting net loss from the Divestment is approximately US$0.4 million. and the net proceeds will be used for working capital, funding capital expenditure or repaying debt.
The divestment has demonstrated the Sponsor’s support and provides certainty during this volatile period for Manulife US REIT.
When a REIT runs into trouble, a good sponsor is definitely important. Without a strong and good sponsor’s support, the REIT’s future lies unknown.