Manulife US REIT share price in horror meltdown

Lifetime Membership As we approach the end of the year, it is time to review the performance of Manulife US REIT share price, which became the talk of the town recently. Year-to-date, Manulife US REIT share price plunged by a devastating 78%. The meltdown was triggered in July 2023 after the Manager revealed that the S-REIT breached its financial covenant due to the decline in its property valuations.

Question now is whether Manulife US REIT share price will do an Eagle Hospitality Trust? This fear is not unfounded as the breach of financial covenant means that the banks have the right to accelerate payment of all its US$1,023.7 million of loans immediately. Under this scenario, liquidation of Manulife US REIT’s portfolio at distressed prices may be required.

14 December will be destiny day for unitholders as an EGM will be held for unitholders to support the Recapitalization Plan. For the Recapitalization Plan to go through, unitholders must vote for all three resolutions as they are inter-conditional. The three resolutions are:

• Resolution 1: the Proposed Divestment to the Sponsor;
• Resolution 2: the Proposed Sponsor-Lender Loan granted by the Sponsor-Lender;
• Resolution 3: the Proposed adoption of the Disposition Mandate.

Following the announcement of the Recapitalization Plan, Manulife US REIT share price crashed to a low of US$0.05. In my opinion, the crisis of confidence of Manulife US REIT share price could be attributed to unitholders giving the Recapitalization Plan a thumbs down. Unitholders must also be riled that half-yearly distributions will be halted till 31 December 2025.

At the centre of controversies are the divestment of Park Place to the Sponsor (Manulife) and also the loan of US$137.0 million from Manulife at interest rate of 7.25%, with exit premium of up to 21.16% payable to Manulife upon maturity. The Manager gave no valid reasons for Park Place to be chosen as asset to be sold to Manulife. Furthermore, Park Place is also not classified in any of the 3 tranches of assets to be disposed. Based on these, I am inclined to think that the Sponsor has the pick of the cherries and unitholders have been given a raw deal.

In addition, the Manager is proposing the Disposition Mandate to raise aggregate net sale proceeds of at least US$328.7 million through asset dispositions. The Manager claimed that “the Disposition Mandate will reduce administrative time, inconvenience and expenses incurred for asset dispositions without the need for conducting an EGM for every individual asset disposition”.

In my view, the Disposition Mandate is not the best solution as the strategy is to raise US$328.7 million through the sale of the assets. Given the current US office property market condition, the sales will likely be at distressed prices. Furthermore, the sale will definitely result in significantly smaller asset portfolio for Manulife S-REIT going forward. This would make recovery for the S-REIT murky in future.

Note that this is an opinion article and not meant to be a financial advice. Please do your due diligence or engage financial advisors before investing in the stock market. Furthermore, I am not vested and have never invested in this counter before. Whether Manulife US REIT share price will surge or collapse has no impact on me. Thus, this article is not meant to induce readers to make any form of investment decisions.

Manulife US REIT share price in death spiral?

Could the Manager or the Sponsor have done more to salvage Manulife US REIT? In the circular, it was claimed that the Manager has explored strategic options like merger, external loans, equity fund raising, etc. None of those were considered to be value additive due to the US office sector headwinds. However, judging at how Manulife US REIT share price corrected following the revelation of the Recapitalization Plan, it seemed to suggest that unitholders are [This is a premium article. The rest of the content is blocked and can be accessible by SG Wealth Builder Members only. To read the full content, please sign up as member.]

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