Manulife US REIT (MUST) warns that it will report a loss for FY2024 as it books fair value losses on its depreciating portfolio.
Citing independent valuations, the REIT says its portfolio value has been deemed to drop 9.3% or US$116.6 million to US$1.14 billion, from US$1.2 billion as at Dec 31, 2023.
Besides tenants downsizing, the lower value was also driven by higher discount rates and terminal capitalisation rates for certain properties.
For context, the REIT says that the 9.3% decline in portfolio valuation is a smaller drop versus the decline of more than 20% between 2022 and 2023.
"The latest valuations reflect signs of stabilisation in select submarkets, while other submarkets continue to experience valuation declines, reflecting the diverse economic conditions and leasing challenges in different geographic regions in the US," the REIT says.
Nonetheless, prevailing market sentiment and capital market dynamics in each market are expected to play a critical role in shaping office valuations going forward, it adds.
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As a result of the lower portfolio value, the REIT's aggregate leverage will be around 61%, taking into account repayment of loans, fair value changes in investment properties and certain projections in the value of other total assets as of Dec 31, 2024.
Citing Appendix 6 to the Code on Collective Investment Schemes, the REIT says that the aggregate leverage limit is not considered to be breached if exceeding the limit is due to circumstances beyond the control of the REIT manager.
"A depreciation in the asset value of Manulife US REIT has occurred, which has resulted in the aggregate leverage exceeding 50%. Accordingly, while Manulife US REIT’s aggregate leverage exceeds 50%, there is no breach of the aggregate leverage limit as defined by the Property Funds Appendix."
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Based on these updated valuations, the ratio of consolidated total unencumbered debt to consolidated total unencumbered assets is around 64:100 which is well within the temporary relaxation of financial covenants till Dec 31, 2025 by all existing lenders of Manulife US REIT of 80:100, the REIT says.
The REIT manager reiterates it is in talks to divest some of its properties and that it is now "closer" to its 2025 net proceeds target of US$328.7 million. It aims to repay another US$200 million in debt by 2025.
Upon successful completion of its restructuring efforts, it will then "continue its repositioning of the portfolio through growth".
"The objective to is make accretive investments, which will enhance distributions and grow the net asset value of the portfolio," says the REIT.
Manulife US REIT closed at 9.3 US cents on Jan 9, up 1.09% for the day and up 16.25% in the past 12 months.
