Manulife US REIT

[CY09]

https://links.sgx.com/FileOpen/7.%20Pres...eID=868616

MUST has failed to meet the disposition outcome set in the first agreement and is now proposing to extend the deadline of sale. Therefore, approval has to be sought from unitholders to approve an extension

After the first tranche of sale, it has another round of disposal to execute at 3 buildings of US$350 million target by end 2027

Next, MUST is expanding its investment mandate to include buying Retail assets (similar to United Hampshire US REIT) and other areas and focused on countries of USA and Canada. Guess what! Manulife, the sponsor has a ready pool of such assets to offload (i mean sell) to the REIT at the right price.

How is MUST going to finance it? Simple, equity raising through placements and rights and have to be financed with less than 40% of debt.

Existing MUST unitholders are left with no choice. If they reject any of the resolution, a firesale will happen in the weak US office space. It will be difficult to reclaim the full NAV amount

Approve and unitholders stay longer in the game with likely a huge dilution in their equity stake.

My personal view is that this game of nonsense should end with the REIT liquidating itself.

The REIT, MUST, is short on capital and its capital deficiency has made tenancy improvements difficult resulting in net lease loss in GFA. Disposing the non-performing assets will result in firesale prices for both scenarios of (i) MUST REIT defaulting on loan or (ii) the situation where the new resolutions are approved (MUST has to dispose at least 3 more buildings + 1 building (for the first lender agreement) or a total of $400 million. The end state is the REIT will be left with 3-4 properties which is too small in portfolio value for the REIT manager to be profitable while operating it. Hence my suspicion why the REIT wants to use equity and less than 40% financing to buy new assets so as to increase asset base to make it a worthwhile REIT to run

Both terms are bad, hence just end the REIT, save on the REIT manager and future acquisition fees, a firesale with at least some positive NAV will be left for unitholders. A bird in hand is worth two in the bush, especially when the two bird in the bush are likely going be smaller due to equity dilution if MUST branches into new real estate segments.

[weijian]

When a shareholder asked about liquidating the REIT and returning the proceeds since it is trading at a deep discount to NAV, MUST did everyone a favor with a point-blank answer - all parties (REIT manager and shareholders) will probably get nothing in returns.

I decided to do the maths to make it clear:

(1) Let's assume an asset valued at 10 with debt=6 (60% gearing is similar to what MUST has). Asset NAV is 10-6=4.

(2) Since debt is recourse to the REIT, the various scenarios as below (asset sold at XX% discount to):
*asset sold at 10% discount --> 0.9*10=9 -> 9-6=3 --> 25% discount to NAV of 4
*asset sold at 20% discount --> 0.8*10=8 -> 8-6=2 --> 50% discount to NAV of 4
*asset sold at 30% discount --> 0.7*10=7 -> 7-6=1 --> 75% discount to NAV of 4
*asset sold at 40% discount --> 0.6*10=6 -> 6-6=0 --> 100% discount to NAV of 4

From above hypothetical example which excludes taxes/transaction costs/liquidation fees, shareholders will get nothing when assets are sold at ~40% discount to valuation. The actual "zero liquidation" percentage is probably closer to the mid 30s in practice after including taxes/transaction costs/liquidation fees, and this percentage is not too far off from "discounts seen from last valuation" of the assets that managed to be sold off.

MUST is trading at ~60-65% discount to NAV. From (2), it translates to Mr Market expecting its assets to be sold at ~20-30% discount to valuation (inclusive of all costs). As things stand, the market price has very little margin of safety, isn't it?

RESPONSES TO SUBSTANTIAL AND RELEVANT QUESTIONS FROM UNITHOLDERS

I would like to know that in the scenario of liquidation, do I get back anything at all? Why is MUST not selling its existing
asset portfolio, returning the proceeds to unitholders, and closing down MUST instead?

Liquidation of the portfolio now will yield much lesser than the NAV, as asset dispositions in current market conditions continue to be challenging. Liquidation through the legal process will be public knowledge, thus, any potential buyer of MUST’s assets would be aware of the distressed sale, resulting in significant discounts to book value. Proceeds will also be used to repay MUST’s US$559.0 million of debt first.

A liquidation would more than likely result in no returns for Unitholders’ investment, it also offers no future returns if
the market turns around subsequently. Furthermore, liquidation is a lengthy and costly process fraught with uncertainty.

https://links.sgx.com/FileOpen/Manulife%...eID=869529

[CY09]

Reading the EGM reply to unitholders, one thing I notice this as a reply to one of the questions

(i) the overall aggregate leverage of Manulife US REIT shall decrease post acquisition, (ii) the total debt incurred by
Manulife US REIT shall not exceed US$800.0 million, (iii) the interest coverage ratio of each acquisition must be more than or equal to 1.6 times so long as the aggregate leverage is more than 50% and (iv) each acquisition made under the Acquisition Mandate is funded with a capital structure of no more than 40% debt.

As things stand, it is unlikely the REIT manager will go for rights raising due to the 10% shareholding threshold as it will be the only party who suffers for being unable to subscribe to shares at a deep discount to NAV. The probable outcome is that for every new retail/co living asset purchased with 40% leverage, it will be funded by share placements at market rates which is dilutive to NAV

As part of this EGM exercise, the REIT must dispose of 3 buildings which would bring total debt down from its current US$550 million. This too will destroy some NAV too

Existing Unitholders can be prepared to have their stake diluted and never be able to realize the NAV of 21 US cents; likely already a 50% haircut to NAV given the future of continuous share placements?

<Not a Unitholder of Manulife US REIT>

Interesting Observation

In my 11 May 2025, I wrote: "Interestingly, it seems MUST has been able to sell Tranche 2 assets so far. Maybe the Tranche 1/2/3 classification is a foil so that would be buyers think MUST is desperate to sell Tranche 1 asset but instead MUST is focusing fire to sell Tranche 2 assets."--> This has really happened and only 01 Tranche 2 asset is left and the Tranche 1 assets are unsold

[weijian]

I have never been a MUST shareholder but I keep relatively close tabs on it (compared to other REITs that I indirectly have vested interest in) because there is plenty to learn.

Some time back, I suppose everyone was wondering on the high interest rate of the SponsorLender Loan that was provided to the REIT. This MoM reveals that the lender banks (3rd party lenders) actually requested for the SponsorLender loan to be the last in line for repayment. So in essence, the SponsorLender loan is a pseudo mezzanine loan that takes on more subordinated risk. This probably explains the high mid single digit interest rate of the SponsorLender Loan. As a matter of fact, 7.5% might actually be too low!

MINUTES OF EXTRAORDINARY GENERAL MEETING

The Sponsor-Lender loan was granted as a form of Sponsor support for the Recapitalisation Plan implemented in 2023. The Sponsor-Lender Loan involves a loan of US$137 million, with a coupon rate of 7.25% and an exit premium which is payable in cash only when the loan matures in 2029.

To provide some context, the third party lenders requested for the SponsorLender Loan to be last in line for repayment to align the Sponsor’s interest with their interests. When considering refinancing options, the Manager will have to balance between (a) the upcoming loan maturities in 2026, 2027 and 2028, (b) bringing down the cost of debt, © the suitability of the different types of refinancing options available, secured or unsecured debt financing and (d) risk management, to ensure that there are no defaults.

https://links.sgx.com/FileOpen/Manulife%...eID=871976

[CY09]

https://links.sgx.com/FileOpen/Manulife%...eID=878659

Year end results are out and MUST took another valuation hit with the impending sale of Figueroa. Occupancy is still falling given the weak submarkets it is in. In slide 21, there is a hint that the submarkets MUST is in has not bottomed out.

I note in Slide 11, a large amount of MUST hedges expire in 2026 and asked about the effects of basis point increase. MUST replied they expect an increase in 75 basis point. Based on slide 12, this means end FY2026, we could see MUST ICR drop to 1.5 times.

Further, I asked about the constant downward valuations of buildings done by MUST prior to the sale, MUST said because their situation and building prices are public information as well as few buyers in the US office space; MUST is negotiating from a position of weakness in sales. They plan to sell 03 more buildings after Figueroa sale. Of course, with the reassuring "usual" words of we see growing strength in the market and more investor returning to the space

My conclusion: Just avoid and wait longer. Worth only a revisit when 02 more buildings + figueroa are sold