Tripp Gantt, CEO of Manulife US Reit, says the Reit and its sponsor are " negotiating with the lenders to address the breach and embark on a plan to bolster the Reit&rsquo s liquidity needs" . 

 

THE manager of Manulife US Real Estate Investment Trust : BTOU -5.21% (Manulife US Reit) declared no distribution for the first half ended Jun 30, as the Reit has breached banks&rsquo unencumbered gearing ratio, causing all its loans to be reclassified as current liabilities.

 

The financial covenant in Manulife US Reit&rsquo s loan agreements provides that the ratio of consolidated total unencumbered debt to consolidated total unencumbered assets shall be not more than 60 per cent.

 

After reporting a higher ratio of 60.2 per cent on Jul 18, the Reit has since lowered its bank unencumbered gearing ratio to 59.7 per cent, following a good faith payment in August.

 

However, to rectify the breach of financial covenant, the Reit needs to obtain an expressed waiver from the lender banks. These negotiations are ongoing.

 

&ldquo Together with our sponsor, we are negotiating with our lenders to address the breach and embark on a plan to bolster the Reit&rsquo s liquidity needs, be it the potential disposition of Phipps Tower or a potential alternative method,&rdquo said Tripp Gantt, chief executive officer of the manager of Manulife US Reit.  

 

At a briefing accompanying the results announcement on Monday (Aug 14), the Reit manager said that whether Manulife US Reit is able to resume its distribution payment in the second half hinges on the outcome of these discussions.

 

&ldquo The second half is predicated on the successful negotiation with the lenders, as well as making sure that we have the liquidity to address all our current obligations going forward,&rdquo said Robert Wong, chief financial officer of the Reit manager.

 

In a separate interview with The Business Times on Monday, sponsor representative Marc Feliciano, global head of real estate for private markets at Manulife Investment Management, stressed that the sponsor &ldquo remains committed&rdquo to the Reit.

 

&ldquo In the near term, we&rsquo re trying to get to a resolution with the lenders/creditors and buy as much time through some sort of agreement with the lenders,&rdquo Feliciano said. &ldquo (This is to) allow the markets to stabilise, to have greater liquidity to sell the worst assets, and quite frankly, reposition the portfolio. (This will) then, hopefully, allow property values to appreciate over the next couple of years.&rdquo

 

The sponsor representative was slated to attend the earnings call for analysts and media, but pulled out at the last minute for &ldquo a very deliberate reason&rdquo .

 

According to Feliciano, responses had been thoroughly prepared together with the manager to address potential sponsor-related questions if asked at the briefing. As such, he said, the sponsor&rsquo s attendance &ldquo would be a distraction&rdquo . &ldquo We were unaware of the listing of the sponsor&rsquo s attendance in the invitation,&rdquo he added.

 

&ldquo I don&rsquo t think the sponsor commitment or support has deviated,&rdquo Feliciano said. &ldquo I get the sense from listening to (this morning&rsquo s earnings) call, and what I&rsquo ve heard since I&rsquo ve been here in Singapore, is that the sponsor is not committed to the Singapore Reit. Nothing is further from the truth.&rdquo

 

H1 results continue to decline.

 

For H1 2023, the Reit manager on Monday reported a 17.4 per cent decline in distributable income to US$37.9 million, from US$46.0 million in the corresponding year-ago period.

 

Net property income for the same period dropped 3.9 per cent, to US$55.4 million from US$57.6 million in H1 2022.

 

Revenue dropped marginally by 0.8 per cent, to US$99.6 million from US$100.4 million in the same period a year ago.

 

The loss of net income was largely attributed to the &ldquo lower rental and recoveries income from higher vacancies along with the sale of Tanasbourne in April 2023, higher property operating expenses such as repair and maintenance, property taxes and utilities as well as higher finance expenses&rdquo .

 

The Reit&rsquo s portfolio occupancy declined slightly to 85.1 per cent as at Jun 30, 2023, from 88 per cent at the end of 2022, largely due to non-renewals at Diablo and Capitol. Finance expenses, on the other hand, increased to US$21.7 million from US$15.3 million in H1 2022.

 

The loss in income &ldquo was partially offset by higher lease termination fee income and higher parking income,&rdquo added the manager.

 

As at Jun 30, 2023, Manulife US Reit&rsquo s aggregate leverage ratio stood at 56.7 per cent.

 

The high gearing ratio was said to be a result of a decline in portfolio valuation, which is beyond the manager&rsquo s control. The manager emphasised that according to the Monetary Authority of Singapore (MAS) rules, it does not constitute a breach of the MAS&rsquo s gearing limit.

 

Manulife US REIT halts DPUs in 1HFY2023 unencumbered gearing ratio down to 59.7%

 

Manulife US REIT (MUST) BTOU 0.00% has halted its distributions for the 1HFY2023 ended June 30 as the REIT had breached a financial covenant in some of its financing documents, which resulted in the REIT&rsquo s loans being reclassified as current liabilities.

 

The breach came after the REIT announced that its portfolio valuation fell by 14.6% to US$1.63 billion ($2.16 billion) as at June 30 on July 18.

 

The lack of DPUs was also due to the REIT being unable to confirm that it will be able to fulfill its liabilities as they fall due after making the distribution.

 

During the 1HFY2023, MUST also reported a net loss of US$247.6 million, down from earnings of US$62.8 million in the same period the year before.

 

Gross revenue for the six-month period fell by 0.8% y-o-y to US$99.6 million mainly due to the sale of Tanasbourne that was completed in April 2023. The lower gross revenue was also attributable to the lower rental and recoveries income as a result of higher portfolio vacancy rate and partially offset by higher lease termination fee and parking income.

 

Net property income (NPI) fell by 3.9% y-o-y to US$55.4 million mainly due to the lower gross revenue and higher property operating expenses.

Distributable income fell by 17.4% y-o-y to US$37.9 million.

 

In its results statement, the REIT said that it is &ldquo working to generate proceeds to repay upcoming loan maturities, and fund capital expenditure (capex) and leasing costs&rdquo .

 

&ldquo Together with our sponsor, we are negotiating with our lenders to address the breach and embark on a plan to bolster MUST&rsquo s liquidity needs, be it the potential disposition of Phipps Tower or a potential alternative method,&rdquo says Tripp Gantt, CEO of MUST.

 

&ldquo We are tackling the problem systematically to raise funds to pay down debt and fund essential capex, including leasing costs such as tenant incentives. Concurrently, we are pursuing a disposition mandate, subject to unitholders' approval, to sell a certain amount of assets within set parameters to generate liquidity,&rdquo he adds. &ldquo All this is occurring against the backdrop of our ongoing strategic review, where we continue to engage with potential partners who are evaluating options such as asset sales, capital injection and strategic transactions around the REIT platform. We hope to share positive developments with the market soon.&rdquo

 

Following a good faith payment in August 2023, the REIT has lowered its bank unencumbered gearing ratio to 59.7%, from 60.2%, although the reduction of the ratio does not rectify the breach in its financial covenant.

 

&ldquo Once a breach has occurred, the lenders need to expressly waive the breach. These negotiations are ongoing,&rdquo says the REIT.

 

As at June 30, MUST&rsquo s aggregate leverage ratio stood at 56.7%, which is not considered a breach of the property funds appendix by the Monetary Authority of Singapore (MAS) as it had occurred due to a decline in portfolio valuation, which is beyond the manager&rsquo s control.

 

MUST&rsquo s interest coverage stood at 2.6 times as at June 30, down from 2.9 times as at March 31.

 

Rising interest rates pushed MUST&rsquo s weighted average interest cost slightly higher to 4.10%, from 3.98% three months ago, while the percentage of fixed rate loans has held steady at 80.2%.

 

The REIT&rsquo s net asset value per unit is 40 US cents as at the end of June 2023, mainly due to its fair value loss on investment properties.

 

As at June 30, the REIT&rsquo s portfolio occupancy stood at 85.1% with a portfolio weighted average lease expiry (WALE) of 4.9 years. The REIT reported positive rent reversions of 3.7% as at the same period.

 

As at June 30, cash and cash equivalents stood at US$133.7 million.