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Good afternoon everyone!
Is this price the right time to buy some?
Any advise!
Thank you.
Is this price the right time to buy some?
Any advise!
Thank you.
Manulife US Reit&rsquo s manager should invite MAS to act as &ldquo special scrutineer&rdquo of its strategic review
Risks associated with external Reit managers are mitigated by well-resourced local sponsors, but a tougher stance may be warranted for Reits with foreign sponsors
DURING an informal meeting more than a decade ago, the chief executive of a large Singapore property group admonished me for complaining about locally-listed real estate investment trusts (Reits) being externally managed.
If Reits were required to have internal managers, the CEO said, Singapore&rsquo s major property developers might not have placed their best income-generating assets under these structures. The lucrative stream of fee income that externally-managed Reits offered was necessary in order to draw high-quality sponsors with pipelines of good assets.
This seemed a rather self-serving viewpoint to me. The way I saw it, externally-managed Reits were likely to prioritise their fee income and push for asset growth. On the other hand, internally-managed Reits seemed more likely to focus on distribution per unit (DPU) growth and resilience.
Yet, Singapore&rsquo s Reit market is today anchored by a handful of local sponsor groups &ndash including CapitaLand Investment, Frasers Property, Keppel Corp and Mapletree Investments.
Even if these big property players were motivated to venture into the Reit business because of the lucrative external management model, and the Reits under their respective umbrellas have been more focused on asset growth than DPU growth, the fact is that Singapore would not have much of a Reit market without them.
So, was the CEO who scolded me all those years ago right? Are externally-managed Reits appropriate for the Singapore market?
Clearly, the risks associated with externally-managed Reits are mitigated when they are backed by well-resourced sponsor groups committed to maintaining their viability.
This column noted two weeks ago that CapitaLand Integrated Commercial Trust, CapitaLand China Trust and Mapletree Pan Asia Commercial Trust have all recently taken steps to reposition themselves with the support of their respective sponsor groups.
But trouble can emerge when a sponsor lacks the willingness or capability to support its Reit through difficulty. In these situations, the value the sponsor may obtain for the external manager even as it walks away can exacerbate tensions with unitholders.
In my view, there ought to be direct regulatory scrutiny of Reits in these circumstances. There should perhaps also be tougher listing rules imposed on externally-managed Reits with sponsors that are not closely connected to Singapore.
&lsquo Walking away&rsquo
Manulife US Reit&rsquo s manager confirmed last month that it might be acquired by Mirae Asset Global Investments as part of a plan to turn the troubled US office Reit around. Yet, it has recently been pushing back against the idea that the sponsor group is &ldquo walking away&rdquo from the Reit.
Responding to questions ahead of Manulife US Reit&rsquo s annual general meeting (AGM) held on Apr 20, the manager said there was no requirement for potential bidders to acquire it. But there were no bids involving the injection of capital into Manulife US Reit that did not also include the purchase of the manager.
It went on to remind unitholders that the sponsor had recently acquired an asset from the Reit called Tanasbourne for US$33.5 million. It also said the sponsor may subscribe for more units in the Reit, to maintain its overall 9.1 per cent stake. &ldquo Both these instances demonstrate the sponsor&rsquo s support and provides certainty during this volatile period for Manulife US Reit,&rdquo the manager said.
As an investor in Manulife US Reit myself, this narrative is unconvincing. In the first place, it is disappointing that the sponsor was only prepared to acquire a single asset &ndash a fully-occupied one at that &ndash equivalent to less than 2 per cent of the Reit&rsquo s portfolio. This supposed gesture of support is too miniscule to be meaningful.
Also, given the very steep discount to net asset value at which Manulife US Reit is currently trading, the sponsor would suffer significant dilution if it does not take up its proportionate share of any issue of new units. By subscribing for additional units, the sponsor is not supporting the Reit so much as protecting the value of its investment.
Meanwhile, the fact that there were no bids involving the injection of capital into Manulife US Reit that did not also include the purchase of the manager should not be a surprise to the manager. Any strategic investor prepared to bail out the Reit would naturally want to have control of the manager.
The real issue is that the sale of Manulife US Reit&rsquo s manager to Mirae will enable the sponsor group to cash out while investors are left holding units trading at deeply discounted prices. And, the proposed price for Manulife US Reit&rsquo s manager may have been a factor in the sponsor&rsquo s decision to step aside, if not walk away.
Special scrutineer
Given the structure of externally-managed Reits, it seems unlikely to me that Manulife US Reit&rsquo s manager and its financial adviser Citigroup Global Markets Singapore could have adopted an entirely unitholder-oriented perspective when evaluating the options available to the troubled Reit.
In fact, the arrangements around the Reit&rsquo s strategic review process do not appear to have been cast in stone. For instance, I had assumed when the appointment of Citi was announced in November last year that Manulife US Reit would foot the bill, since Citi would be working for the benefit of the Reit&rsquo s unitholders. This raised questions in my mind as to whether Citi ought to be involved in proposals involving the sale of the manager.
But officials at Manulife US Reit&rsquo s manager told me earlier this month that Citi is to be paid by the manager rather than Reit, and that the payment would be on a success basis.
When I asked for confirmation of this in writing last week, the manager said: &ldquo As part of the sponsor&rsquo s support and commitment, the manager is discussing with the sponsor about the possibility of absorbing this cost on behalf of the Reit. In any case, Citi will only be paid on a success basis.&rdquo
Interestingly, when I attempted to confirm specifically which parties had information about the proposed price at which Mirae will acquire Manulife US Reit&rsquo s manager, I was directed to a response to a related question from unitholders ahead of the recent AGM.
Manulife US Reit&rsquo s manager said, among other things, that all bids received were submitted to the board of the manager and thoroughly evaluated. The manager went on to say the sponsor had also lent its expertise, but focused its guidance on how best to maximise value for unitholders.
The manager said its board evaluated all the bids from the standpoint of value maximisation for Manulife US Reit&rsquo s unitholders, but also considered factors such as execution certainty and ease of implementation. The board eventually decided unanimously to move forward with the Mirae proposal.
Will this process of evaluating the Mirae deal convince unitholders the transaction was organised with their best interests in mind? What more can Manulife US Reit&rsquo s manager and sponsor group do?
Here&rsquo s one suggestion: Manulife US Reit&rsquo s sponsor group could invite the Monetary Authority of Singapore (MAS) &ndash which regulates Singapore&rsquo s Reit managers and corporate finance advisers &ndash to act as a &ldquo special scrutineer&rdquo of its strategic review.
Besides fostering investor confidence in the rehabilitation process now underway at Manulife US Reit, MAS might gain some insight into the commercial motivations of Reit sponsors that could be useful in formulating regulatory policy on Reits in the future.
With constantly shifting economic and market trends, Manulife US Reit certainly won&rsquo t be the last Reit to land in trouble. It would be useful if MAS were to set out its expectations of Reit managers and sponsors in these circumstances.
I think they did fairly well by immediately acting upon the negative comments by BT on Mirae. They quickly sold an asset and brought down the gearing slightly and updated talks are still in progress. It would have been worse if the Manager had taken a bo-chap attitude. I think they deserve a chance from me.
Kandee ( Date: 15-Apr-2023 07:00) Posted:
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It is a double edge sword. On one hand, it reduces leverage. On the other hand, it reduces income from a fully leased building.
Unfortunately, at the current moment, reducing leverage is fundamental for MUST. I guess the latest leverage will be reflected in Q1 23 update.
Still waiting for the strategic review by Citibank.
Unfortunately, at the current moment, reducing leverage is fundamental for MUST. I guess the latest leverage will be reflected in Q1 23 update.
Still waiting for the strategic review by Citibank.
cmengchan ( Date: 14-Apr-2023 11:55) Posted:
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really interested to see how the REIT is digging itself out of this
seems like sponsor is not interested in doing a rights issue or private placement to reduce aggregate leverage
i remember seeing DBS wrote a report about how Manulife can delever and selling assets was one of the option
but seeing the kind of valuation the assets are fetching....is this the right option?
seems like sponsor is not interested in doing a rights issue or private placement to reduce aggregate leverage
i remember seeing DBS wrote a report about how Manulife can delever and selling assets was one of the option
but seeing the kind of valuation the assets are fetching....is this the right option?
Selling the good asset means the DPU will be impacted for significantly. The underperforming assets will contribute lesser DPU for current capital value. So share price will keep going down at this rate.
marketuncle ( Date: 12-Apr-2023 10:37) Posted:
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RHB lowers Manulife US Reit&rsquo s target price following Oregon property divestment
RHB Research has lowered its target price for Manulife US Real Estate Investment Trust : BTOU +0.54% (Manulife US Reit) from US$0.43 to US$0.40.
The research house maintained its &ldquo buy&rdquo call on the Reit in a report on Thursday (Apr 13), a day after the Reit divested its office campus in Hillsboro, Oregon for US$33.5 million.
This is the second time in two months that RHB has dropped the target price for Manulife US Reit.
Tanasbourne, the divested property, is Manulife US Reit&rsquo s smallest asset. The Reit is expected to book a net loss of US$400,000 from the divestment.
To factor in the asset sale, analyst Vijay Natarajan lowered his FY23-FY25 distribution per unit forecasts by 4 per cent to 5 per cent.
The new target price also incorporates a lower governance score to reflect a &ldquo lack of clear communication of challenges faced in some of (the Reit&rsquo s) assets and delayed sponsor support&rdquo , along with leaner margin assumptions on expectations of higher tenant incentives.
The analyst also flagged market concerns over how Mirae&rsquo s proposed subscription to Manulife US Reit&rsquo s new unit issuance would be dilutive, as the Reit is trading well below its net asset value of US$0.55.
&ldquo We acknowledge and share similar concerns, but will await for the final deal proposal to evaluate the merits of such a transaction,&rdquo he said.
While Natarajan is concerned about the divestment of a property which is &ldquo among (the Reit&rsquo s) best-performing assets&rdquo with full occupancy, he maintains that the sale is a choice that &ldquo fits the time constraints&rdquo as the sale of a bigger asset could take three to six months.
Thus, he believes that Manulife US Reit&rsquo s recent unit price correction has been overdone, as deteriorating US office conditions and the Reit&rsquo s ongoing refinancing concerns &ldquo does not justify&rdquo the plunge.
&ldquo (Manulife US Reit&rsquo s) debts are from local (Singapore) lenders, are fully unsecured, and it faces no immediate refinancing issue,&rdquo he noted.
Manulife US Reit divests Oregon property for US$33.5 million still in talks with Mirae for sale of manager
MANULIFE US Real Estate Investment Trust : BTOU +6.98% (Manulife US Reit) has divested its property, Tanasbourne, located in Hillsboro, Oregon for US$33.5 million.
The buyer is John Hancock Life Insurance Company (USA), which is a subsidiary of Manulife US Reit&rsquo s sponsor &ndash The Manufacturers Life Insurance Company.
In an announcement on Wednesday (Apr 12), the Reit said it will book a net loss of US$400,000 from the divestment.
Tanasbourne is a 132,851 square foot office campus comprising three flex-office buildings. It was constructed between 1986 and 1995, and was refurbished in 2015, 2017 and 2020.
The property had a 100 per cent occupancy rate as at Dec 31, 2022, with a weighted average lease to expiry of 3.8 years.
The divestment comes as Manulife US Reit seeks to lower its leverage, which stood at 48.8 per cent as at Dec 31, 2022. Assuming all the net proceeds from the divestment are used to repay debt, the Reit&rsquo s gearing will fall to 48 per cent.
In its announcement, Manulife US Reit said it continues to explore potential asset sales but faces near-term challenges in the United States market.
&ldquo Availability of credit continues to be limited for US buyers, thus resulting in low interest for any asset dispositions,&rdquo the announcement said.
DBS Group Research welcomed the move from Manulife US Reit, but noted that the sponsor had chosen the smallest asset within the Reit&rsquo s portfolio.
Data from Manulife US Reit&rsquo s annual report for 2022 indicated that Tanasbourne was valued at US$33.5 million as at Dec 31, 2022, the lowest among all its assets.
&ldquo Although the amount is small, it allows Manulife US Reit to buy time to implement the other options that are still within consideration following the strategic review,&rdquo added DBS.
In a separate announcement on the same day, offering an update on an ongoing strategic review to enhance unitholder value, Manulife US Reit&rsquo s manager also cited &ldquo prevailing negative sentiment around the US office sector&rdquo as a challenge. This sentiment included &ldquo uncertainty around tenant space requirements&rdquo .
Taking into account this challenging environment as well as the difficulty of raising funds by issuing equity, Manulife US Reit&rsquo s manager said its proposed deal with Mirae Asset Global Investments would provide &ldquo potential value-add&rdquo .
The manager said discussions continue with Mirae, and also noted Mirae&rsquo s US asset pipeline across various sector classes such as office, hospitality and logistics. This would allow Manulife US Reit to diversify into other asset classes. The Reit is currently exposed predominantly to the US office sector.
Looking good from a technical viewpoint. Indicators turned positive.
Hope to see $0.205
Hope to see $0.205
It can' t sell underperforming assets under current market conditions (the one it just off loaded is fully occupied). So the only viable way is capital injection (aka dilution) and Mirae seems the only hope it got. It' ll go lower when the deal is done. It will go lower still if Mirae walked away. Haizz.
at this rate it will drop to 10 cents =(
Thanks for sharing - good points raised by Quarz
cmengchan ( Date: 10-Apr-2023 11:13) Posted:
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https://dividendpassiveincome.blogspot.com/2023/04/quartz-capital-steps-in-to-protect.html?m=1
Quartz Capital Steps In To Protect Manulife US REIT From Value Destruction by Its Sponsor Manulife.
Quartz Capital Steps In To Protect Manulife US REIT From Value Destruction by Its Sponsor Manulife.
Mirae should think twice about Manulife deal
Singapore&rsquo s leading Reits sponsors are setting tough standards, and investors are becoming increasingly knowledgeable and independent-minded
Manulife US Reit' s properties could continue to be marked down with rising interest rates, slowing US economic growth and a continuation of hybrid work arrangements
THE brief positive reaction in the market last month to news that Manulife US Reit&rsquo s manager might be acquired by Mirae Asset Global Investments was something of a surprise to me.
While Manulife US Reit has performed very poorly with the backing of the Manulife Group, any new sponsor group that forks out a substantial amount of money for the manager will likely be motivated to rapidly expand the real estate investment trust (Reit)&rsquo s portfolio &ndash which could mean dilutive placements and rights issues.
It was also surprising to me that Mirae was reportedly the &ldquo preferred bidder&rdquo for the Manulife US Reit platform, and that it had beaten out a number of other candidates. Why is there so much interest in acquiring control of a Reit with a deflating property portfolio, excessive gearing and units trading at a deep discount to book value?
Mirae would arguably be far better off forming its own Reit platform from scratch. It would be able to pull together a portfolio of properties attractive to investors, and assemble a capital structure optimised for growth.
More importantly, Mirae would not be putting its brand name and reputation on the line by taking on Manulife US Reit&rsquo s disgruntled unitholders.
With leading sponsor groups in Singapore&rsquo s Reit sector setting tough standards, Mirae should give itself the best possible chance of making a good first impression in this market. Avoiding a potentially messy entanglement with a struggling Reit would be a sensible first step.
Selling assets makes sense
Despite the fillip of excitement following the news about Mirae, the market price of Manulife US Reit continued sliding over the past month. On Thursday (Apr 6), it closed at US$0.21 &ndash an appalling 62 per cent discount to its book value of US$0.55 (excluding distributable income) as at Dec 31.
Clearly, raising additional equity at this point would not make sense from the perspective of unitholders. With rising interest rates, a slowing US economy, and the continuation of hybrid work arrangements, it is possible that the value of Manulife US Reit&rsquo s property portfolio will be marked down further.
A more appropriate course of action for Manulife US Reit would be to sell its weakest properties. This would crystallise a portion of its book value, and reduce its currently high gearing &ndash which stood at 48.8 per cent as at Dec 31, just short of the statutory ceiling of 50 per cent.
With reduced gearing, the Reit would have some breathing room to pursue strategic initiatives to lift the income potential of its remaining assets. It might also enable the Reit to acquire assets in more promising fields.
Another alternative would be for Manulife US Reit to liquidate its entire portfolio. Even if the assets fetch slightly less than current book value, unitholders would probably get much more than if they were to sell their units in the market.
The obvious consequence of this is Manulife US Reit&rsquo s manager would lose its source of income. In effect, the unitholders would be cashing out at the expense of the sponsor group.
Regulatory scrutiny warranted
By contrast, the sale of Manulife US Reit&rsquo s manager would enable the sponsor group to cash out while investors are left holding units trading at deeply discounted prices.
On Mar 15, the manager of Manulife US Reit confirmed it is in discussions with Mirae about a &ldquo potential transaction&rdquo . It said the deal may see the Korean asset management group acquiring the manager and subscribing to new units in the Reit.
But Manulife US Reit&rsquo s manager denied on Mar 17 that the transaction would be worth a reported 200 billion won (S$206.4 million). It said the non-binding proposal from Mirae does not contain any reference to such a figure.
Tellingly, it added that the only monetary amount in the proposal relates to the purchase price for the manager.
Given that the interests of Manulife US Reit&rsquo s sponsor group and unitholders might not be aligned under a potential deal with Mirae, some regulatory scrutiny is probably warranted.
For instance, Singapore&rsquo s market regulators could examine whether it is entirely appropriate for Citigroup Global Markets Singapore to be involved in any deal that involves the sale of the manager.
On Nov 25, 2022, the manager of Manulife US Reit said Citigroup had been appointed as its financial adviser. It stated then that Citigroup would assist a strategic working group formed by the manager to review various options to enhance unitholder value.
Rising standards for Reits
Manulife US Reit is not the only Singapore-listed Reit attempting to improve its viability. Other Reits have successfully repositioned themselves over the last few years with the support of their respective sponsor groups.
Back in September 2020, the manager of CapitaLand Retail China Trust unveiled an expanded investment strategy that would see the Reit diversify its portfolio to include offices, business parks, logistics facilities and data centres. It was renamed CapitaLand China Trust in January 2021.
CapitaLand Mall Trust (CMT) also expanded beyond retail properties in 2020 by acquiring CapitaLand Commercial Trust through the issue of new units.
To sweeten the controversial deal, the manager of CMT waived its acquisition fees of some S$111.2 million. CMT subsequently changed its name to CapitaLand Integrated Commercial Trust.
Then there was Mapletree Commercial Trust (MCT)&rsquo s acquisition of Mapletree North Asia Commercial Trust (MNACT) last year. To win over reluctant investors on both sides of the deal, Mapletree Investments backed a S$2.2 billion preferential offering by MCT at slightly over S$2 per unit that enabled MCT to pay MNACT unitholders in cash instead of new units.
MCT was renamed Mapletree Pan Asia Commercial Trust, and it is still trading nearly 10 per cent below the price it issued new units to Mapletree Investments last year.
Meanwhile, Reit investors are becoming increasingly knowledgeable and independent-minded. Minority unitholders of Frasers Hospitality Trust last year rejected an offer from its sponsor group, even though the offer price was a premium to book value.
In 2020, dissident investors led by Quarz Capital Management scuppered the proposed merger of Sabana Industrial Reit and ESR-Reit. Since then, Quarz has continued to pressure Sabana&rsquo s manager to focus on delivering value to investors organically.
Ahead of Sabana&rsquo s annual general meeting (AGM) on Apr 25, Quarz is rallying unitholders to vote against the resolution authorising the Reit manager to issue new units.
Manulife US Reit &ndash which is due to hold its own AGM on Apr 20 &ndash faces a long road ahead to once more become a useful asset securitisation vehicle for its sponsor group. Mirae should carefully consider if it is paying an appropriate price for the Reit&rsquo s manager, and whether it has the resources and fortitude necessary to support the Reit through its rehabilitation.
DBS published a sector note today on the US REITs
Headwinds are largely known. The US office market remains in a state of uncertainty, impacted by both a structural shift (higher adoption of flexible working) coupled with cyclical factors (impacted by the hawkish Fed) at play concurrently. Leasing momentum has also quietened down with landlords offering higher incentives to attract/retain tenants, impacting cash flow growth. While sector headwinds abound, we believe that these negatives are largely known and priced in at FY23 yields of 15% and an average valuation of 0.5x P/BV, below the COVID low in 2020 and -2 standard deviation (SD) levels.
Silver lining amidst a gloomy outlook. Despite the gloomy outlook on the US office market, we see bright spots emerging. While we may be making an early call, we see some optimism due to i) lower competition from declining new supply ii) more landlords undertaking repositioning exercises and converting into other asset classes to reduce available supply and iii) the imminent maturing phase of the current rate hike cycle. These factors will likely need time to play out before the US office market can stabilise. However, we remain constructive on the medium-term outlook
Valuations close to the bottom waiting for a re-rating catalyst. The US-listed office REITs are currently trading at 0.75x P/BV, close to the GFC low. While the US office SREITs do not have sufficient trading history stretching back to the last crisis, i.e., GFC, we believe that at 0.5x P/B, it is close to the bottom and awaiting a catalyst. We believe the re-rating catalyst lies in whether the Fed moderates or pauses the interest rate hikes, which will drive a share price turnaround and re-rating. Our preferred pick is KORE, which has shown more resilient operations compared to its peers. On the other hand, MUST has de-rated the most and would probably see the overhang lifted once it resolves its capital management issues.
- US office market remains in a state of uncertainty, but headwinds are largely known and priced in
- Some bright spots amidst a gloomy outlook, but will take time to play out and stabilise the market
- Valuations at 0.5x P/B are close to the bottom in our view, with imminent end of rate hike cycle a catalyst
- Preferred pick KORE &ndash shown more resilient operations compared to peers
Headwinds are largely known. The US office market remains in a state of uncertainty, impacted by both a structural shift (higher adoption of flexible working) coupled with cyclical factors (impacted by the hawkish Fed) at play concurrently. Leasing momentum has also quietened down with landlords offering higher incentives to attract/retain tenants, impacting cash flow growth. While sector headwinds abound, we believe that these negatives are largely known and priced in at FY23 yields of 15% and an average valuation of 0.5x P/BV, below the COVID low in 2020 and -2 standard deviation (SD) levels.
Silver lining amidst a gloomy outlook. Despite the gloomy outlook on the US office market, we see bright spots emerging. While we may be making an early call, we see some optimism due to i) lower competition from declining new supply ii) more landlords undertaking repositioning exercises and converting into other asset classes to reduce available supply and iii) the imminent maturing phase of the current rate hike cycle. These factors will likely need time to play out before the US office market can stabilise. However, we remain constructive on the medium-term outlook
Valuations close to the bottom waiting for a re-rating catalyst. The US-listed office REITs are currently trading at 0.75x P/BV, close to the GFC low. While the US office SREITs do not have sufficient trading history stretching back to the last crisis, i.e., GFC, we believe that at 0.5x P/B, it is close to the bottom and awaiting a catalyst. We believe the re-rating catalyst lies in whether the Fed moderates or pauses the interest rate hikes, which will drive a share price turnaround and re-rating. Our preferred pick is KORE, which has shown more resilient operations compared to its peers. On the other hand, MUST has de-rated the most and would probably see the overhang lifted once it resolves its capital management issues.
KepPacOakReitUSD also follow the weak sentiment and down ? Is this under Keppel in high risk?
The weak sentiment is probably towards the US commercial real estate sector as a whole and not just specific to MUST
Fallingman ( Date: 27-Mar-2023 15:46) Posted:
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Negative sentiment at the moment for this reit. I bought in some today. Need catalyst and re-rating. Down side risk minimum.
Is 20 cents worth the risk and pain?
NAV is at 55 cents. THat is 36% P/NAV! WOW!
NAV is at 55 cents. THat is 36% P/NAV! WOW!
Wah dropped 14% tpday.anyone knows what is happening? did the deal fail?