Manulife US REIT&rsquo s (MUST) BTOU manager announced on Sept 30 the sale of Capitol in Sacramento for US$117 million ($149.81 million) to a buyer who paid cash for the building.

 

John Casasante, CEO of MUST&rsquo s manager, says the buyer acquired the property at a capitalisation rate of 10%. Capitol was last valued at US$158 million (as at end-December 2023), at a cap rate of 7.75%, and was acquired in 2019 for US$198.75 million.

 

Under the Master Restructuring Agreement (MRA) that was agreed upon in December 2023 after MUST&rsquo s EGM, MUST had a net proceed target of US$230 million by end-2024 and a US$328.7 million target by mid-2025.

 

Based on the resolutions voted for in an EGM on Dec 14, 2023, MUST&rsquo s portfolio was divided into tranche 1 (the weakest), tranche 2 (less weak) and tranche 3 (the strongest). Capitol is a tranche 2 property.

 

Originally, the plan was to achieve the US$328.7 million target from sale of the tranche 1 properties.

 

By selling a tranche 2 property, MUST will achieve 47% of the 2024 net proceeds target of US$230.0 million and 33% of the 2025 net proceeds target of US$328.7 million following the completion of the divestment in 4Q2024.

 

The net proceeds targets are part of MUST&rsquo s MRA.

 

Casasante says that the US office market remains very challenging. &ldquo These challenges and uncertainties are some of the key considerations that we believe the execution of the sale of Capitol is in the best interest of our unitholders. There will also be some improvements to our financing ratios.&rdquo  

 

Two properties are in tranche 3. They are Michelson, located in Irvine, last valued at US$240 million (cap rate 7.25%) and Phipps, located in Atlanta, last valued at US$176 million (cap rate 6.5%). The valuations were done for end-December 2023&rsquo s financial statement.

 

Phipps is a Class A asset and Michelson a trophy asset.

 

In a media and analyst briefing on Sept 30, Casasante appeared willing to sell any property to achieve MUST&rsquo s net proceeds target  

 

&ldquo There could very well be tranche 3 assets that look different. It depends on the specific interest within the marketplace, and the buyers that we have. If an investor has the capital that' s looking to buy a trophy asset, and they' re not looking to buy something at a discount or extremely cheap, then maybe there' s a deal to be had there,&rdquo Casasante muses.

 

According to him, it&rsquo s difficult to compare properties in various sub-markets as no two buildings are alike. &ldquo There are just so many different nuances, such as the age of the building, if the building has a single tenant with a long weighted average lease expiry, and amenities,&rdquo Casasante says.

 

For instance, the Washington, DC market is struggling because the Federal Government has not mandated that people come back to work, he adds.

 

&ldquo I would say we' re looking at every single option within our portfolio to meet the requirements of the MRA, regardless of the tranche. We recognise the rationale between the different tranches. If something was considered in a different tranche, there would need to be more of a rationale, and a strategy behind executing on that asset, than purely just a straight disposition. Hypothetically, if we could solve everything within one disposition, that might be a strategy,&rdquo Casasante says.

 

The marketing and sales agreement for Capitol sounds like it took a great deal of effort. The marketing process included engaging JLL, with sale materials sent to 9,000 investors. It elicited 60 non-disclosure agreements, 20 tours of the property and five offers.

&ldquo We were able to secure an all-cash local buyer, which provides us with a high certainty of execution,&rdquo Casasante says.

 

Following the sale, MUST will own nine properties with an aggregate net lettable area (NLA) of approximately 4.6 million square feet.

 

MUST&rsquo s recapitalisation and restructuring plan comes after an unprecedented, rapid rise in the Federal Reserve&rsquo s ultra-hawkish interest rate cycle. Since its IPO in 2016 with an asset size of US$799 million, MUST, under previous management, grew its asset size rapidly to as high as US$2.18 billion before it had to shed assets because of its too-fast expansion.  

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QAF to book RM22 million of insurance payout as exceptional gain

Including the latest payment, it received total payouts of about RM131 million for a factory affected by flooding

 

QAF : Q01 +1.22% will book the RM22 million (S$6.8 million) it received as final insurance payment for flooding compensation as exceptional gain in its financial results for the second half of FY2024 and the financial year, the bakery said in a regulatory filing on Monday (Sep 30).

 

In the filing, QAF said that one of the Malaysian factories was hit by severe flooding in Peninsular Malaysia in December 2021. The total insurance payouts, including the latest payment, amounted to about RM131 million for consequential loss as well as damage to stock, property, plant and equipment.

 

QAF, the Gardenia-brand bread maker, is assessing the tax liability for the latest payment.

Manulife US REIT (MUST) is divesting 400 Capitol Mall in Sacramento, California for US$117 million ($150 million). 

 

The REIT intends to utilise the net sales proceeds and existing cash to repay all of its US$130.7 million loans due in 2025 by the end of this year. Post-repayment, there will be no loan maturities until 2026.

 

The sale price takes into account the independent valuation of US$118 million as at September 1. 

 

The divestment is expected to complete within 4Q2024. Upon completion, MUST will own nine properties in the US with an aggregate net lettable area of approximately 4.6 million square feet. 

 

Assuming that the estimated net sales proceeds from the divestment and existing cash are used to repay US$130.7 million of outstanding loans as at June 30, the REIT&rsquo s pro forma aggregate leverage is expected to improve to 54.2% from 56.3% while weighted average interest cost is expected to reduce by about 42 basis points to 4.16%. 

 

MUST&rsquo s pro forma weighted average debt maturity will also be extended to 3.4 years from 3.0 years.

 

The divestment marks the first major step towards the &ldquo recovery&rdquo phase of the trust&rsquo s strategic roadmap, says the manager&rsquo s CEO and CIO John Casasante. 

 

&ldquo Despite the ongoing challenges in US office market and the lack of debt availability that continues to hamper transactions, we were able to secure the sale of Capitol to an all-cash buyer, which provides us with the liquidity and flexibility to make an early repayment of the 2025 debt maturities and mitigate risks amid an uncertain environment.&rdquo

 

The divestment also demonstrates substantial progress towards the initial milestone set under the Master Restructuring Agreement (MRA).

 

Under the MRA, the divestment of Capitol will achieve 47% of the 2024 net proceeds target of US$230 million and 33% of the 2025 net proceeds target of US$328.7 million.