Manulife US REIT - DBS Research 2023-05-24: Moving The Gearing Needle Down

• Manulife US REIT announced that they have entered into a letter of intent with its sponsor, The Manufacturers Life Insurance company “Manulife”, for the potential sale of “Phipps Tower” located at 3438 Peachtree Road, Atlanta.
• - Read this at SGinvestors.io -
• At the same time, the manager announced that the exclusivity period regarding the potential transaction with Mirae Asset Global Investments (Mirae) has lapsed. While the manager is open to ongoing discussions with Mirae, it is also considering other proposals with other partners in relation to a strategic transaction involving Manulife US REIT (SGX:BTOU).

Our View

A deal that matters and moves the needle; NAV dilution to be minimal.

• - Read this at SGinvestors.io -
• While the potential sale of a property with strong attributes could mean that the impact from occupancy challenges faced by Manulife US REIT’s other existing properties is amplified, we see this as potential “bitter pill” to swallow in order to bring forth more stability for the portfolio.
• Based on our estimates, assuming it is sold at US$200m (5% discount to last valuation) with the proceeds used to repay debt, the sale will bring Manulife US REIT’s gearing down towards the 42%-43% level, which will cure the perception of a stretched balance sheet (gearing of 49%) of the REIT, per its last report for the first quarter 2023.
• Based on the reported US$12.2m net property income for FY22, our assumed transaction price of US$200m will imply an exit yield of ~6.0%.

Risk of sizable equity fundraising (EFR) is reduced substantially.

• Read more at SGinvestors.io.

Derek TAN DBS Group Research | Rachel TAN DBS Research | https://www.dbs.com/insightsdirect/ 2023-05-24 SGinvestors.io

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