Manulife US REIT announced worse-than-expected double-digit portfolio valuation cuts reflecting the harsh US office investment landscape. The steep decline has resulted in a breach of official gearing limits and a slightly breach in loan covenants. Manulife US REIT is in active discussion with its sponsor and lenders to remedy the situation.
- Read this at SGinvestors.io -
Keep BUY rating on Manulife US REIT with new US$0.25 target price from US$0.40.
Manulife US REIT's portfolio valuation declined by 15%
- Read this at SGinvestors.io -
Key reasons driving the decline include a change in assumption by valuers with discount rates widening by 50-125bps and terminal cap rates increasing 25-100bps as well as asset specific vacancies, highlighting market uncertainty and higher interest rate outlook. NAV post revaluation is expected to be ~US$0.40.
Manulife US REIT is in discussion with banks to waive the breach in financial covenants, with the ratio of consolidated total unencumbered debt to consolidated total unencumbered assets at 60.2:100 (marginally above the stipulated 60:100). If the banks do not agree to waive, this will result in Manulife US REIT not being able to rely on its existing interest rate swaps and lead to higher interest costs.
Manulife US REIT will also be unlikely to be able to pay its 1H23 unitholder distributions until the above is resolved.
Manulife US REIT's gearing will rise to ~57% (from 49.5% in 1Q). The breach of gearing and bank covenants will hamper its ability to borrow debt and impact funding capex and tenant incentives.
High time for sponsor to show more active and immediate support.
Read more at SGinvestors.io.
Above is an excerpt from a report by RHB Securities Research. Clients of RHB may be the first to access the full PDF report @ https://www.rhbtradesmart.com/.
