Hot stock: Manulife US Reit falls 27.5% after announcing recapitalisation plan
Vivienne Tay
UNITS of Manulife US Real Estate Investment Trust (Manulife US Reit) lost as much as 27.5 per cent after resuming trading on Thursday (Nov 30) morning following a halt called on Wednesday.
The counter reached a low of US$0.066, down US$0.025 as at 9.25 am. It was also the most heavily traded by volume on the Singapore bourse at the time, with 33.4 million units changing hands.
On Wednesday, the Reit’s manager announced plans to raise funds through a mix of asset dispositions and a sponsor-lender loan to remedy the Reit’s financial covenant breach.
The recapitalisation plan – which requires unitholders to vote on three inter-conditional resolutions at an upcoming extraordinary general meeting – seeks to “revitalise” the Reit, and provide more time for the manager to sell assets and realise value.
However, distributions would continue to be halted until December 2025. The distributions could resume if the Reit meets “early reinstatement conditions” similar to Singapore’s regulatory leverage limits.
DBS Group Research on Thursday downgraded Manulife US Reit to “hold” from “buy”, while maintaining its US$0.10 target price. With the sponsor-lender loan, DBS believes the sponsor will help the Reit remain sustainable until 2025.
“However, we believe this comes at a hefty price (sponsor loan interest), and the journey to resolving Manulife US Reit’s debt issue is lengthy with execution risks,” the research team said.
The sponsor will grant a six-year US$137 million loan at an interest rate of 7.25 per cent, paid quarterly, with an exit premium of 21.16 per cent on maturity. This translates to an effective interest rate of 10 per cent per annum.
The Reit will also divest its Park Place property in Arizona to its sponsor for US$98.7 million, a move which came as a surprise to DBS.
“This asset swap should be well received by investors, given the original intention to divest the Phipps Building, which we consider to be one of buildings with relatively stronger attributes out of its initial portfolio.”
The research team previously upgraded the counter to “buy” in November as it viewed the Reit as a short-term tactical play on the Reit reaching an agreement with its sponsor and lenders.
“We now take on a more cautious stance in the long term, given the suspension of distributions, uncertainty in the recovery of the US office market, and execution risks.”
