Manulife US REIT Faces Challenges Amid Office Market Slowdown

by Warren Seah

The units of Manulife US REIT experienced a significant drop in early trading following the company’s guidance of a first-half loss and the disclosure of a financial covenant breach. This decline can be attributed to the slowdown in the office-market activity in the U.S.

As of Wednesday morning, the REIT’s units were down 28% at US$0.12, marking their largest one-day loss since the company’s listing in 2016.

Manulife US announced on Tuesday that it anticipates a loss in the first half of the year. This news follows a 15% decrease in the value of its properties, which was assessed as of the end of 2022. The decline is attributed to higher discount and terminal capitalization rates for certain properties due to the “volatile macroeconomic environment.” Additionally, weak occupancy levels across the U.S. office market, coupled with a slowdown in demand and leasing activity, further contributed to the decrease.

According to Manulife US, the pressure on U.S. office valuations is expected to persist and potentially worsen in 2023.

The valuation drop has resulted in a financial covenant breach for some of the trust’s existing loans. To avoid cross default in its interest-rate swaps, the REIT is currently engaged in discussions with lenders to seek a waiver for the breach.

Furthermore, Manulife US is actively working to address its liquidity needs, which may involve selling some of its assets.

As of June, the valuation of the Singapore-listed Manulife US’s properties stood at US$1.63 billion, compared to US$1.91 billion at the end of 2022.

Manulife US REIT specializes in office real estate and related assets in the U.S.

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