What's the Progress of Manulife US Asset Sales? Brookfield Sales Shows It Might not be Smooth Sailing

I am not vested in Manulife US REIT (MUST), but am following it because it reflects the state of the US Office market which affects my other 2 investments.

Recently, MUST insiders have been buying up shares which is good news. However, a recent news of Brookfield asset sale in Figueroa might dampen news, it does not seem like its good news in the progress of Tranche 1 asset sales for Figueroa.

BrookField Asset Sale

Just 1 block away from MUST's Figueroa property, Brookfield has sold off its 777 South Figueroa street at US$145 million and with 15 offers. The office tower was only 50% occupied and sold at 25% of its 2020's valuation. The good thing is MUST's Figueroa property is 81% occupied, so it is on a better footing. Hence in my view, it is possible for MUST to start selling it at 35% of its 2020 valuation of US$337.6 million. This means about US$118 million.

For MUST, it is a definite it cannot sell its property at say 25% of its 2020 valuation. This is due to the Decemeber EGM circular which was approved by shareholders in its recap plan.

The Dec 2023 Recap Plan

Shareholders of MUST approved the share sale for Tranche 1 assets at the following parameters:

Pre-approved MUST can only sell its Figueroa asset at the lowest price of US$106.2 million, if it happens. Right now, at its current year end valuation, it can only be sold at US$132 million. However, with the recent comparable sale of Brookfield's asset one block away, I will not be surprised a further downward valuation happens for MUST's Figueroa, this should bring it near to the floor price of US$106.2 million. My baseline valuation is US$118 million. To why I think the value of MUST's Figueroa value would fall, this is because BrookField's Figueroa has a larger floor area by 40% and is 1 year younger than MUST's. The saving grace for MUST is its higher occupancy rate. Nett nett, I do think MUST should be able to fetch about US$118 million based on sales comparable approach. However, given that Centrepoint is below the circular agreed sale, the sale of Tranche 1 office assets seems to be increasingly hard.

Secondly, its worth noting in the recent devaluation, Centrepoint's value is now lower than the pre-approved price to sell its Tranche 1 asset. While MUST can still sell, the lenders approval to sell at the lower price has to be sought. This hinders the target goal of raising US$328.7 million from sale proceeds. 

I am not surprised the sale of a few Tranche 2 assets may occur. The sale of US$230 million target is important as well because failure to meet it results in a higher interest rate levied by lenders. And while Centrepoint can be excluded, it makes the required sale execution to be close to perfect. Diablo is already at the bottom price range of the circular.

The above are my opinions.

Progress of MUST's Tranche 1 Sale?

I hope MUST brings good news that it has sold at least 1 of its Tranche 1 property during the AGM or release of its Q1 results. The progress of the sales has been rather quiet thus far. A sale at its current end 2023's value would bring good news.