Manulife US REIT Names Citi Unit as Advisor for Strategic Review

Singapore-listed Manulife US Real Estate Investment Trust (REIT) has appointed a financial adviser to conduct a strategic review after reporting disappointing third quarter results.

Citigroup Global Markets Singapore will “undertake a review of a variety of options available to Manulife US REIT (MUST) to enhance unitholder value”, the REIT said in a November 25 statement.

MUST said post-COVID-19 “work patterns continue to impact space demand and leasing activity” in the US office market. Other challenges include high inflation, the prospect of further interest rate rises, and conservative lending amid market volatility.

The REIT said leasing volume was sluggish although lease terms remained stable and net effective rents were rebounding, adding that subleasing was picking up but below 2020 levels. Renewals were at historic lows.

Back to Office Battle

Manulife US REIT’s special sauce for the Singapore market is its portfolio of 12 US properties across Arizona, California, Georgia, New Jersey, Oregon, Virginia and Washington DC measuring about 5.5 million square feet in total net lettable area.

Unfortunately for MUST’s management and equity holders, net occupancy of office space in the US has been falling since 2019, and has been in negative territory since the beginning of 2020, according to a recent report by JLL. Net effective rents for grade A office space across top markets in the US now average some 6 percent below pre-pandemic levels, according to the property consultancy.

The trust’s flagship asset is the 35-storey Figueroa building in downtown Los Angeles, accounting for about 715,000 square feet of NLA. Major tenants across the portfolio include retailers, financial and insurance companies and law firms, as well as institutions such as the United Nations and the US Treasury.

In its update on November 2, the REIT announced the formation of a strategic working group of board and management team member which would explore opportunities to improve returns. The group would look at the REIT’s business direction, strategic partnerships, and joint ventures as well as merger and acquisition opportunities.

Manulife US REIT posted a portfolio occupancy rate of 88.1 percent for the third quarter, which was down from 90 percent in the previous three months. The decline in occupancy was attributed largely to a downsizing by law firm Quinn Emanuel at its property in Los Angeles. Its biggest tenant by net lettable area is children’s clothier Carter’s in Atlanta.

Volatile Markets

In October, top Singapore-based executives from Manulife US REIT, Lendlease Global Commercial REIT, and JLL warned of headwinds amid volatile global markets during a panel at the Mingtiandi Singapore Forum.

Manulife US REIT’s chief executive Tripp Gantt said at the event that he expected S-REITS to face similar challenges as those in the US. “So I think a lot of us are going to be looking at opportunities to recycle capital.”

Noting that the US is at least six months ahead in terms of the market downturn, Gantt said: “Our peers in the US are facing the exact same kind of issues that we are – and so I think right now, it’s a time to make sure we’re being conservative, making sure that we maintain and strengthen our balance sheet, and making sure that we can weather the storm.”

Manulife US REIT has lost about 44 percent of its value in the year to date, compared with the 24.3 percent loss by the broader MSCI US REIT Index. The REIT rose 2.7 percent on November 25.