Manulife US REIT Selling California Office Building for $117M to Repay Debt

Manulife US REIT has agreed to sell a California office building for $117 million, with the Singapore-listed trust planning to use proceeds from the disposal to repay all loans due in 2025.

MUST will tap existing cash and the net sales proceeds from divesting 400 Capitol Mall in Sacramento to repay the $130.7 million in loans maturing next year, the REIT’s manager said Monday in a release. The repayments are to be concluded by the end of 2024, after which there will be no loan maturities until 2026, it said.

MUST chief executive John Casasante said the deal marks the “first major step” in the recovery phase of a restructuring agreement signed last year to help the trust sponsored by Canadian insurer Manulife avoid defaulting on $1.18 billion in debt.

“Despite the ongoing challenges in US office market and the lack of debt availability that continues to hamper transactions, we were able to secure the sale of Capitol to an all-cash buyer, which provides us with the liquidity and flexibility to make an early repayment of the 2025 debt maturities and mitigate risks amid an uncertain environment,” Casasante said.

$51M Loss on Disposal

An unrelated third party, 400 CM Owner LLC, is the buyer of the 29-storey tower, which is Sacramento’s tallest building and stands 1 kilometre (0.6 miles) west of California’s State Capitol grounds. The property’s 501,308 square feet (46,573 square metres) of net lettable area is 89.9 percent occupied, with a weighted average lease expiry of 4.8 years by NLA.

MUST purchased 400 Capitol Mall, also known as Wells Fargo Center, in 2019 from Starwood Capital for $198.8 million, a record-high selling price for a Sacramento building at the time. Starwood had acquired the 1992-vintage asset in 2016 from US developer Hines, which still manages the property.

After accounting for divestment-related expenses, the net proceeds from the latest sale will be $108.8 million, resulting in a net loss of $51.1 million, MUST’s manager said. The agreed sale price is slightly less than the independent valuation of $118 million made in early September.

Upon completion of the deal in the fourth quarter of this year, the REIT will own nine US properties with a combined NLA of 4.6 million square feet.

“The divestment will allow MUST to use the capital that will otherwise be committed to maintain the Class A property to drive leasing activity and strengthen the quality of the other assets it plans to hold,” the manager said.

Seeking More Milestones

The disposal of 400 Capitol Mall is the first carried out by Casasante, who took over as MUST’s chief executive and chief investment officer after Tripp Gantt exited the CEO role on 30 June.

The divestment achieves 47 percent of the 2024 net proceeds target of $230 million and 33 percent of the 2025 target of $328.7 million under the master restructuring agreement approved by creditors last December.

“The manager continues to manage risk and remains focused on asset dispositions to meet the milestones of the MRA and enable a path towards recovery and growth,” it said.