THE portfolio value of Manulife US Real Estate Investment Trust (MUST) as at Dec 31, 2024 fell 9.3 per cent or US$116.6 million to US$1.1 billion, going by independent valuations.
The decline was driven by higher discount rates and terminal capitalisation rates for certain properties, alongside weak occupancy performance across certain US office submarkets, said the manager on Friday (Jan 10).
The terminal capitalisation rate, which is often used in real estate investment, is the rate used to calculate what a property is worth when one wants to sell it at the end of a specific time period.
The higher discount and terminal capitalisation rates indicated risks posed by lower leasing demand, driven by macroeconomic headwinds and downsizing. This was due to lower use of office space and idiosyncratic risks at the property level, such as higher vacancy or weak submarket fundamentals, the manager noted.
Occupancy across US office submarkets – including those of Washington DC, the Los Angeles central business district and Secaucus in New Jersey – weakened on low return-to-office rates and/or the financial distress of landlords unable to capitalise on lease deals.
This caused the properties located in these office submarkets to experience higher vacancy levels and concession package assumptions, leading to higher leasing costs.
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Given the fair-value losses from its properties arising from valuation declines, the manager expects the Reit to report a loss for FY2024.
Its net asset value as at Dec 31, 2024, is expected to fall by US$116.6 million, the amount by which its portfolio value fell, as it is a key determinant of net asset value. Its aggregate leverage is expected to be about 61 per cent.
The manager said MUST is now in divestment talks for multiple properties, which “should move the Reit closer to its 2025 net proceeds target of US$328.7 million”.
It added that it plans to deleverage its balance sheet with the repayment of another US$200 million to lenders, and to make accretive investments to enhance distributions and grow its portfolio’s net asset value.
As at 9.25 am on Friday, units of Manulife US Reit were trading 2.2 per cent or US$0.002 lower at US$0.091 after the announcement.
