Manulife US REIT ("MUST") is currently facing an existential crisis and precariously close to breaching its statutory debt ceiling. For those retail investors who thought that they have got a good bargain by entering at US$0.285 per unit at the beginning of the year, they would have found themselves catching a falling knife. MUST just kept plummeting non-stop to hit US$0.141 per unit as at 22 May 2023 which is a whopping -50% loss in valuation. Worst hit are those who have held MUST for a longer period. I have no doubt that the "Mirae Deal" to recapitalize MUST will be presented soon in June'23 as I have seen the public relations team of MUST contacting "rogue" blogger like myself to be kept in their mailing list in order to indirectly influence any overly-negative postings (which is part of their PR job I suppose).
1. Existential threat to MUST does not end with the presentation of the "Mirae Deal".
The hard truth is that the existential threat to MUST unfortunately does not go away with the announcement of the Mirae Deal which the management of MUST had clearly mentioned previously that this will be put up for a vote for all unit-holders at an Extraordinary General Meeting. Bear in mind that a lot of existing unit-holders as aforesaid mentioned are probably going to get seizures upon seeing the massive dilutions to their holdings- the only question is how massive is this dilution. Make no mistake here: Mirae is not a charity organization- they will be getting their capital injection priced in to an average of recent market pricing which is no difference to a fire sales of properties of MUST.
Basically, the essence is that MUST management and PR team must be able to convince the majority of unitholders to vote for the Mirae re-capitalization deal. This will not be an easy feat.
2. Problem with a publicly listed entity is that everyone got their own "better" solutions/alternatives.
Given the massive dilution, there will be many angry folks. There maybe bound to have some groups of unit-holders fighting against the Mirae deal and opting for example to have a rights issue to all or insisting on selling 2 or 3 properties at fire sales price rather than letting Mirae in.
Looking at how combative Quartz Capital is (please see my previous postings), the re-capitalisation plan for MUST may hit a wall.
3. MUST Management need to strategize and craft appropriate backup plans into the next EGM in event that the Mirae deal fails.
I hope that MUST Senior Management team is able to craft out various alternative solutions such as resolutions for rights issues to all equity holders (and also find a backer for the rights exercise) and everything can be sorted out in one EGM instead of multiple EGMs.
The senior management and PR team also need to market out the consequences clearly for all unit-holders in the event that irrational group of unit-holders rejected all capital injection proposals- this is what happened to the infamous Eagle Hospitality Trust whereby the only clear winners are the lawyers and professional consultants who made big bucks out of rehabilitating entities in financial duress.
Parting thoughts
The current pricing of MUST seems to be extremely pessimistic and pricing in the risk of self implosion such that no rescue deal or capital injection materializes. While I frown upon the entry of Mirae due to the anticipated massive dilutions to my existing unit-holdings, I do see some benefits in terms of the other category of investment properties pipeline (other than office commercial buildings) which the new entrant can bring onto the table for further strategic growth and diversification. Looking forward to the announcement and more details from MUST.
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