Manulife US REIT Offices On Firesales- Price Dropped Another 19.1% Within A Week And Catching a Falling Knife.

Manulife US REIT ("MUST") has not yet being liquidated by bankers or creditors but it sure looks like a self-imposed liquidation at firesales price is underway for its office assets. It is a sad day for all MUST unitholders as the price plunged by another -19.1% from US$0.068 per unit (last week) to US$0.055 per unit as at  noon of 6th September 2023. The only piece of news I found online dated, 29th August 2023, was that MUST is trying to sell its Michelson Tower office property at discounted price to its last year valuation which may have lead to a knee jerk reaction. For a REIT facing structural demand issue and a breach of banking covenant, MUST has no choice but is forced to sell its investment properties at a heavily discounted price at the worst possible timing. 

1. Worst Fear Confirmed- Firesales On The Way

The free fall- despite no announcement made by MUST- is most probably due to worsening expectations that the write-down in fair value of its investment properties is not over-and this is "confirmed" with the above-mentioned news coming out that MUST need to write down another 26% of Michelson Tower.

The only good news here is that the lowered down price of US$256Mil for Michelson Tower is actually already factored into its financial statements and valuation as at 30 June 2023.

However, it seems that investors further expect its office properties to fetch a fraction of its last valuation exercise at at 30 June 2023. Firesales may mean that investors may not get back a single cent after the bank loans and other creditors have been cleared. Please see below for some financial simulation using MUST financials as at 30 June 2023.

2. Financial Simulation

If we take another 26% discount off the investment properties valuation as at 30 June 2023, it will appear that its residual value per unit is still at a high of US$0.172 per unit. Based on its current market price of US$0.055 per unit, investors seems to be expecting a firesales of MUST office properties by another -39.2% (a further drop of -US$640Mil). 

I have re-taken up a small position of USD114 with 2,000 units as I think it should at most drop by one-third after the drastic cut in valuation as at 30 June 2023. My own target price of MUST is US$0.107 per unit. Saying that, for fire-sales of assets, it can drop by more than 50%. Do note that any decline of more than 45.4% in valuation of its investment properties will render MUST worthless. 

Parting Thoughts

The lack of formal SGX announcement and updates on the sales of properties to Sponsor is worrying indeed and some adverse news released recently on media such as the Michelson Tower case may have lead to a total loss of faith in MUST and its sponsor. For those who have more news or other updates on the MUST restructuring, please do help to add on.