Posts: 2,295
Threads: 27
Joined: Jul 2012
Reputation:
41
While Manulife gives a good cryptic explanation to why its sales has not been up to pace.
Investors have to note that under MUST sales agreement, it must sell (i) US$230 million by end 2024 and (ii) US$98.7 million additional by mid June 2025
There are penalties involved where if MUST does not meet (i), its loan interest will rise from 7.25% to 8% and (b) an penalty of 1% of US$230 million minus the sales proceed. MUST has not sold a single property and the penalty nears with each passing day
Posts: 2,295
Threads: 27
Joined: Jul 2012
Reputation:
41
Weijian you are right MUST won't capitalized on it. Sun belt property are in demand because they are of submarket with stronger demand due to low state corporate tax
Despite prime having done a divestment on an old Sunbelt property to ensure it lives, MUST is still struggling to sell. MUST could sell it's 3 sun belt property and it will be safe. However it will be left with very old properties that need high CAPEX.
About the topic of valuation, it is inevitable that another round of downward valuation will happen. MUST Figueroa property should be overvalued because a nearby office block was sold at a much lower price and has higher NLA and retail zoning to MUST's
Among the 3 US REITs, MUST has the second oldest property portfolio and the least ideal property locations. This means it needs to pay down debt and give capex to it's existing office building otherwise tenancy will fall. End state, it is likely the entire tranche 1 property will be sold and 01 of tranche 2.
Future wise, I do think MUST will sell down at least 01 tranche 1 building before may 2025 to pay off the first tranche of debt. After which, MUST may opt to take the penalty in it's financial covenant by not completing the required sale amount. But it will damage it's cash flow. It could be a strategy of waiting for the commercial real estate to rebound by paying an even more expensive debt. Please see my earlier post on the effects of the financial penalty