Manulife US REIT nears restructuring exit, boosts income

Financial performance in 3QFY2026

Manulife US REIT (MUST) recorded a 30.3% year-on-year increase in income available for distribution, reaching US$6.0 million for 3QFY2026, which concluded on Sept 30. These results, released on Nov 4, indicate an improvement despite the suspension of distributions since the first half of 2023.

The REIT also saw its same-store cash net property income (NPI) climb 11.8% year-on-year to US$14.4 million for the quarter. In contrast, same-store gross revenue, adjusted to exclude the impact of the Figueroa office tower sale, fell 3.8% year-on-year to US$23.8 million. As of Sept 30, MUST’s aggregate leverage was 54.0%, a slight reduction from 54.1% at the close of June. Its interest coverage ratio (ICR) remained stable at 1.6 times.

Debt reduction and upcoming maturities

The sale of the Grade-A office tower Figueroa enabled Manulife US REIT to fully repay approximately US$35.6 million in debt that was due in 2026, according to financial slides released on Nov 4. A portion of these proceeds was also allocated to reducing its 2027 debt obligations.

However, the REIT still faces a significant debt maturity of US$133.4 million in 2027, as of Sept 30. Further liabilities include US$216.2 million due in 2028 and a US$137.0 million sponsor-lender loan maturing in 2029. From the Figueroa sale proceeds, US$10.0 million has been retained for capital expenditure.

The REIT's weighted average debt maturity slightly decreased to 1.8 years from 2.0 years over the quarter, with 34.3% of its loans hedged or fixed as of Sept 30.

Operational challenges and restructuring progress

Manulife US REIT's operational performance in 3QFY2026 showed a decline in portfolio occupancy to 67.8%, down from 70.4% in the preceding quarter. The REIT’s asset base has also contracted, with its portfolio now comprising six properties, a reduction from an initial 12 assets across the US.

The manager is focused on exiting the Master Restructuring Agreement (MRA) by the end of 2026. This exit is conditional on the REIT achieving a consolidated total liabilities to consolidated deposited properties ratio of no more than 45%.

Alternatively, it can exit if this ratio is between 45% and 50%, provided its interest coverage ratio exceeds 2.5 times and no potential events of default have continued for at least one financial quarter.

Strategies for 2027 debt and distribution outlook

To address the remaining US$133.4 million in debt due in 2027, Manulife US REIT's manager is exploring multiple strategies. These include further divestments of properties, refinancing existing loans, raising additional equity, or negotiating extensions for debt maturities.

The REIT has indicated that it intends to resume distributions to unitholders at a sustainable payout ratio once it successfully exits the Master Restructuring Agreement.

The financial impact of interest rate fluctuations remains a consideration, with a projected 50 basis point increase in the Secured Overnight Financing Rate (SOFR) anticipated to reduce annual distributable income by US$1.6 million.