MANULIFE US Real Estate Investment Trust (Reit) is divesting an office building located in Sacramento, California for US$117 million.
The price is subject to Manulife US Reit’s credit and customary closing prorations and adjustments, said the Reit manager on Monday (Sep 30). CBRE, which is the independent property valuer of the deal, has valued the asset at US$118 million as at Sep 1.
Excluding divestment-related expenses, net proceeds from the sale amount to about US$108.8 million.
The net proceeds, along with existing cash, will be used to fully repay approximately US$130.7 million in loans maturing in 2025. Following the repayment, there will be no debt maturities until 2026, said the manager.
It added that the deal will allow the Reit to achieve 47 per cent of its 2024 net proceeds target of US$230 million under the master restructuring agreement.
The Reit will also attain 33 per cent of its 2025 target of US$328.7 million, after the transaction is completed.
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The master restructuring agreement was announced last year after Manulife US Reit breached existing financial covenants as portfolio valuations fell 14.6 per cent, affecting its ability to issue distributions.
Assuming the divestment was completed and net sales proceeds, as well as existing cash, were used to repay the US$130.7 million in outstanding loans as at end-June, the Reit’s pro forma aggregate leverage is expected to improve to 54.2 per cent from 56.3 per cent.
Its weighted average interest cost is expected to fall to 4.16 per cent from 4.58 per cent. The trust’s pro forma weighted average debt maturity will also be extended to 3.4 years from 3 years.
John Casasante, chief executive officer and chief investment officer of the Reit manager, noted that the sale of the property to an all-cash buyer provides the trust with the liquidity and flexibility to make an early repayment of the debt maturing in 2025 and mitigate risks amid an uncertain environment.
Spanning 501,308 square feet (sq ft), the property is a freehold 29-storey Class A office building. Known as 400 Capitol Mall, the asset was built in 1992 and is located in downtown Sacramento, a tertiary office market.
The divestment is expected to be finalised in the fourth quarter of 2024. Upon completion, the Reit will own nine properties in the US, with an aggregate net lettable area of about 4.6 million sq ft.
Units of Manulife US Reit closed 0.8 per cent or US$0.001 lower at US$0.124 on Friday.
