Investors have a knack of always turning bearish sentiments into jokes.
Few years back, coining the term “REITgrets” and no “REITurns” were probably the best antidote amongst a group of investors that also practised dividend and income investing.
It was a period where we saw a collective correction for REITs all over the world (except for your DC REITs).
Fast forward to today, some REITs are still languishing at historical bottom. And none has had it harder like Manulife US REIT (MUST).
The recent announcement that MUST is divesting its 35-storey Figueroa office property in Los Angeles to the City of Los Angeles’ Department of Water and Power for US$ 92.5 million marks a critical juncture in the REIT’s restructuring narrative. While this sale moves the REIT closer to satisfying the disposition mandate established by its lenders, a deeper analysis of MUST’s operational metrics reveals that the much-anticipated “turnaround” is not yet here.
Instead, the REIT remains entrenched in a prolonged period of balance sheet defense and structural right-sizing.
The Figueroa Divestment: Necessary Liquidity at a Cost
The Figueroa transaction embodies the harsh realities of the current US commercial real estate market. The US$ 92.5 million sale marks a discount of around 5.71% to Figueroa’s valuation of US$ 98.1 million as at Dec 31, 2025.
As at the same period, the freehold 35-storey Class A office building was 45.6% occupied with a weighted average lease expiry (WALE) of 4.9 years by net lettable area. After factoring in transaction expenses, the net proceeds of approximately US$ 82.4 million results in a net loss of roughly US$ 10.1 million.
The immediate financial impact on unit holder equity is hence contractive. Had the sale been completed at the end of 2025, the REIT’s Net Asset Value (NAV) per unit would have compressed from US$0.19 to US$0.18, with pro forma Distribution per Unit (DPU) falling further to 1.33 US cents.
However, taking this loss is a strategic necessity. The property was languishing with a 45.6% occupancy rate following the downsizing of key tenants like TCW Group. Management has earmarked the net proceeds strictly for balance sheet preservation: executing an early repayment of outstanding loans due in 2026 and partially paying down 2027 maturities.
Deteriorating Operational Metrics
A review of the REIT’s FY2025 financial results confirms that the underlying operational engine continues to misfire under the weight of secular office headwinds.
- Revenue and income contraction: Gross revenue for FY2025 plummeted -32% YoY to US$ 113.9 million, while net property income (NPI) fell US$ 33.45 million. Even on a same-store basis (excluding properties already sold to pay down debt, such as Capitol, Plaza, and Peachtree), revenue contracted by -11.5%.
- Occupancy pressures: Portfolio-wide occupancy has steadily degraded, closing 2025 at 67.7%, down from 73.6% a year prior. Properties like Diablo and Figueroa suffered from elevated vacancies as corporate space rationalisation continued across the US.
- Asset Devaluation: The portfolio’s total valuation slid a further 1.6% to US$ 913.8 million by the end of 2025. The persistent expansion of capitalisation and discount rates indicates that the intrinsic value of the underlying real estate is still searching for a floor.
Balance Sheet and Recapitalisation Reality
The core investment thesis for MUST is no longer about yield; it is entirely about survival and deleveraging. Aggregate leverage climbed to 58% by the end of 2025. While this would normally trigger regulatory breaches, MUST is operating under the strict concessions of a Master Restructuring Agreement (MRA) with its lenders. This agreement temporarily relaxes financial covenants, pushing the gearing limit to 80% and lowering the interest coverage ratio requirement to 1.5 times until mid-to-late 2026.
Distributions to unitholders have been fully suspended since 2023. The lenders have explicitly mandated that half-yearly payouts remain suspended until the REIT achieves stringent reinstatement conditions and the ICR relief period officially expires.
The Verdict: Turnaround or Prolonged Trouble?
The data dictates a strict conclusion: the turnaround is not here. MUST is successfully executing a managed shrinkage—liquidating assets to pay down debt and avoid default—but it has not yet stabilized its core operations.
The Figueroa sale will successfully clear the immediate debt hurdles for 2026, buying management crucial time and fulfilling the lender’s disposition mandate. However, with portfolio occupancy below 70%, negative rental reversions, and a lack of distributable income, MUST remains in a state of distress. The recently unitholder-approved mandate to pivot into non-office sectors (like retail, living, and industrial) is a mathematically sound long-term strategy, but the REIT currently lacks the excess capital to aggressively execute this transition. For the foreseeable future, MUST will remain in a “workout” phase, requiring unit holders to endure a longer period of structural repair before any genuine growth trajectory can resume.
Point of no REITurn?
Leverage has always been a double-edged sword.
Leverage and prudence, is what help REITs grow.
It is definitely a shame, to still see MUST reeling from a prolonged and permanent change in the US office fundamentals.
A P/B ratio of 0.3x looks like a screaming buy on paper. But don’t forget, the REIT will not be resuming its dividend payment anytime soon. There can be still returns if MUST really gets through all of this.
But the risk is high, and definitely out of my appetite and tolerance.
Join us for our next webinar session to find out how we identify and select REITs for higher and sustainable yields.
