Skip to content

Quick REIT - US Office REIT Dead?

Three US Office REITs listed on SGX have disclosed their financial results and outlined forthcoming initiatives. It is going to be a busy period for the REIT managers managing the US portfolio.



During February 2024, Manulife US REIT (MUST), Keppel Pacific Oak US REIT (KORE), and Prime US REIT provided investors with insight into the current state of the US office market through their financial updates.  One word Challenging!

Additionally, all three REIT managers unveiled different recapitalisation plans aimed at bolstering their balance sheets and positioning themselves for survival in the sector mainly due to higher discount rates, higher interest cost and higher terminal capitalisation rates.

Let's do a quick dive into individual REIT to identify some key factors for survival.



1st Casualty

Manulife US REIT(MUST)
18 Jul 2023

2024_02_ManulifeUSREIT_Banner *Image from MUST presentation slide 

On July 18, 2023, Manulife US REIT (MUST) declared that distributions for the first half of 2023 have been suspended while negotiations are ongoing for a waiver concerning the breach of the unencumbered gearing ratio.

What happened?

Manulife US REIT (MUST) exceeded the official limit with an aggregate gearing ratio of 56.7%, primarily due to a 14.6% decrease in portfolio valuation. However, MUST asserts that this isn't classified as a breach because it stems from a loss in portfolio valuation.

Despite the valuation decline, MUST's portfolio occupancy remained at 85.1%, with leases signed reflecting a positive 3.7% rent reversion. Additionally, the Weighted Average Lease Expiry (WALE) stood at 7.6 years in the first half of 2023, as reported in August 2023.

How MUST address the issue?

Some of the notable steps MUST have taken

  • 18 Jul 2023 - Decline in valuations resulting in breach of financial covenants and impact on distributions.

  • 26 Oct 2023 - Appointment of Mr. Marc Lawrence Feliciano to the position of Chairman of the Board of Directors.
    According to Paul Lorentz (President and CEO of Manulife Investment Management), Marc has significant experience in the US real estate sector and will assist the management team in developing and implementing strategies to drive sustainable growth for our business and investors.

  • 29 Nov 2023 - MUST propose Recapitalisation Plan to reduce aggregate Leverage

  • 14 Dec 2023 - Extraordinary General Meeting was held to announce the results for the approval of the Recapitalisation Plan
    All 3 Resolution has overwhelming got approved by the investors. We did a summary of the results here.

  • 18 Dec 2023 - Recapitalisation Plan Execution: Complete of Divestment of Park Place

  • 22 Dec 2023 - Repayment of US$235.0 million under existing facilities

  • 8 Feb 2024 - FY2023 Financial Results Update
    MUST aims to maximise returns for Tranche 2 and 3 assets via leasing and portfolio optimisation
    We did a quick summary here.

Did the sponsor lend a hand to MUST?

Certainly, the MUST Sponsor offered support, albeit at a higher interest cost, given their accountability to their own shareholders. Nonetheless, the outcome proved advantageous for all involved, advancing progress.

Status: Recapitalisation plan is in progress


2nd Casualty

Keppel Pacific Oak US REIT (KORE)
15 Feb 2024

2024-02_KORE_FY2023*Image from  KORE presentation slide

On January 30, 2024, KORE unexpectedly announced a delay in their results announcement until further notice, resulting in a drop in their share price by as much as 25% the following day.

This incident represents a public relations disaster as investors generally dislike uncertainty.

One week later, KORE finally disclosed the actual release date to be on February 15, 2024.

On February 15, 2024, KORE "shocked" the market with a recapitalisation plan introduced with a suspension of distributions. This move caused their share price to plummet by nearly 40% on the same day.

So what happened?

According to KORE team, KORE aggregate leverage increased to 43.2% as at 31 December 2023 due to lower property valuation.


"As the aggregate leverage limits under the Property Funds Appendix and bank covenants limit KORE to a 50% aggregate leverage if KORE has an adjusted interest coverage ratio (as defined in the Property Funds Appendix) of a minimum of 2.5 times, lenders are generally unwilling to extend loan facilities to KORE for the US market if KORE’s aggregate leverage exceeds 45%."

Hence, KORE has not breached any limits, but they are actively attempting to manage the situation by suspending distributions to prevent reaching that point.

The Manager is confident that this option will likely generate substantially more capital for KORE over the next two years compared to increase capital through an equity fund raising in the current market conditions.

Did the sponsor lend a hand to KORE?

There is currently no news as KORE has not exceeded the limit yet and is presently utilising the dividend halt to strengthen its capital position.

Status: Recapitalisation plan is in progress


3rd Casualty

21 Feb 2024

2024_02_PRIME_US_REIT*Image from  PRIME US REIT presentation

Prime US REIT is the last of 3 US REIT to release their results on 22 Feb 2024.

It is reported that in the latter half of 2023, there was a slight decline in both gross revenue and NPI, with a 1.1% and 1.5% year-on-year decrease respectively, totaling US$80.3 million and US$46.4 million.

This decline can be largely attributed to reduced occupancy levels and increased property operating expenses due to a higher return to office, although it was partially offset by lower property taxes. Throughout the entirety of fiscal year 2023, PRIME experienced a 2.0% decrease in gross revenue and a 4.5% decrease in NPI year-on-year, amounting to US$159.8 million and US$93.6 million respectively.

What happened?

According to Prime US REIT team, the aggregate leverage increased to 48.4% as at 31 December 2023 due to year-end portfolio revaluations and increase in borrowings to fund capital expenditures on investment properties.

What is their plan?

In contrast to MUST and KORE, the managers of Prime US REIT adopted a hybrid strategy by retaining 90% of the distributable income and distributing the remaining 10% to shareholders.

The management intends to issue a partial dividend despite facing a situation where 89% of the debt matures in July 2024, just a few months away.

The refinancing has not been confirmed yet and is contingent upon meeting the current loan conditions.

Did the sponsor lend a hand to PRIME US REIT?

There is currently no news as PRIME US REIT has not exceeded the limit yet and is presently utilising partial dividend halt to strengthen its capital position.

The imminent challenge lies in the approximately 89% of debt maturing within the next few months.

Status: Recapitalisation plan is in progress


Our Comments


Who will survive this storm?

MUST serves as the initial warning sign, offering KORE and PRIME US REIT a glimpse into potential future challenges, prompting them to prepare or take preventive measures in advance.

Currently, MUST is implementing a capitalization plan with assistance from its Sponsor and strong investor support.

Now, both KORE and PRIME US REIT cannot ignore the impact of higher discount rates and terminal capitalization rates. Despite KORE's CEO reassuring investors of avoiding a situation like MUST's, the reality has proven otherwise. With KORE's buffer appearing small in the latest results, the effectiveness of halting distributions to shore up capital remains uncertain. It is hoped that KORE learns from MUST's example and devises a Plan B in case they face similar challenges. One area where KORE can exert control is by preventing another PR disaster, which has previously inflicted significant drag to its share price due to uncertainty.

Taking a slightly different approach, PRIME US REIT has opted to continue dividend payments despite facing challenges in its balance sheet, retaining 90% of its distribution to shore up capital. The looming ~89% debt maturity remains a major concern, with further details needed to address this issue raised last year. The management has only indicated a focus on extending the $600 million BofA facility due in July 2024, underscoring the need for an update on progress from the manager asap as it is just a few months away.

In conclusion, investors should brace themselves for potentially more challenges amid the volatile US office market, where higher discount rates and terminal capitalization rates are impacting theoretical property valuations, despite consistent revenue from tenants. Strong sponsor support and transparent management are crucial during such turbulent times for navigating through these challenges effectively together with the investors.

What can REITsavvy readers do?

Diversification is essential for every investment portfolio.

Utilise the three concepts of diversification:

1) Diversify Allocation

2) Diversify Country

3) Diversify Sector

Invest wisely, REITsavvy Readers!

Exclusive REITsavvy Newsletter
Gain financial insights on REITs in minutes

The newsletter that keeps you up-to-date on REITs in minutes.