While Natarajan maintains his “neutral” call on MUST in a May 27 note, he believes the beleaguered US office REIT will make a “full recovery” and even resume dividend payments by 2027.
MUST announced on May 11 that it is selling the 28-storey Class A office asset Peachtree in Atlanta for US$133.8 million, more than 18% below its end-2024 valuation of $164.6 million, though this was in line with the latest April valuation.
The US$133.8 million figure excludes seller’s credit of US$12.6 million for the outstanding tenant improvement allowances, capex costs, free rent and lease commissions.
MUST noted in a May 26 briefing that the key reason for the lower sale price was due to the timing of the sale, which coincided with the announcement of US tariffs in April. That led to many potential buyers retreating and a sub-par final bid, writes Natarajan.
See also: Manulife US REIT one sale away from meeting divestment goal, but what’s next?
Net disposal proceeds are estimated at US$121 million, and management expects the final seller’s credit amount to be lower.
“The disposal of its Peachtree asset, done at a deep discount to its 2024 valuation, was a painful move, but a necessary step towards its long-term recovery,” says Natarajan.
The net proceeds, along with an additional US$25 million of internal cash, will be used to repay outstanding debts. The sale will have a positive impact on leverage, lowering it to 56.3% from 59.4% in 1QFY2025 ended March 31, while weighted average interest cost would drop by some 40 basis points to 3.94%.
Operational performance bottoming out
MUST’s portfolio occupancy rate in 1QFY2025 dipped 4 percentage points q-o-q to 69.9%, mainly due to the exit of a major tenant at Diablo, MUST’s only Class B asset in Tempe, Florida. This was partially offset by new lease signings at Phipps and Centerpointe.
The REIT manager claims to be in active large leasing discussions at Figueroa and Phipps.
1QFY2025 rental reversion stood at -8.9%.
At Penn in Washington, D.C., MUST’s key tenant is the US Treasury Department, which represents 4.6% of overall rental income. This tenant is reportedly looking for a short-term extension of its leases expiring in August.
Overall, MUST expects its year-end occupancy rate to be above 70%.
Natarajan has pencilled in 10% and 50% dividend payout ratios for FY2026 and FY2027.
