The shareholders approve two resolutions to support the Reit&rsquo s &lsquo Growth and Value Up&rsquo plan

 

[SINGAPORE] Unitholders of Manulife US Reit (MUST) have approved a broadened investment mandate for the real estate investment trust, allowing it to expand beyond the office sector and outside of the US.

 

The Tuesday (Dec 16) vote passed with 83 per cent of unitholders approving both resolutions for the so-called &ldquo Growth and Value Up&rdquo plan, which will allow the Reit to invest in industrial, living sector and retail assets in both the US and in Canada. 

 

With the approval of its unitholders, MUST can now diversify beyond its core focus &ndash the US office sector &ndash where it has faced continued headwinds. Lenders will now also grant master restructuring agreement (MRA) concessions, which will provide more time for MUST to meet its minimum sale target.

 

The approval comes after unitholders grilled the Reit&rsquo s manager on its recovery plan, including pointed questions on the interest the sponsor is charging and why its asset pivot does not include markets beyond the US.

 

The Reit has been operating under an MRA since a covenant breach in 2023. While the Reit has raised US$273.1 million from the sale of Capitol, Plaza and Peachtree properties, it is about US$55.6 million short of the mandatory debt repayment target that is now payable by Jun 30 next year.

 

Had unitholders voted against the pivot, lenders would have had the right to accelerate payment of all US$559 million worth of loans immediately after Dec 31. MUST also said its portfolio would also have been at risk of liquidation at distressed prices.

 

In the extraordinary general meeting (EGM) on Tuesday, the manager of the Reit detailed the terms of the US$350 million worth of dispositions and US$600 million worth of acquisitions.

 

These terms were part of the two EGM resolutions, which the Reit had set out at the start of the month.

 

The Reit&rsquo s manager also shed more light on the new class of assets it was seeking to buy. Industrial assets will include data centres, cold storage assets and industrial outdoor storage facilities. 

 

Living sector assets will include multifamily, single family, student accommodation, senior housing, workforce housing and lifestyle-focused senior-citizen focused &ldquo active adult&rdquo accommodations. Meanwhile, retail assets will include grocery-anchored shopping centres.

 

The disposition and acquisition mandates

According to the key terms of the disposition mandate, each of the existing properties may be sold at net consideration of no less than 90 per cent of their latest independent valuations. 

 

At the same time, each property acquired must be done so at no more than 110 per cent of its latest independent valuation. The interest cover ratio of each acquisition must be more than 1.6 times so long as the Reit&rsquo s aggregate leverage is more than 50 per cent.

 

The acquisitions will also be funded with less than 40 per cent of debt, with the remaining amount generated through sale proceeds, rental and other income, and the issuance of units. If additional is debt taken, the aggregate leverage must decrease post-acquisition and the total debt incurred must not exceed US$800 million.

 

Each disposition and acquisition must also be approved by all directors of the Reit&rsquo s manager.

 

&lsquo Expertise and experience&rsquo in new sectors

Reiterating its response to a unitholder&rsquo s question before the EGM, the Reit&rsquo s manager pointed out that the real estate management platform of the Reit&rsquo s sponsor manages a diversified multi-sector portfolio in the office, industrial, living sector, retail and other ancillary sectors.

 

That US$19.4 billion portfolio spans the US, Canada, and Asia-Pacific, with the chairman, chief executive and chief financial officers of the manager having extensive experience in managing the new sectors MUST will expand into.

The real estate investment trust&rsquo s manager answers pointed questions from unitholders

 

[SINGAPORE] Long-suffering unitholders have grilled Manulife US Reit&rsquo s manager on its recovery plan &ndash including the interest the sponsor is charging the real estate investment trust (Reit) and why its asset pivot does not include markets beyond the US.

 

MUST on Thursday (Dec 11) released its answers to unitholders&rsquo questions submitted ahead of its Dec 16 extraordinary general meeting to obtain approval for it to diversify away from office assets into industrial, living-sector, and retail assets in the US and Canada.

 

The first question tackled the Reit&rsquo s distribution halt and when distribution per unit is likely to resume. The Reit&rsquo s manager explained that the move was a condition imposed by the Reit&rsquo s lenders under the master restructuring agreement (MRA) introduced in December 2023. 

 

&ldquo The manager&rsquo s focus currently is to meet the minimum sale target, which is one of the requirements under the MRA,&rdquo it said. &ldquo The manager understands the importance of distributions to unitholders but is also cognisant that it is important for distributions to be sustainable.&rdquo

 

It will revisit the distribution issue when the conditions of the MRA are met, it added. 

 

High interest rate

Unitholders also asked why the sponsor was charging the Reit interest rates above those of banks. The manager said the Manulife loan in question was an important component of a larger US$269 million rescue package extended when the Reit was in significant financial distress. 

 

At the time, the manager tried to secure financing from external lenders but found it &ldquo challenging&rdquo to get a comparable loan in the open market. An independent financial adviser, Deloitte & Touche Corporate Finance, also reviewed the deal and concluded the terms were fair given the crisis context.

 

To help the Reit manage its cash flow during the difficult period, the Manulife loan&rsquo s interest was structured with a deferred &ldquo exit premium&rdquo rather than a high immediate payout. This has allowed the Reit to pay a lower interest rate annually, with the remaining balance due only when the loan matures or is repaid.

 

On the pivot to non-office assets, the manager assured unitholders that the chairman, chief financial officer and CEO of both the manager as well as the sponsor, Manulife, have &ldquo expertise and experience&rdquo in managing the initial focus assets.

 

Unitholders also aired a proposed asset sale and delisting of the Reit since it is no longer achieving the deliverables of a Reit. Selling and delisting would fetch at least US$0.10 per unit. 

 

MUST&rsquo s manager shot down the suggestion, warning that it would &ldquo more than likely&rdquo result in zero returns for unitholders. Any money from such an exercise would have to pay off a massive US$559 million debt before unitholders get anything.

 

The manager argued that the proposed strategic shift offers the only real path to a recovery of value. The primary goal of this plan is to get the Reit released from the MRA, it said, which will remove the &ldquo distressed seller&rdquo label and allow the Reit to negotiate better prices for its assets and eventually resume cash distributions.

 

Different assets, same market?

MUST&rsquo s plan to revamp its portfolio drew questions on why it was not considering assets in Asia.

 

The manager said Canada was selected as an additional market besides the US given its strong alignment with US real estate fundamentals and the sponsor&rsquo s established local presence and assets in Canada.

 

Currently, about 78 per cent of the sponsor&rsquo s US$19.4 billion portfolio comprises assets in the US and Canada. As MUST acquires higher-yielding assets in these two countries, which are also the two largest countries in North America by value of their commercial real estate sectors, it can attract investors seeking exposure to real estate in North America, the manager said.

 

The EGM to gain unitholder approval for the strategic pivot will be held next Tuesday at 2 pm.