Under the Master Restructuring Agreement (MRA) that was agreed upon in December 2023 after MUST’s EGM, MUST had a net proceed target of US$230 million by end-2024 and a US$328.7 million target by mid-2025.
Based on the resolutions voted for in an EGM on Dec 14, 2023, MUST’s portfolio was divided into tranche 1 (the weakest), tranche 2 (less weak) and tranche 3 (the strongest). Capitol is a tranche 2 property.
Originally, the plan was to achieve the US$328.7 million target from sale of the tranche 1 properties.
By selling a tranche 2 property, MUST will achieve 47% of the 2024 net proceeds target of US$230.0 million and 33% of the 2025 net proceeds target of US$328.7 million following the completion of the divestment in 4Q2024.
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The net proceeds targets are part of MUST’s MRA.
Casasante says that the US office market remains very challenging. “These challenges and uncertainties are some of the key considerations that we believe the execution of the sale of Capitol is in the best interest of our unitholders. There will also be some improvements to our financial ratios.”
Two properties are in tranche 3. They are Michelson, located in Irvine, last valued at US$240 million (cap rate 7.25%); and Phipps, located in Atlanta, last valued at US$176 million (cap rate 6.5%). The valuations were done for end-December 2023’s financial statement.
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Phipps is a Class A asset and Michelson a trophy asset.
In a media and analyst briefing on Sept 30, Casasante appeared willing to sell any property to achieve MUST’s net proceeds target
“There could very well be tranche 3 assets that look different. It depends on the specific interest within the marketplace, and the buyers that we have. If an investor has the capital that's looking to buy a trophy asset, and they're not looking to buy something at a discount or extremely cheap, then maybe there's a deal to be had there,” Casasante muses.
According to him, it’s difficult to compare properties in various sub-markets as no two buildings are alike. “There are just so many different nuances, such as the age of the building, if the building has a single tenant with a long weighted average lease expiry, and amenities,” Casasante says.
For instance, the Washington, DC market is struggling because the Federal Government has not mandated that people come back to work, he adds.
“I would say we're looking at every single option within our portfolio to meet the requirements of the MRA, regardless of the tranche. We recognise the rationale between the different tranches. If something was considered in a different tranche, there would need to be more of a rationale, and a strategy behind executing on that asset, than purely just a straight disposition. Hypothetically, if we could solve everything within one disposition, that might be a strategy,” Casasante says.
The marketing and sales agreement for Capitol sounds like it took a great deal of effort. The marketing process included engaging JLL, with sale materials sent to 9,000 investors. It elicited 60 non-disclosure agreements, 20 tours of the property and five offers.
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“We were able to secure an all-cash local buyer, which provides us with a high certainty of execution,” Casasante says.
Following the sale, MUST will own nine properties with an aggregate net lettable area (NLA) of approximately 4.6 million square feet.
MUST’s recapitalisation and restructuring plan comes after an unprecedented, rapid rise in the Federal Reserve’s ultra-hawkish interest rate cycle. Since its IPO in 2016 with an asset size of US$799 million, MUST, under previous management, grew its asset size rapidly to as high as US$2.18 billion before it had to shed assets because of its too-fast expansion.
Phipps, MUST's Grade A property
As AT3.19pm, units in Manulife US REIT are trading 0.1 US cents higher, or 0.81% up, at 12.5 US cents.
Photos: MUST
