At its extraordinary general meeting (EGM) on Dec 16, 83.1% of MUST’s unitholders voted to give the REIT manager the mandate to sell up to three existing properties to raise not more than US$350 million.
MUST also secured 83.01% approval for the second resolution to obtain an acquisition mandate to buy one or more properties and make investments beyond the US office sector, such as industrial, living sector and retail assets in the US and Canada, not exceeding US$600 million.
The approval means MUST’s lenders will grant the REIT the MRA concessions, which will give MUST more time to meet the minimum sale target. On Dec 15, MUST announced that its lenders had extended the disposal deadline from Dec 31 to June 30, 2026.
Both resolutions are inter-conditional, meaning that should either resolution fail, the remaining resolution will not proceed. Each resolution had to receive over 50% of the total number of votes cast to be approved.
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Explaining the rationale, John Casasante, CEO and CIO of MUST’s manager, said that the REIT would not be able to accommodate any acquisitions without recycling capital from dispositions.
“On the flip side of that, if we didn’t have an acquisition mandate, we would be in an unintended liquidation, as we’ve referenced in the past, because we would just be selling assets to pay down debt in somewhat of a stressed situation, given the timing and what’s in the media,” he said in a Dec 1 call.
MUST at ‘pivotal point’
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At the EGM, Casasante told unitholders that MUST is at “a pivotal point” in its recovery and growth plan, which is about disposing of its assets without meaningful upside potential and using part of the proceeds to provide higher-yielding, less capital-intensive, non-office assets. The aim is to improve the REIT’s diversification and long-term value creation, for the REIT to exit its MRA and resume sustainable income distributions as soon as possible.
“Support for the resolutions is a critical part of MUST’s discussions with the lenders,” he says. Besides the six-month extension to meet the minimum sales target, there is also a temporary relaxation of the unencumbered gearing from 60% to 80% till June 30, 2026 and the bank interest coverage ratio (ICR) from 2 times to 1.5 times till Dec 31, 2026, from Dec 31.
Using cash on hand and proceeds raised from earlier divestments, MUST had already repaid US$317 million of debt. This leaves US$35.6 million of loans maturing in 2026.
Referring to MUST’s recapitalisation plan proposed in November 2023, Casasante said the REIT never intended to “just sell assets” to pay its debt. Instead, the plan was to position the REIT “on the path of growth for the long term”.
Rationale of new mandate
Casasante says that the new plan is meant to allow the REIT to revitalise and diversify its portfolio and boost its cash flow amid market volatility and sector-specific challenges. The new mandate will also give the REIT a “competitive advantage” as either a seller or a buyer. The acquisitions, which are made at leverage ratios of 40% and below, will also help reduce its leverage and credit profile, as well as pave the way for the REIT to exit the MRA.
Its expansion into Canada was also due to its “strong alignment” with US real estate fundamentals and the established local presence of Manulife, the sponsor.
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“Generally speaking, the initial focus asset sub sectors offers higher yields, lower capital expenditure requirements, more resilient growth prospects and are better aligned with evolving market dynamics than office,” says Casasante.
Casasante explains that industrial assets provide one of the strongest risk-adjusted returns with “firm” capitalisation rates and demand fuelled by structural tailwinds such as near-shoring and evolving supply chains.
“These lease-up costs tend to be lower and benefits from having highly functional real estate in key locations, which will drive rents, reduce downtime and help renewals,” he adds. The leases are also typically triple-net, which means the tenants pay for all the expenses and take the risk of any increases.
Living sector assets, meanwhile, also deliver high risk-adjusted yields due to historical undersupply and resilient tenant retention. The trend of renting over owning homes continues, says Casasante. The lease terms, adjusted annually, mean rents can be marked to market and thus serve as an effective hedge against inflation.
Last but not least, retail assets offer compelling risk-adjusted yields, historically low vacancy rates, robust rent growth and resilient tenant demand.
Casasante says that with the diversification, MUST can create a “balanced” portfolio that can “weather a storm a lot easier” than if confined to one asset class. “It doesn’t matter which asset class, so if anything, you have some level of exposure.”
He adds that the new asset classes to diversify into may have declined from their respective peaks, but are not as impacted as the office sector, which is seeing a paradigm shift in demand. “So it’s not business as usual,” says Casasante.
Timing of asset disposals
When asked about the timing of the disposals amid signs of recovery in the US office sector, Casasante acknowledges that the sector is improving, although recovery remains uneven across the various sub-markets. While offices are recovering, it starts “at the very top” from the “best of the best” tier-one offices. The next level would be class A offices, which include two MUST properties: Michelson in Irvine, California and Phipps Tower in Atlanta.
Instead of waiting for the market to recover, which might take a “very, very long time”, it is more useful to recycle capital into assets that can perform “immediately”. Casasante also warns that offices, among other asset classes, require the most capex.
Strong market forces
Marc Feliciano, chairman of the REIT’s manager, admits that MUST is obliged to divest so as to meet the disposition milestone, rather than a matter of preference. At the moment, the REIT is short of about US$56 million, which precludes MUST’s Diablo property valued at US$45.6 million as of Dec 31, 2024. Once the disposition requirements are met, MUST may choose to sell some of its existing assets and acquire new assets that can yield a better internal rate of return (IRR).
Long-time MUST unitholders have suffered hefty capital losses, plus the suspension of payouts, but when asked, the manager is staying put and will not lower the management fees. CFO Mushtaque Ali notes that the managers are doing “a lot of services behind the scenes” and there will be no concessions on the fees. MUST’s disposition fees remain at 0.5 percentage points or 50 basis points of the net proceeds, while the acquisition fees are set at 100 basis points.
On the decisions that led the REIT to its current position, Feliciano says he does not view them as execution missteps on the part of the managers. Rather, MUST is where it is today because “market forces turned out to be on the downside a lot stronger”.
“So to be clear, we’re executing what we always knew, we have to pay down more debt,” he says.
The broadened investment mandate will take effect from Jan 1, 2026.
