Manulife US REIT (MUST), still US$55.6 million ($72.1 million) short of its end-2025 divestment target, is seeking unitholders' approval to sell up to three existing properties and to make acquisitions beyond the US office sector into industrial, living and retail assets in US and Canada.
The manager of MUST announced on Dec 1 an Extraordinary General Meeting (EGM) on Dec 16 to table two resolutions: a disposition mandate to sell up to three existing properties to raise not more than US$350 million, and an acquisition mandate to buy one or more properties and investments outside the office sector not exceeding US$600 million.
The two resolutions are inter-conditional, meaning in the event that either resolution fails, the remaining resolution will not proceed. In this case, each of the resolutions must be passed by more than 50% of the total number of votes cast.
According to slides that will be shown at a briefing on Dec 1, MUST says a broadened, “diversified” portfolio will enhance cash flow stability against market volatility and sector-specific challenges. The strategic flexibility “will enhance MUST’s ability to grow its portfolio and increase long-term returns for unitholders”, they add.
The manager wants to enter new economy assets such as data centres, cold storage assets and industrial outdoor storage assets; along with living sector assets such as multi-family, single family, student accommodation, senior housing, workforce housing and active adult assets.
“Active adult refers to a lifestyle-focused accommodation catered to senior citizens, which generally provides a more independent living community than traditional senior housing,” reads MUST’s slides.
According to the terms of the disposition mandate to be voted on at the EGM, each of MUST’s existing properties — there are only seven left from a peak of 12 — may be sold at net consideration of no less than 90% of the latest independent valuation.
The disposition mandate will expire on April 30, 2027, or when any of three other conditions are met: if MUST’s aggregate net proceeds of divested properties exceeds US$350 million, if three assets have been sold, or if aggregate leverage falls below 40%.
Meanwhile, the terms of MUST’s acquisition mandate state that each property must be acquired at no more than 110% of the latest independent valuation, and the interest coverage ratio (ICR) of each acquisition must be at least 1.6x so long as MUST’s aggregate leverage is above 50%.
See also: Manulife US REIT secures two-year lease renewal with US Treasury, increasing WALE to 2.3 years
The acquisitions will be funded with not more than 40% debt, with the remaining amount through “equity sources of funding” such as sale proceeds, rental and other income, including issuance of units.
If additional debt is taken, the aggregate leverage shall decrease post-acquisition and the total debt incurred shall not exceed US$800 million.
The acquisition mandate will expire on April 30, 2027, or when any of two other conditions are met: if proceeds raised from sale of the existing properties under disposition mandate are fully utilised, or if the aggregate agreed property value of acquired properties exceeds US$600 million.
New concessions
The REIT manager says it has negotiated with lenders to grant certain concessions, namely, a six-month extension of MUST’s deadline to meet the minimum sale target of US$328.7 million until June 30, 2026.
In addition, the lenders have granted a temporary relaxation of the unencumbered gearing covenant from 60% to 80% until June 30, 2026, and the bank interest coverage ratio covenant from 2.0 times to 1.5 times until Dec 31, 2026.
As at Dec 1, not all the lenders have obtained the necessary approvals to grant the concessions. The remaining lenders who have not yet obtained the necessary approvals are “still in the process of obtaining their internal approval based on their meeting schedules”, says the REIT manager.
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In May, Must secured approval from lenders to extend the deadline for the disposal of assets by six months to Dec 31, along with the use of US$25 million to partially pay down debts due in the next three years.
MUST has to-date raised nearly US$273.1 million from disposition proceeds, or 83% of the minimum sale target of its Master Restructuring Agreement (MRA), through the sale of three office buildings — Capitol, Plaza and Peachtree — leaving approximately US$55.6 million outstanding.
MUST divested Plaza on Feb 25 for net sales proceeds of US$40 million and Peachtree on May 27 for net sales proceeds of US$123.7 million.
‘Seller and buyer’
John Casasante, CEO and CIO of the manager of MUST, says passing the resolutions “will enable us to deleverage, exit the MRA and resume income distribution, underpinned by a more resilient portfolio and cash position”.
He adds: “We have repaid most of our 2026 debt ahead of schedule from asset dispositions and our balance sheet, and are now at a pivotal point where we want to begin to execute our recovery and growth plan. We need unitholders to give us their support for the plan so that we can unlock new growth opportunities through recycling office assets to acquire higher-yielding, less capital-intensive assets, and grow the business in a sustained manner.”
Casasante says the two mandates being sought will give the manager “a competitive edge as seller and buyer”, since speed and execution certainty are critical to achieving the best outcomes in the challenging US office market.
MUST’s directors have recommended that unitholders vote in favour of the disposition mandate and acquisition mandate.
Units in MUST closed at 7.6 US cents on Nov 28, down 15.6% year to date.
Read more about Manulife US REIT:
Manulife US REIT net property income down 29.5% y-o-y to US$30.2 million (August)
RHB slashes MUST’s target price by 41% after ‘painful’ but ‘necessary’ divestment (May)
Manulife US REIT one sale away from meeting divestment goal, but what’s next? (May)
Manulife US REIT gets approval to extend asset disposal deadline by six months (May)
To raise US$165 mil by mid-year, what will MUST divest next? (March)
