According to the terms of the disposition mandate, 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. 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, among other conditions.
The disposition and acquisition mandates, which will be tabled separately as two resolutions at the extraordinary general meeting (EGM), are inter-conditional. Should either resolution fail to garner more than 50% of the total number of votes cast, the remaining resolution will not proceed, says the manager at a Dec 1 media briefing.
John Casasante, CEO and CIO of the manager of MUST, declines to reveal whether the manager or lenders were behind the inter-conditional terms — “That was part of our discussions; I couldn’t really tell you who prompted it” — but insists “the two need to be linked together”.
Responding to The Edge Singapore in an hour-long call, Casasante adds: “There would be no way that we could 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.”
Stressed vs distressed sale
In slides shown on Dec 1, the manager hangs the word “liquidation” in a box marked in red, detailing three outcomes should unitholders vote against one or both of the resolutions on Dec 16.
“Lenders may not grant Master Restructuring Agreement (MRA) concessions,” reads a line about MUST’s proposed second six-month extension to June 30, 2026 to meet a divestment shortfall of some US$55.6 million. “Lenders have the right to accelerate payment of all US$559.0 million of loans immediately after Dec 31, 2025,” reads another.
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The Edge Singapore pressed management about the third outcome, which warns of a “risk of liquidation of MUST’s portfolio at distressed prices”.
Looking at MUST’s portfolio as at Sept 30, all but one of its seven remaining assets are valued above the US$55.6 million shortfall.
Diablo, MUST’s only Class B property, is worth US$45.6 million as at end-2024. Right above that are MUST’s Class A assets — Penn and Centerpointe, which are valued at US$79.1 million and US$75.9 million respectively.
Why, then, is MUST struggling to meet the minimum sale target from its MRA, one of three resolutions unitholders had voted for at a December 2023 EGM?
It appears that buyers are lowballing MUST. Says Casasante in more delicate terms: “The MRA, when it was put together, was very prescriptive on the conditions and the timing. As a result of that, whenever we took something to market, the buyer on the other side of the transaction had the ability to look up this information — since it was all in the public venue — and they could see the release pricing, the timing — and they were able to negotiate accordingly.”
To date, MUST has raised US$273.1 million from disposition proceeds through the sale of three office buildings — Capitol, Plaza and Peachtree. The latter two were completed this year.
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$123.6 million — both below valuation. Plaza had been valued at US$43.7 million at end-2024; Peachtree had been valued at US$133.4 million at April 28 and US$164.6 million at end-2024.
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Peachtree’s buyer knew MUST had to complete the sale by June 30, says Casasante. “It gives the buyers an undue advantage as part of the negotiation to have that information.”
Things could worsen if the resolutions fail on Dec 16.
“If we were to go into default and prompt a liquidation, that would also be public information, as it would need to be announced within the market. The entire US market — anyone looking at any of our assets — would know that we were in liquidation mode,” says Casasante. “In the US, when things are in liquidation mode, people start at the bottom of the pricing and they work their way up to get the lowest price possible.”
Casasante says MUST’s recent transactions “have been at what we would categorise as a stressed sale”. “You take it to the next level to ‘distressed’ or ‘liquidation’, and the pricing becomes even worse.”
Without the six-month extension, MUST may face a default and could be forced into a distressed liquidation, requiring the manager to sell assets quickly to repay all loans.
“Any potential buyer of MUST’s assets would be aware of the distressed sale, likely resulting in significant discounts to book value,” says the manager in a written response.
Proceeds from such sales would be first applied towards repayment of debt obligations, with any remaining value — if any — distributed to the unitholders, adds the manager. “Liquidation would offer no future returns if market conditions improve subsequently. Furthermore, liquidation is a lengthy and costly process fraught with uncertainty. Therefore, liquidation remains a last resort, to be considered only if all other measures have been completely exhausted.”
Eyeing industrial, living sectors
Suppose the resolutions pass on Dec 16. The manager is eyeing 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.
A housing shortage is driving demand for multi-family assets, says Casasante. “The areas that we would focus on in the living sector side would be sort of in the middle of the bandwidth, so more of the workforce housing [and] adult living. Luxury apartments would be something that we would more than likely not focus on.”
Leases for US multi-family homes are typically 12 months long, he adds. “It’s nice to have a 12-month lease, because the rents get marked-to-market every 12 months. It’s also a good inflation hedge as well, depending on the sort of macroeconomic situation we have going on.”
Meanwhile, industrial assets promise higher occupancy rates. According to Casasante, vacancies among downtown Los Angeles offices are between 20% and 25%; compared to “around 6% to 8% on the downside” for industrial assets.
Some submarkets down by Long Beach and the LA ports boasted vacancies of 0.6% “at the high point in the market”, he adds, though these have “probably” risen to around 6.5% to 7% today.
This “narrower swing” is attractive to MUST, says Casasante. “You’re not going to have such a wide spread that you [would] experience in office [assets]... You’re not going to see such a wild spread between the highs and the lows; you’re not going to see a lack of demand on the industrial side.”
Casasante says industrial and multi-family investments “would probably come slightly ahead” of potential retail investments in MUST’s expanded mandate, which include grocery-anchored centres.
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)
