Manulife US Reit unitholders agree to strategic pivot into non-office sectors

[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 “Growth and Value Up” 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 – the US office sector – 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’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’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 “active adult” 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’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’s manager.

‘Expertise and experience’ in new sectors

Reiterating its response to a unitholder’s question before the EGM, the Reit’s manager pointed out that the real estate management platform of the Reit’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.

Units of Manulife US Reit were up 1.4 per cent, or US$0.001, at US$0.074 before a trading halt was called on Tuesday at the mid-day break.