Can Manulife US Reit recover? Unitholders seek answers ahead of EGM

[SINGAPORE] Long-suffering unitholders of Manulife US Reit (MUST) have grilled its manager on its recovery plan – including the interest the sponsor is charging the real estate investment trust (Reit) and why its asset pivot does not include markets beyond the US.

MUST on Thursday (Dec 11) released its answers to unitholders’ questions submitted ahead of its Dec 16 extraordinary general meeting, to obtain approval for it to diversify away from office assets into industrial, living-sector and retail assets in the US and Canada.

The first question tackled the Reit’s distribution halt and when distribution per unit is likely to resume. The Reit’s manager explained that the move was a condition imposed by the Reit’s lenders under the master restructuring agreement (MRA) introduced in December 2023.

“The manager’s focus currently is to meet the minimum sale target, which is one of the requirements under the MRA,” it said. “The manager understands the importance of distributions to unitholders but is also cognisant that it is important for distributions to be sustainable.”

It will revisit the distribution issue when the conditions of the MRA are met, it added.

High interest rate

Unitholders also asked why the sponsor was charging the Reit interest rates above those of banks. The manager said the Manulife loan in question was an important component of a larger US$269 million rescue package extended when the Reit was in significant financial distress.

At the time, the manager tried to secure financing from external lenders but found it “challenging” to get a comparable loan in the open market. An independent financial adviser, Deloitte & Touche Corporate Finance, also reviewed the deal and concluded the terms were fair given the crisis context.

To help the Reit manage its cash flow during the period, the Manulife loan’s interest was structured with a deferred “exit premium” rather than a high immediate payout. This allowed the Reit to pay a lower interest rate annually, with the remaining balance due only when the loan matures or is repaid.

On the pivot to non-office assets, the manager assured unitholders that the chairman, chief financial officer and CEO of both the manager as well as the sponsor, Manulife, have “expertise and experience” in managing the initial focus assets.

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Call for liquidation

Unitholders also aired a proposed asset sale and delisting of the Reit, since it is no longer achieving the deliverables of a Reit. Selling and delisting would fetch at least US$0.10 per unit.

MUST’s manager shot down the suggestion, warning that it would “more than likely” result in zero returns for unitholders. Any money from such an exercise would have to pay off a massive US$559 million debt before unitholders get anything.

The manager argued that the proposed strategic shift offers the only real path to a recovery of value. The primary goal of this plan is to get the Reit released from the MRA, it said, which will remove the “distressed seller” label and allow the Reit to negotiate better prices for its assets and eventually resume cash distributions.

Different assets, same market?

MUST’s plan to revamp its portfolio drew questions on why it was not considering assets in Asia.

The manager said Canada was selected as an additional market besides the US given its strong alignment with US real estate fundamentals and the sponsor’s established local presence and assets in Canada.

Currently, about 78 per cent of the sponsor’s US$19.4 billion portfolio made up of assets in the US and Canada. The manager said that as MUST acquires higher-yielding assets in these two countries, which are also the two largest countries in North America by value of their commercial real estate sectors, it can attract investors seeking exposure to real estate in North America.

The EGM to gain unitholder approval for the strategic pivot will be held on Dec 16, at 2 pm.