Manulife US Reit proposes strategic pivot to retail, living, industrial sectors

[SINGAPORE] Manulife US Reit is seeking unitholder approval for a growth plan that simultaneously expands its investment mandate beyond the US office sector, and authorises a disposition and acquisition mandate.

In an announcement on Monday (Dec 1), the manager of the pure-play US office real estate investment trust (Reit) outlined plans to revitalise its portfolio by diversifying into industrial, living-sector, and retail assets in the US and Canada. This move comes amid continued headwinds in the US office sector.

To execute this pivot, the manager is seeking unitholder approval for a disposition mandate and an acquisition mandate that will run from Jan 1, 2026, to Apr 30, 2027.

The disposition authorises the sale of up to three existing properties to raise aggregate net proceeds not exceeding US$350 million. Proceeds are intended to be used to acquire new assets, repay debt, and fund capital expenditures, tenant incentives and leasing cost requirements.

The acquisition authorises investments in the new asset classes with an aggregate agreed property value not exceeding US$600 million.

An extraordinary general meeting will be convened to seek approval for these resolutions on Dec 16. The two resolutions are inter-conditional – in the event that either fails, the remaining one will not proceed. In this case, each of the resolutions must be passed by more than 50 per cent of the total number of votes cast.

The Reit has been operating under a master restructuring agreement (MRA) since a covenant breach in 2023.

While the Reit has raised US$273.1 million from asset sales, it remains about US$55.6 million short of the mandatory debt repayment target (US$328.7 million) required by Dec 31, 2025, to avoid potential foreclosure.

Based on the release, the manager has negotiated conditional MRA concessions that extend the disposal deadline to Jun 30, 2026, and temporarily relax gearing limits to 80 per cent, from 60 per cent previously. A bank interest coverage ratio covenant from two times to 1.5 times until Dec 31, 2026, has also been negotiated.

SEE ALSO

‘All the signs are positive’: Manulife US Reit manager sees improved outlook on US office recovery

Manulife US Reit bags two-year lease renewal with US Treasury

However, lenders have made these terms strictly contingent on unitholders voting for the growth plan, as a liquidation-only strategy is deemed “not viable” for long-term survival.

As at the time of the announcement, not all lenders have obtained the necessary internal approvals for these concessions. The remaining lenders are in the process of obtaining approvals based on their meeting schedules.

The manager stated that acquisitions under this mandate will be funded with a capital structure of no more than 40 per cent debt, with the remaining 60 per cent funded through equity sources – including divestment proceeds.

The manager highlighted that the US office market has faced significant structural shifts post-pandemic, including hybrid work trends.

“These shifts have slowed recovery in some submarkets, leaving some office assets stranded and in need of repurposing,” it added.

John Casasante, chief executive and chief investment officer of the manager of Manulife US Reit, said: “Our strategy goes beyond disposing assets to solely reduce debts; we are also committed to growth. Passing the resolutions will enable us to deleverage, exit the MRA and resume income distribution, underpinned by a more resilient portfolio and cash position.”

“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,” he added.

He said having these mandates pre-approved will provide the execution certainty and speed necessary to compete in the challenging US office market.

Investors can attend a Securities Investors Association (Singapore) dialogue session on Dec 5.