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Manulife US Reit Plans to Divest Assets, Get Sponsor Loan and Halt Distributions Until End 2025

MANULIFE US Real Estate Investment Trust : BTOU 0% (Manulife US Reit) plans to raise funds through a mix of asset dispositions and a sponsor-lender loan to remedy its financial covenant breach, its manager said on Wednesday (Nov 29). 

As part of a recapitalisation plan, the Reit will divest its Park Place property in Arizona to its sponsor’s indirect wholly-owned subsidiary, which will result in net proceeds of US$98.7 million, the manager said in a bourse filing. 

Its sponsor will also grant a six-year US$137 million loan at an interest rate of 7.25 per cent, paid quarterly, with an exit premium of up to 21.16 per cent. This premium will be payable by the Reit upon the loan’s maturity. The total interest payable to its sponsor-lender will be up to US$89.4 million, the manager estimated.

The US$235 million in funding obtained from the Reit’s sponsor through the property sale and loan, together with the Reit’s US$50 million cash holdings, will be used to pay down around US$285 million in outstanding debt. 

Manulife US Reit also plans to raise at least US$328.7 million in net sale proceeds from the disposal of other assets to strengthen its balance sheet. It will also halt the Reit’s half-yearly distributions until Dec 31, 2025, unless the Reit meets its “early reinstatement conditions”. 

These conditions include an unencumbered gearing ratio not being more than 80 per cent and the Reit’s bank interest coverage ratio being no less than 1.5 times. 

Certain parts of the recapitalisation plan will require unitholder approval, to be sought at an extraordinary general meeting to be held on Dec 14, 2.30 pm. These resolutions include the proposed divestment of Park Place to the sponsor, the sponsor-lender loan and the proposed adoption of a disposition mandate. 

The disposition mandate will authorise the manager to sell the Reit’s existing properties – to be classified into different tranches of assets.  The manager plans to procure the sale of certain tranche 1 and tranche 2 assets, which carry high-to-medium occupancy risks, capital expenditure (capex) requirements and low-to-medium return potential. 

Tranche 1 assets include the Reit’s Centerpointe, Diablo, Figueroa and Penn properties, which comprise 28.4 per cent of the Reit’s portfolio by valuation. Tranche 2 assets, meanwhile, include its Capitol, Exchange, Peachtree and Plaza properties, accounting for 43.3 per cent of the portfolio. 

If the resolutions are not passed, the Reit’s existing facilities will remain in breach. This means lenders have the right to immediately accelerate the payment of around US$1 billion in loans.  If the recapitalisation plan goes through, all loan maturities of existing facilities will be extended by one year, and lenders will waive all past and existing breaches in their facility agreements with the Reit. 

There will also be a temporary relaxation of financial covenants up to Dec 31, 2025, or the date the early reinstatement conditions are met, whichever is earlier, the manager said.  That being said, as at Nov 29, not all of the Reit’s 12 lenders have obtained the necessary approvals when it comes to the restructuring of the existing facilities and waivers related to the breach. In the event they do not agree, the plan will not go ahead. 

Lenders who have yet to obtain internal approval are still in the process of doing so based on their meeting schedules, the manager added. The managers on Wednesday called for a trading halt before the market opened. Manulife US Reit’s counter ended 2.2 per cent or US$0.002 lower at US$0.091 on Tuesday.

Source: The Business Times