Manulife US REIT (MUST) is looking to restructure its existing facilities in a bid to reduce its aggregate leverage.
The REIT’s aggregate leverage breached the regulatory limit of 50% in July when its portfolio valuation fell by 14.6% to US$1.63 billion ($2.16 billion) as at June 30.
In its recapitalisation plan, the REIT will receive US$235.7 million in funding from its sponsor. This will be done via a proposed divestment of MUST’s Park Place in Arizona to an indirect wholly-owned subsidiary of the sponsor for US$98.7 million. The REIT’s sponsor will also grant an unsecured loan to the REIT of US$137.0 million for a period of six years at an interest rate of 7.25%. The loan will be paid quarterly with an exit premium of up to 21.16%.
The REIT will also use US$50.0 million of its own cash holdings and raise net sale proceeds totalling US$328.7 million by disposing its assets under the disposition mandate to boost its balance sheet and create sufficient liquidity to fund essential capital expenditure.
Half-yearly distributions to its unitholders will be stopped till Dec 31, 2025.
An extraordinary general meeting (EGM) will be held at 2.30pm on Dec 14 to obtain approval from MUST’s unitholders.
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In the event that the REIT’s unitholders do not approve any of the resolutions, MUST’s facilities will remain in breach of its covenants and its lenders will have the right to accelerate the payment of all US$1.02 billion in loans immediately.
Should that happen, and if the REIT does not have enough cash to repay its loans, it would need to “conduct an expedited liquidation of its portfolio”.
“Not passing the resolutions effectively means that unitholders would be voting to put control of MUST in the hands of the lenders. If the resolutions fail to be passed, the lenders will control the outcome of MUST and have the right to call the outstanding debt due under the existing facilities and may make an application to liquidate MUST, thereby also forcing an expedited liquidation,” warned the REIT in a Nov 29 filing.
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“As US office transaction volumes remain sluggish and hampered by, among other things, limited financing options, it would not be in the best interests of unitholders to conduct an expedited sale of MUST’s portfolio,” it added.
As at Nov 29, not all of the REIT’s 12 lenders have obtained the necessary approvals in relation to the restructuring of the existing facilities and waivers to the breach. The remaining lenders are still in the process of doing so. Should any one of them not be able to obtain internal approval, however, the new master restructuring agreement to be entered into between the sponsor, the REIT’s sponsor-lender, all lenders and the debtor would not be entered into.
Units in MUST last traded at 9.1 US cents before its trading halt on the morning of Nov 29.
