Proxy advisor Glass Lewis has advised institutional investors to vote FOR all three resolutions, which are interdependent, to be tabled on Dec 14 at Manulife US REIT's (MUST) EGM.
The EGM is to approve a recapitalisation plan to solve the breach of the financial covenant in the existing facilities. The plan was negotiated between the sponsor, manager and 12 lenders. The recapitalisation enables MUST to pay down US$285.0 million ($380.08 million) in debt and all loan maturities of the existing facilities would be extended by one year.
Half-yearly distributions to unitholders are to be halted till Dec 31, 2025. Lenders will waive all past and existing breaches in for the loans. Financial covenants will be relaxed till Dec 31, 2025. In the meantime, the manager with agreements with the lenders will dispose of the properties in tranche 1 by end-2025 for not lower than the minimum sum.
The recapitalisation plan comprises aggregate funding by the sponsor of US$235.7 million via the acquisition of Park Place in Arizona for US$98.7 million, a sponsor-lender loan of US$137 million and US$50 million from MUST’s own cash holdings.
Finally, the sponsor, manager and lenders have agreed to put to unitholders a disposition mandate. The portfolio has been placed into three buckets. Of these, the proposal is to divest of four properties in tranche 1 for a minimum of US$328.7 million by end-2025. The minimum sum represents a 25% discount to the June 30 valuation of these properties.
Glass Lewis has recommended that unitholders vote for Resolution 1, which is the divestment of Park Place in Arizona to be sold to the sponsor for US$98.7 million.
See also: CICT's manager proposes to acquire ION Orchard at $1.85 billion, subject to EGM
“The proposed cash consideration is the higher of the two independently appraised valuations received by the board of directors. As such, and given the reasonable rationale presented by the board, we believe this proposal is in the interests of the company and shareholders. We recommend that shareholders vote FOR this proposal,” Glass Lewis says.
Resolution 2 is to approve the sponsor-lender loan of US$137 million at 7.25% a year, for six years, with a success fee of 21.17% which translates into around 10% a year. The sponsor-lender loan agreement is subject to certain conditions, including the execution of the master restructuring agreement.
“We do not find any significant cause for shareholder concern. We note that in the opinion of Deloitte & Touche Corporate Finance, an independent financial adviser, the proposed transaction and consideration are entered into on normal commercial terms and in the ordinary and usual course of business of the company, [they are] fair and reasonable, and are in the interest of the company and its shareholders. If any of the proposal is not approved, the existing facilities would remain in breach and the lenders have the right to accelerate the payment of all US$1,023.7 million of loans immediately. The trust does not have sufficient cash and would need to liquidate its portfolio,” Glass Lewis says, adding that it recommends unitholders vote FOR resolution 2.
See also: CICT's manager proposes to acquire ION Orchard at $1.85 billion, subject to EGM
Resolution 3 is the disposition mandate, to divest four properties in tranche 1 for a minimum of US$328.7 million by end-2025. The manager has classified the portfolio in three catergories based on the order and priority for the manager for the disposition mandate. Glass Lewis has recommended that unitholders vote FOR this resolution.
In the event that unitholders do not approve any of the resolutions, the existing facilities would remain in breach and the lenders have the right to accelerate the payment of all the loans immediately. As a result, the lenders will control the outcome of MUST and they have the right to make an application to liquidate the trust.
More on Manulife US REIT this year:
- Manulife US REIT units fall over 40% on debt restructuring plans, DBS downgrades to 'hold' (November)
- Manulife US REIT’s lifeline in the hands of EGM (November)
- Manulife US REIT's aggregate leverage falls slightly in 3QFY2023 to 56.0% from 56.7% (November)
- MUST appoints Marc Feliciano as chairman of the board of directors (October)
- ‘Absolutely’ possible to save Manulife US REIT, says sponsor but time not on its side (August)
- Manulife US REIT halts DPUs in 1HFY2023; unencumbered gearing ratio down to 59.7% (August)
- MUST’s portfolio valuation falls by 14.6% to US$1.63 bil; aggregate leverage breaches 50% limit (July)
- Phipps sale expected to sponsor set to cut Manulife US REIT’s leverage as Mirae’s exclusivity period lapses (May)
- Manulife US REIT announces proposed divestment of Phipps to sponsor (May)
- Manulife US REIT's gearing rises further to 49.5%, Mirae proposal expected in 2Q2023 (May)
- Potential rescue by acquirer Mirae could dilute Manulife US REIT's DPU; DBS halves TP to 24 US cents (May)
- Manulife US REIT continues talks with bidder Mirae, divests property for US$0.35 mil loss (April)
- 'Rewards for the brave' who dare to bet on US office S-REITs now: DBS (March)
- What are MUST’s options as gearing nears 50%? (February)
- US office REITs continue to face challenges (February)
- Manulife US REIT reports 18.6% lower 2HFY2022 DPU of 2.14 US cents after capital retention (February)
- Manulife US REIT's aggregate leverage now at 49% based on updated asset valuations (December 2022)
