Proxy advisor Glass Lewis recommends that Manulife US REIT's institutional unitholders vote FOR the three resolutions on Dec 14
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.
“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.
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:
US office REITs continue to face challenges (February)