REITSavvy Team had a Q&A session with the MUST team to understand key information that we believe investors should be aware of before placing their vote.
Background
Manulife US REIT unveils a Recapitalisation Plan, to enhance the REIT's financial position. This follows a 14.6% decline in portfolio valuations to US$1,633.55 million in 1H 2023, breaching a financial covenant breach which has prompted the adaption of strategic measures to address the issue at hand.
Questions / Response
Q1) What is the price difference of Divestment of Park Place US$98.7M vs the purchase price?
MUST: The purchase price of Park Place was US$106 million, therefore the difference is less than 7%.
Q2) What is the reason for a halt to dividend distribution till 31 December 2025?
MUST: It is one of Lenders requirement to halt the dividend distribution.
Q3) Will you consider DRP to replace cash dividend for 2 years?
MUST: There is no consideration at the moment.
Q4) What is the tax implication of not paying out dividend unitholders?
MUST: If all unit holders submit their W-8 BEN tax forms, there will be no withholding tax impact on the REIT. However, if there is a percentage of unit holders who do not submit their tax forms, the withholding cash tax burden which may go up to as high as 43% will fall on MUST.
Q5) Is Equity Fund Raising (EFR) still an option?
MUST: It is not in investors best interest at MUST current low market capitalisation and uncertain capital market condition. However, EFR is still an option on table if needed.
Q6) Is MUST allowed to make an early repayment to Sponsor-Lender loan in the future if MUST has the financial means to do so? If yes, what will be the details?
MUST: Certainly, early repayment of the Sponsor-Lender loan is permissible before maturity, but only after settling all other outstanding loans. Opting for early repayment before maturity will result in a reduced exit premium. You may refer to pages 45-47 of the circular.
REITSavvy Views
REITSavvy believes that the manager has considered the worst-case scenario for their assets in assessing the Recapitalisation Plan and has devised a strategy to meet the needs of all stakeholders during these challenging times.
Moreover, we appreciate the active participation of the sponsor in the process. Their willingness to extend a loan lifeline when no one else in the market was willing to do so, and the strategic placement of Marc Feliciano as the Chairman of MUST in recent months, demonstrates their commitment to addressing the current situation. This means the sponsor have much more skin in the game now.
At present, Marc Feliciano also serves as the global head of real estate, private markets at Manulife Investment Management, the sponsor of the REIT.
MUST unit holders currently have only 2 options, "Do something" vs "Do nothing" option. What each option means to you?
| If you Approve of ALL 3 Resolution | If you Do not Approve | |
| Immediate Fundings / Relaxation | ||
| Sponsor will buy Park Place at US98.7million | Yes | Do nothing |
| Six-year unsecured Sponsor-Lender Loan of US$137.0 million | Yes | |
| Utilisation of US$50.0 million from Manulife US REIT’s own cash holdings | Yes | |
| Lenders grant waiver and relaxation of financial covenants in the Existing Facilities | Yes | |
| Future Strategy | ||
| Asset dispositions pursuant to Disposition Mandate | Yes | Do nothing |
| Half-yearly distributions halted till 31 December 2025, to preserve cash as a requirement for the Recapitalisation Plan. | Yes |
Should the plan no approval obtained, the manager will be back to the "Do nothing" option, which significantly increases the likelihood of lenders exercising their rights to demand the immediate repayment of the entire US$1,023.7 million in loans. This may result in forced sales of properties at distressed prices, potentially leading to the complete collapse of the REIT.
However, if the plan is approved to proceed with the Recapitalisation Plan, the manager is able to start to "Do something" that has been pre-agreed with various stakeholders. This will let MUST to have additional time to fight the battle ahead. Time is a critical factor for the REIT, as we are seeing interest rates starting to show signs of peaking - which with the 2 years of extended time may help to turn the REIT around.
Unit Holders Checklist
1) Tax Savings for the REIT
Investors who have not yet submitted the IRS Form W-8 are strongly encouraged to do so. Every penny is crucial during these times.
2) Voting Deadline
Do note that SRS account holders deadline is at 5pm on 4th Dec. If you do not receive any of the letter do contact your provider.
Closing Thoughts
MUST is currently at a crucial juncture, facing a decisive "Do or Die" situation. If the proposed plan is approved, there is a potential for the REIT to undergo a turnaround in the forthcoming years.
However, if no action is taken and lenders begin to demand repayment, the outcome could be grim, potentially leaving unit holders with little or nothing.
Exercise your vote wisely in the upcoming session.
Thank you MUST team for the updates and clarifying some of our questions and doubts.