ELEVEN out of 12 of Manulife US Real Estate Investment Trust&rsquo s : BTOU -4.29% (MUST) lenders have obtained the necessary approvals in relation to a plan to restructure the Reit&rsquo s existing facilities, while the remaining lender is pending final board approval.

 

The update, provided by the Reit&rsquo s manager on Wednesday (Dec 13) evening, has to do with MUST&rsquo s plans to raise funds through a mix of asset dispositions and a sponsor-lender loan to remedy the Reit&rsquo s financial covenant breach.

 

The recapitalisation plan &ndash which requires unitholders to vote on three inter-conditional resolutions at an upcoming extraordinary general meeting (EGM) &ndash seeks to &ldquo revitalise&rdquo the Reit, and provide more time for the manager to sell assets and realise value.

 

MUST breached its financial covenants in July, after its portfolio valuations fell 14.6 per cent, affecting its ability to pay out distributions. The Reit&rsquo s proportion of unencumbered debt to unencumbered assets exceeded the 60 per cent threshold its aggregate leverage also crossed the 50 per cent regulatory gearing limit.

 

In a bourse filing on Wednesday, the Reit&rsquo s manager noted that certain changes have been made to some of the key recapitalisation terms. These changes provide consent rights to all lenders and the sponsor-lender in certain limited circumstances.

 

Firstly, in relation to the sale of tranche 1 assets &ndash which include the Reit&rsquo s Centerpointe, Diablo, Figueroa and Penn properties, and comprising 28.4 per cent of the Reit&rsquo s portfolio by valuation &ndash prior consent of the sponsor-included majority lenders is needed if any of these assets are sold for less than the pre-approved pricing, but more than or equal to 85 per cent of said pricing.

 

Prior consent is also required if any of these assets are sold for less than 85 per cent of the pre-approved pricing.

 

Secondly, MUST may procure the sale of up to two tranche 2 assets on the condition that each selected asset, and the price and other material terms of sale of the selected asset, are approved by the sponsor-included majority lenders &ndash if the selected asset is sold for more than or equal to 85 per cent of the latest appraisal &ndash or all lenders and the sponsor-lender, if the asset is sold for less than 85 per cent of the latest appraisal.

 

Third, in relation to the disposal or both tranche 1 and tranche 2 assets, debtors must ensure that prior approval of the majority lenders is required to wave any failure to meet a minimum sale target by 15 per cent or less.

 

Any failure to meet a minimum sale target by more than 15 per cent will have to be waived by all lenders.

 

Lastly, debtors cannot acquire any properties unless the acquisition increases their aggregate leverage, or where the acquisition decreases or does not affect their aggregate leverage.

 

The debtor shall not incur any further financial indebtedness unless the new financing does not worsen their average leverage ratio, and the new financing is repaid only after all the lenders are paid or if the new financing worsens the debor&rsquo s aggregate leverage ratio, or the new financing is to be repaid before the maturity of an existing facility.

 

The Reit&rsquo s manager and the board are of the view that the changes are not adversely prejudicial to MUST and its unitholders, and are of the opinion that it is in the interest of MUST to accept such changes.

 

The EGM seeking unitholders&rsquo approval for the divestment of Park Place, the sponsor loan, and the disposition mandate will take place on Dec 14.