SINGAPORE – Eleven out of 12 of Manulife US Real Estate Investment Trust’s (Reit) lenders have obtained the necessary approvals in relation to a plan to restructure the Reit’s existing facilities, while the remaining lender is pending final board approval.
The update, provided by the Reit’s manager late on Dec 13, has to do with plans to raise funds through a mix of asset dispositions and a sponsor-lender loan to remedy the Reit’s financial covenant breach.
The recapitalisation plan – which requires unit holders to vote on three inter-conditional resolutions at an upcoming extraordinary general meeting (EGM) – seeks to “revitalise” the Reit, and provide more time for the manager to sell assets and realise value.
The Reit breached its financial covenants in July, after its portfolio valuations fell 14.6 per cent, affecting its ability to pay out distributions. Its 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 the bourse filing on Dec 13, the Reit’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.
First, in relation to the sale of tranche 1 assets – which include the Reit’s Centerpointe, Diablo, Figueroa and Penn properties in the United States, and comprising 28.4 per cent of the Reit’s portfolio by valuation – 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.
Second, the Reit 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 – if the selected asset is sold for more than or equal to 85 per cent of the latest appraisal – 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 of both tranche 1 and tranche 2 assets, debtors must ensure that prior approval of the majority lenders is required to waive 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 its average leverage ratio, and the new financing is repaid only after all the lenders are paid; or if the new financing worsens the debtor’s aggregate leverage ratio, or the new financing is to be repaid before the maturity of an existing facility.
The Reit’s manager and the board are of the view that the changes are not adversely prejudicial to the Reit and its unit holders, and are of the opinion that it is in the Reit’s interest to accept them.
The EGM seeking unit holders’ approval for the divestment of Park Place, the sponsor loan and the disposition mandate will take place on Dec 14.
Shares of the Reit closed down 0.3 US cent, or 4.3 per cent, at 6.7 US cents on Dec 13, before the announcement. THE BUSINESS TIMES
