Manulife US REIT 1Q 2026: Figueroa Sale De-Risked — PSA Signed 6 May, US$1.85M Deposit Received 12 May, City Of LA DWP As Buyer At US$92.5M Gross — Proforma Leverage 55.4%, Occupancy 73.2%, MRA Exit Pathway Mechanical

Manulife US REIT released its 1Q 2026 Operational Update on Tuesday 6 May 2026 — and the central piece of the disposition mandate became materially less conditional the same day. The City of Los Angeles, acting through its Department of Water and Power as an unrelated third-party purchaser, signed the Purchase and Sale Agreement for the 35-storey Class A office at 865 South Figueroa Street for US$92.5 million gross consideration and US$85.7 million net consideration. Six days later on Monday 12 May 2026, the buyer placed the US$1.85 million non-refundable deposit, converting the transaction from announcement-stage to deposit-stage and removing meaningful buyer-walkaway risk through the remaining 2Q 2026 completion window.

The proforma metrics matter because Figueroa was the last unlocked piece of the Recapitalisation Plan disposition mandate. Aggregate leverage falls from 58.0% at 31 March 2026 to 55.4% proforma on application of approximately US$72.4 million of proceeds to debt. Portfolio occupancy rises from 67.6% to 73.2% — a 5.6 percentage point improvement driven entirely by removing a 45.6%-occupied asset rather than by leasing the remaining portfolio. Weighted average debt maturity extends to 2.3 years from 2.1 years. The US$35.6 million of debt remaining in 2026 (due July) is repaid in full; the 2027 wall narrows to approximately US$133.4 million from US$170.3 million. Across the Recapitalisation Plan since November 2024, US$389 million of debt has now been repaid through Capitol (Sacramento), Plaza (Secaucus), Peachtree (Atlanta) and Figueroa pending — with US$487 million remaining across 2026-2029 maturities.

The Figueroa Timeline: Three Dates That Matter

The Figueroa divestment process moved across three named milestones between March and May 2026. On 30 March 2026, the manager announced the Figueroa Divestment with City of Los Angeles DWP as identified purchaser, subject to a municipal approval process including board and council meetings open to public attendance. The framing in the 6 May Operational Update deck was cautious: "As the buyer is a municipal entity, their entry into the Purchase and Sale Agreement is subject to an approval process which includes board and council meetings that members of the public may attend." On the same day as the deck publication — Tuesday 6 May 2026 — the manager issued an SGXNet announcement confirming the PSA had been signed by the City of Los Angeles. The 12 May 2026 SGXNet announcement six days later confirmed that the US$1.85 million non-refundable deposit had been received pursuant to the PSA.

The two milestones do specific work. The PSA signing converts the transaction from "announcement subject to municipal approval process" to "contractually committed by buyer." The non-refundable deposit converts the deal from "contractually committed but reversible if buyer walks" to "contractually committed and economically committed by buyer" — the buyer now forfeits the deposit if they fail to complete. The independent valuation by JLL Valuation & Advisory Services as at 20 March 2026 was US$92.7 million using the income capitalisation approach across discounted cash flow and direct capitalisation methods, and the agreed gross sale price of US$92.5 million sits 0.2% below that valuation — a non-trivial achievement for a 45.6%-occupied Class A office in downtown Los Angeles in the current US office market. Net consideration of US$85.7 million is after a Holdback Amount of approximately US$3.7 million deposited by the Seller for tenant improvement and capital expenditure works, and Seller Leasing Costs of approximately US$3.1 million covering other outstanding TI allowances, tenant concessions, leasing commissions, free rent and parking abatement.

Quality Over Quantity In 1Q 2026 Leasing

The 1Q 2026 leasing print at the headline level is modest: 141,211 square feet executed across seven leases representing 4.0% of portfolio NLA, with rent reversion of +0.3% on a gross rent basis. The composition matters more than the volume. Renewals dominated at 93.2% of executed NLA (131,633 square feet), expansions accounted for 5.7% (8,018 square feet, principally Hyundai Capital at Michelson), and new leases were a marginal 1.1% (1,560 square feet). Of the seven leases signed, five were executed at above-market rents and six required zero tenant improvement allowance — a quality-of-execution signal that absorbs more meaning than the headline reversion number. Weighted average lease term on signed leases was 4.8 years; weighted average free rent period was 4.2 months.

The marquee transaction was the 65-month renewal with global insurer ACE American at Exchange in Jersey City covering 117,280 square feet at 5.3% of portfolio gross rental income. That single renewal extended Exchange's weighted average lease expiry from 3.7 years at 31 December 2025 to 4.7 years at 31 March 2026 — a structural improvement to the WALE of a 21% NLA-weighted asset in the portfolio. Hyundai Capital's 12-month 8,000 square foot expansion at Michelson in Irvine adds a second positive marker: existing top-10 tenant deepening commitment to the platform. Eight of the top ten tenants by GRI have now renewed or signed expansions since 2023; portfolio top-10 concentration sits at 51.1% with weighted average lease expiry of 4.9 years by NLA and 4.8 years by GRI. The 1Q 2026 leasing pipeline at approximately 1.0 million square feet (29% of portfolio NLA) sits across tours, proposals and lease negotiations — meaningfully above the 0.5-0.8 million square feet range that prevailed across 2025 quarters.

The MRA Exit Pathway Is Now Mechanical

The Master Restructuring Agreement that has governed MUST's capital posture since late 2023 includes temporary relaxations on two financial covenants. The Unencumbered Gearing covenant of 60% was extended to 80% through 30 June 2026; the Bank Interest Coverage Ratio covenant of 2.0 times was relaxed to 1.5 times through 31 December 2026. At 31 March 2026, Unencumbered Gearing sits at 61.4% (against the extended 80% floor; 19 percentage points of headroom) and Bank ICR sits at 2.0 times (against the extended 1.5 times floor; the original 2.0 times mark cleanly met). Aggregate leverage at 58.0% sits below the MAS 50% statutory cap only because the Manager has obtained a waiver from the Property Funds Appendix in relation to the Acquisition Mandate, per the announcement dated 11 December 2025.

The pathway out of MRA concessions through to ordinary-course capital posture is documented in the 2026-2027 Key Priorities section of the deck and runs in sequence. First: complete the Figueroa divestment by June 2026 (the deposit-stage milestone makes this materially de-risked). Second: apply Figueroa proceeds to fully repay the US$35.6 million 2026 debt due July 2026, and partially repay 2027 maturities, retaining approximately US$10 million for capital expenditure. Third: reinstate the initial loan facility agreements by December 2026, subject to lender negotiations. Fourth: amend the Bank ICR threshold in the initial loan facility agreements to align with the latest MAS ICR guideline threshold. Fifth: initiate distributions at a sustainable payout ratio after MRA exit. Each of these is conditional on the prior; each is subject to lender negotiations; none of them is now blocked on Figueroa completion in the way that the disposition mandate previously was.

The 2027 Wall Is Still The Question

The 2026 maturity wall is now substantially resolved: US$35.6 million remaining in 2026 (due July) is fully repaid by Figueroa proceeds. The 2027 wall is the next structural question. Post-Figueroa application, approximately US$133.4 million of 2027 loans remain — narrower than the US$170.3 million at 31 March 2026, but still meaningful. The 2028 maturity stack is US$216.2 million; 2029 is the US$137 million Sponsor-Lender unsecured loan from Manulife at 7.25% per annum paid quarterly. The manager's 2026-2027 Key Priorities flag the remaining 2027 debt as managed through "either divestments, refinancing, equity raising and/or debt maturity extension (subject to lender negotiations)" — a deliberately wide optionality framing that signals no single mechanism is committed.

The hedging profile gives MUST partial cushion: 74.6% of US$559 million total loans are hedged or fixed (US$137 million fixed-rate at 24.5%, US$280 million hedged at 50.1%, US$142 million floating at 25.4%). MUST's policy maintains a 50-80% hedge ratio subject to market conditions; the current 74.6% sits in the upper half of that range. Every 50 basis points decrease in SOFR would increase annual distributable income by approximately US$0.7 million, with the inverse on the other side. The Federal Reserve held its target range at 3.50-3.75% at the April 2026 FOMC meeting, having cut from 5.50% peak across late 2025. Whether further cuts arrive in 2026 against an inflation read of 3.3% in March 2026 (PCE Price Index 3.5% year-on-year) is uncertain; the manager's framing notes "interest rate outlook worsening with uncertainty of rate cuts in 2026."

The Growth And Value Up Plan Is Now Operational

Unitholders approved the Growth and Value Up Plan on 16 December 2025, broadening MUST's investment mandate to principally invest, directly or indirectly, in income-producing real estate in the United States and Canada as well as real estate-related assets including listed and unlisted debt securities, listed shares of property corporations, mortgage-backed securities, other property funds, and assets incidental to the ownership of real estate. The plan reshapes MUST from a pure-office US REIT to a diversified US-Canada real estate platform with initial focus on industrial assets (including new economy assets such as data centres, cold storage and industrial outdoor storage), living sector assets (multifamily, single family, student accommodation, senior housing, workforce housing and active adult), and retail assets across the United States and Canada. Office assets remain covered by the broadened mandate, but the structural intent is portfolio reshape away from current concentration.

The mechanics: revitalise the portfolio through the sale of up to three office assets, with proceeds applied to acquire new assets in the Initial Focus Asset categories, repay debt, and fund capital expenditures, tenant incentives and leasing costs. Acquisition mandate sized up to US$600 million funded by divestments, equity and/or debt. Sponsor Manulife Investment Management's real estate platform operates US$19.2 billion of global AUM as at 31 March 2026 across office (42%), industrial (27%), multi-family (20%), retail (3%), ground rent (2%), credit portfolio (5%) and other assets (2%) — a diversified template that provides the strategic template for MUST's own forward portfolio. Geographic mix of the sponsor platform is Canada 34%, United States 45%, Asia-Pacific 21%; MUST's broadened US-Canada mandate aligns with the heart of that sponsor footprint.

MUST's Submarkets: Leasing Indicators Continue To Stabilise

The JLL Research data appended to the deck shows that MUST's submarkets are at a different point in the US office cycle from headline national readings. Leasing volume dipped marginally in 1Q 2026 versus 4Q 2025, but lease terms held steady at the upper end of the post-pandemic range. Base rents continued to improve to approximately US$33 per square foot across MUST submarkets, with net effective rents trending up to approximately US$30 per square foot. Tenant improvement allowances declined modestly while free rent inducements rose modestly — a composition trade that reads as marginally net favourable to landlords. Subleasing inventory continued to decline from the 2024 peak. Across MUST's seven submarkets, no new competitive supply is under construction at any of Downtown Los Angeles, Irvine, Buckhead Atlanta, Hudson Waterfront Jersey City, Washington DC, Fairfax Center or Tempe Phoenix — projected 12-month rent growth ranges from 0.1% to 3.4% with no negative outliers.

The broader US office market read from the JLL 1Q 2026 Office Outlook is more nuanced. National leasing activity dipped 1.7% quarter-on-quarter to 54.1 million square feet, vacancy held at 20.1% (Class A), and net absorption was +3.5 million square feet. Excluding inventory removals, absorption since mid-2024 is +21 million square feet — a quiet recovery that does not show up in headline vacancy. Construction pipeline for 4Q 2025 and 1Q 2026 has been below 1 million square feet, versus a 2.4 million square foot quarterly average across 1Q-3Q 2025. The supply-side discipline is the structural underpinning of the rent improvement at MUST's submarkets even as national vacancy remains elevated.

The Read

Manulife US REIT exits 1Q 2026 in a meaningfully different posture from the same point in 2024 or 2025. The Recapitalisation Plan disposition mandate is substantially complete with the Figueroa transaction now deposit-stage rather than announcement-stage. Operational metrics remain stable rather than improving — 67.6% occupancy is not a rebound — but the leasing quality (5 of 7 above market, 6 of 7 zero TI, ACE American 65-month renewal at Exchange) reads better than the volume implies. The capital structure has covenant headroom under MRA-extended floors; proforma the Figueroa completion, aggregate leverage falls to 55.4% and weighted average debt maturity extends to 2.3 years. The pathway to MRA exit by December 2026 is documented and dependent on completable steps rather than market conditions.

The structural question for unitholders is what MUST looks like in 2027-2028 on the far side of the MRA. The Growth and Value Up Plan is the answer: a diversified US-Canada platform with up to US$600 million of acquisition capacity targeting industrial, living and retail rather than office. The shift requires further office divestments (up to three more, per the plan) and meaningful capital raising (equity, debt or both). For now, the immediate near-term arithmetic is the Figueroa completion and the resumption of distributions at a sustainable payout ratio after MRA exit. Watch the 2Q 2026 completion notice, the cadence of further office disposition discussions in the 2H 2026 reporting, and the first acquisition under the broadened mandate as the three signals that name whether the diversification thesis is moving from approved plan to executed plan. The 2027 maturity wall at approximately US$133.4 million post-Figueroa is the next structural milestone after MRA exit — manageable by ordinary refinancing in a 3.50-3.75% Fed funds environment, but not yet committed.