Manulife US Real Estate Investment Trust (BTOU.SI) Earnings Call Transcript & Summary

Good morning, everyone, and welcome to Manulife U.S. REIT's First Half 2025 Financial Results Briefing. My name is Wylyn, and I head the Investor Relations team here. Thank you very much for taking your time to join today's briefing. Before we proceed, I would like to just highlight that this session is being recorded. The recording will be available on our website after the meeting. Today, we will be starting with a presentation by management and then we will follow it by -- with a Q&A session. Let me first introduce the management team on the call today. First, we have Mr. John Casasante, our CEO and CIO; and we have Mr. Mushtaque Ali, our CFO. Without further ado, let me hand it over to John to kick off with the presentation. John, please.

Thank you, Wylyn. Good morning, everyone, and welcome to our first half 2025 results briefing. In the first 6 months of 2025, we completed the divestment of 2 assets, Plaza in Secaucus, New Jersey and Peachtree in Atlanta. Proceeds went towards repayment of approximately $160 million of 2026 debt. Operationally, our same-store occupancy has held steady at 68.4% with a portfolio WALE of 4.6 years. We executed about 125,000 square feet of accretive leases in the first half of 2025, excluding deals that were done in Peachtree, which is about 3.5% of our portfolio NLA. Financially, we reported a same-store net property income of $26.5 million, which is an 11.2% year-over-year decline. Aggregate leverage improved to 57.4% from 59.4% 3 months ago, mainly due to debt repayment. Income available for distribution declined 34.7% to $14.9 million. I will now hand it over to Mushtaque to elaborate more on our financial performance in the subsequent slides.

Thank you, John. So I will now go through the highlights from the first half financial results in more detail. The net property income on a total portfolio basis was down $12.6 million, of which $9.3 million decrease was due to the disposition of 3 assets, namely Capitol, Plaza and Peachtree. If we strip out the impact of these dispositions from our financial results, our NPI was down $3.4 million or 11% on a same-store basis. And most of this decline was actually coming from Tranche 1 assets, in particularly 1 asset Diablo in Phoenix, which saw the drop in occupancy from 98% to 38% and resulting in a $2.7 million decrease in NPI alone. The portfolio benefited from lower property and trust level operating costs through our effective controls over expenses and cost reduction strategies, such as we were able to reduce property taxes in Figueroa and Michelson through successful tax appeals. The finance expense also decreased as a result of significant debt repayments that were done in Q4 last year and first half of this year in February and June. The full impact of these will be actually visible in future periods. At the trust level, our management fees was also lower by $0.9 million. Moving to the next slide. So to further build on and to provide a breakdown of performance by tranches of our assets and property, as you can see that Tranche 3 assets, which includes Phipps and Michelson, show signs of stability and witnessed a slight growth of 2% in NPI. Tranche 2, which comprised of Exchange after our divestments of Peachtree and other assets from Tranche 2 had a lower NPI, but this was partly due to the absence of termination fee. And as mentioned earlier, majority of the decline came from Tranche 1 assets in Diablo, which was lower by $2.7 million. Another key point to highlight in the performance is that including -- included in our prior year performance is $1.8 million. The NPI was down $1.8 million if we exclude the impact of lower termination income that was earned in this half of the year as compared to the last year same period. Next slide, please. From a financial position perspective, in the last 12 months and especially in the first half of this year, we have significantly strengthened our balance sheet and reduced our third-party debt. With the proceeds that were realized from sale of assets in the first half of the year, we repaid approximately $161 million in debt. And together with our own cash, we paid another $25 million in debt in the first week of July. After repayment of the $25 million debt, our aggregate -- pro forma aggregate leverage will be at 56.3%. I do want to highlight that in the $559 million of external debt remaining, $137 million is owed to Manulife, our sponsor, which makes up 25% of our total debt and is the second largest lender of the trust. Our externally owned debt now represent 42.5% of our total assets after the $25 million debt payment. One of the questions that we always receive is that what is the reason that our aggregate leverage has not reduced despite a significant reduction in debt. And to give you a stat, a 9.3% decrease in valuation was observed in 2024. If we strip out the impact of valuation loss, after all the debt repayments, we would have achieved aggregate leverage of closer to 50%. Moving to the next slide. Now as you can see that we have no remaining debt outstanding in the year 2025 and we have $35.6 million of debt remaining that is coming due in July 2026. The overall objective of recapitalization that was -- that commenced in the end of 2023 was envisioned to address the 2025 and 2026 debt maturities. And as you can see that we have made substantial progress towards that goal. In terms of our weighted average interest cost, it stands at 4.03% as of June 30 and it was lower in comparison to last year, mainly due to the debt repayments that were achieved in this first half of the year. Next slide, please. So as we noted in prior presentations, we have a hedge policy in place, and we manage our interest rate risk by having our hedge and fixed ratio to be within 50% to 80% of our total debt. Currently, we are at 89% hedged. And for the rest of the year, we will be at -- remain 75% hedged or fixed for the rest of the year. In terms of the interest rate outlook, as we all know, market has a broad consensus that there will be rate cuts. However, the timing and the quantum of these remain uncertain. Our hedging policy is well positioned to protect the portfolio from interest rate risk, but also to take advantage of the lower rates, which is a key goal for our interest rate risk management strategy. Next slide, please. And this slide gives more color on our interest coverage ratio. So as you can see that our ICR is at 1.6x. However, if we take non-cash components out from our interest cost, such as a sponsor lender exit premium and the one-off penalty fee, our interest coverage ratio would have been 1.9x. The bank ICR, which is slightly a different definition and more on a cash basis was at 1.9x, which is well in compliance with the current requirements to be at 1.5x. Coming back, we will continue to pursue our strategy of growth and accretive leasing to improve our EBITDA, to improve our ICR going forward and any interest rate cuts and further debt repayments will also help to improve the ICR. With that, I will pass it back to John for further comments.

Thank you, Mushtaque. On our leasing performance, portfolio occupancy remained stable on a same-store basis at 68.4%. The WALE of our leases executed in the first half of 2025 was 3.8 years. There was a mix of longer term new and expansion leases, 5 to 8 years, some shorter renewals. Given where the market currently is at, we see shorter-term deals as a positive as not to lock in rental rates at a potential low point in the cycle and shorter term deals also involve less CapEx. Despite rent reversions of negative 10%, 8 out of 10 of our leases signed were at or above market rates. This is something that we strive to achieve under current market conditions as achieving market is typically as good as you can do in most markets unless you have a very unique situation. By NLA, 44.6% of the leases signed in the first half of 2025 were renewals. 44.6% were new leases and 10.8% were expansions. Next slide, please. I know we've been sharing this slide for a few quarters now, but I want to reiterate that we remain on course with our strategic leasing strategy. And I think it's important to see the different cycles that deals go through during the various stages of the leasing cycle. From the outset, our approach has been to deploy capital strategically, looking at deals on liquidity and accretive value within our portfolio. We currently have 900,000 square feet of leases somewhere in the pipeline in various leasing stages ranging across from tours, proposals and negotiations. Next slide. I know we've spoken a lot about strategic leasing and creative leasing. I wanted to just give a few examples of some deals that we've done recently. And again, this is just a couple that we wanted to showcase by no means is this all of them. Again, we consider every deal that we've done to date not only being accretive, but also strategic in nature. At Centerpointe, we signed a new 8.5 year lease with a real estate firm at below market TIs. This tenant's existing building was planned for redevelopment, which was something that obviously wasn't advertised by their broker, but through our local market knowledge across the sponsor's platform, we were able to obtain this information. This gave us a clear advantage in the negotiation, because at this point, we knew a renewal was not an option for this tenant. We also knew the space that they had identified in our building was very unique and special space, which allowed us to feel confident in the negotiation to provide a deal that was above market. So essentially, we held to our asking rents because we knew we had a competitive advantage compared to the other options in the market that this tenant was looking at. At Phipps in Atlanta, we signed a new 3-year lease with another real estate firm at above market rent with very low single-digit TIs. We knew the tenant needed a quick move-in. We also need -- we also knew that they needed the ability to expand within the space. And the company is owned by a very large and well-known investment manager. The success of this deal led us to another potential floor leasing opportunity within the subsidiary of the parent company, which we knew this at the time when we did the original deal. So again, not only was the deal strategic from the standpoint that the deal on a stand-alone basis made sense for us, but we knew that we could benefit from future deals given how quickly we turn this deal around for them. Not to mention, we also now have a lease that we can use again with the same firm next time that we do a deal with them. At Michelson in Orange County, California, we secured a 12-month parking license agreement with a major tenant for 200 parking spaces. So not only did this do a favor for our tenant to provide these parking spaces, but it also allowed us to generate some extra income. So it was a 12-month deal with an option to extend by a month-to-month thereafter. This enables us to generate additional revenue without requiring any CapEx. And as mentioned before, this was an accommodation to an existing tenant as well. At Figueroa, we are close to executing a new 40,000 square foot lease with a financial firm at above market rents and low tenant improvements. The leverage here was we knew that our building was the targeted space for the tenant, even though there were other buildings they were looking at. We knew that we had something to offer this tenant that no other building could offer them. We had top building signage. We knew this tenant wanted top building signage at minimum for the period through and up to the Summer Olympics. We structured this deal to make a win-win for both parties, but ultimately gave us the flexibility and gave the tenant the ability to have signage up to their minimum point in time. We also reserve the right in the future to be able to take back the top building signage beyond the Olympics if we find another tenant that requires top building signage. So again, this deal was a win-win for both parties and we were able to strike this deal with having some leverage in the negotiation, knowing we had something unique within the market. Next slide. This slide illustrates our portfolio lease expirations. Penn stands out at 5.7%, of which 5% is made up of the U.S. Treasury. As we've mentioned in the past, we are in the midst of working through a 24-month lease extension with the U.S. Treasury. We're anticipating that this will get executed hopefully in the next 30 to 60 days. This extension gives us a longer runway at the Washington, D.C. market as it continues to stabilize. We are optimistic that this will get done in the next month or so. Next slide. This slide shows our top 10 tenants with a 4.5 year WALE. I think what's important to look at on here is we've highlighted in blue, which actually represents about half the tenants. And once we complete the U.S. Treasury deal, that would be 6 of the 10 tenants. These tenants have renewed or expanded with us since 2023. The top 10 lease maturities, the U.S. Treasury, as I mentioned before, we are working on a 24-month extension with them. Next slide. This is a new slide that we've modified and I think this is a very critical slide for us to go through in detail with the audience. Many of you are familiar with our 3 phases of where we are at stabilization, recovery and growth. Post default, we implemented risk management as one of our strategies, which was kicked off by the MRA as our first step of stabilization. And through the debt repayment of $456 million or 45% of our outstanding debt, we furthered our stabilization. Our goal has always been to get MUST to growth. This would be executed through acquisitions, inorganic growth, reinvestment into existing assets, organic growth and a repayment of debt to maximize return for unitholders, while minimizing dilution. Our strategy to get us to growth remains unchanged, comprising of 4 components: risk management, capital management, asset level strategy and portfolio optimization. And I think it's key to keep in mind that each one of those 4 pillars of our strategy play a role in all 3 phases. Post the default back in 2023, the MRA was the first step and a key component of risk management. We prioritize risk management under the stabilization phase. Given that we had upcoming debt maturities in '25 and '26, moving forward, we will continue to manage liquidity and our financial covenants as we move into the recovery and growth phases as part of risk management. Under capital markets, we plan to continue to manage our debt maturities and when the time is right access capital markets for growth solutions. On the asset level, wholesale analysis is critical to determine how we optimize our capital allocation to improve asset performance. And finally, portfolio optimization involves capitalizing on value opportunities created by market dislocations. We also plan to diversify the portfolio to achieve sustainable risk-adjusted returns to create value for our unitholders. And let me just add, if you look at this slide, amongst the 4 pillars of our strategy, in the middle of there is our key objective, and that is value creation for our unitholders. Next slide, please. Advancing through final stages of stabilization. This slide shows that we have accomplished -- what we have accomplished post default, which is significant progress in debt repayment that has been made post default in 2023. In November of 2023, we had a debt balance of over $1.02 billion. Today, we have since paid down approximately $465 million of debt, close to 50%. This has required a lot of heavy lifting as the U.S. economic and capital markets environment has not made this easy. Given the aforementioned, it is unfortunate that we had seen valuation decline last year in the U.S. and within our portfolio. Otherwise, if valuations would have stayed constant, as Mushtaque had mentioned earlier, our gearing would have been around 50% today. Next slide, paving the way for recovery and growth. Having made significant progress in debt repayment, we are now on stronger footing to get through the stabilization phase and move into the growth -- move into the recovery and growth phases. Discussions with our key lenders are ongoing and conversations include exploring strategies beyond dispositions that would pave the path and way for growth. Dispositions going forward need to be tied to a path of growth. We will continue to evaluate liquidity as we always do in our portfolio to maximize proceeds for growth and recycling capital. We will tap into the sponsor's real estate platform for opportunities to diversify into higher-yielding assets to maximize returns for unitholders. I participate on the weekly pipeline call for our sponsor, so I have complete visibility to what's in the marketplace. Part of improving our NPI and book value comes from continued discipline in leasing. There are market challenges and risks that could affect our growth plans, but these also present opportunities from us for growth during these great vintage periods. There is still limited liquidity for office assets in some of our submarkets. But overall, the situation is continuing to improve, particularly in other product types. U.S. office properties continue to have high capital requirements and funding these remain challenging as we have limited capital. Selling some of our office buildings with high CapEx requirements and recycling and reinvesting the capital into our existing properties with lower cost of occupancy will help drive organic growth and book value. Lastly, debt and capital markets are recovering gradually and it will allow us to capitalize on opportunities created by market dislocation for our path for growth. To conclude, we have reduced our debt balance significantly. We are now focusing on paving the way for recovery and growth. That brings me to the end of my presentation. I will hand it back to Wylyn for Q&A session. Mushtaque and I will be happy to take your questions.

Thank you, John and Mushtaque. [Operator Instructions] All right. So let's see if we are getting any hands raised. I see Vijay. Vijay, would you like to…

Yes. I think firstly, congrats, especially on some of the creative leases and getting income from some of the assets which are facing a challenging market. I think that's something which is very interesting for unitholders. I have a couple of questions here. Firstly, I noticed that there is no revaluation being done for the first half after a long period of time. Would that mean that you are comfortable with what the current valuations of the assets in the books are at this point of time?

Yes, that is correct. We've run it through our internal process as well as having an external assessment done as well. And there has been concluded that there has been no material changes in the investment inputs as well as the property level assumptions.

So that would mean that the valuation decline which you have been seeing for the last 3, 4 years has more or less coming to an end and we should not be seeing further declines barring any major macro changes?

That is what -- that's how we're looking at it as well.

Okay. My second question is in terms of the one-off penalty fee, which you paid for this first half. Maybe can you remind us what is the amount? And can you also remind us what is your pending divestment target for the rest of the year with the MRA agreement? And what is the status in terms of assets that you have identified and looking to divest to meet this target?

So you want to take the first question, I'll take the second.

Let me take the first question. So the amount of the penalty was $2.3 million and it was included in our interest expense in last year's expenses. It was paid in this year. And also what's remaining in terms of the $328 million. So that amount is $56 million. And John, the second one.

So as mentioned before, all future investments will be tied to a path to growth and that is tied to ongoing conversations that we're having with our lenders. So at this point, we're not able -- we don't have anything on the market. So I'm not able to disclose any specific assets. But again, as referenced before, all future dispositions will be tied to a path to growth and will be continually discussed with our lenders as well to help with that path.

Got it. So there is no changes to Tranche 2 or Tranche 3 that is what you're looking at, right?

That's correct.

Okay. And on the penalty fee, there was no additional penalty fee, is it for the extension from June to December?

Correct. There was no additional fee beyond the last year what we had incurred.

Okay. Just 2 more questions from me. In terms of negative rent reversions, maybe can you give us which -- is there any specific asset that drove this or is it across the market? And maybe if you have to look at it from a portfolio rents to market rents across your portfolio, where does it stand?

I think it's more or less in general. As we've discussed before, longer-term leases that have previously been in place when those come up for renewal or when a new deal goes in those spaces, it's very difficult when you're at a low point in the cycle to beat those reversions unless you're buying up your rents. And as we discussed before, that is not our approach and we do not think it's a good use of capital to buy up our rents just to make our reversions look good. And so again, our focus is to be at market or slightly better than market. And really, you can't -- for the most part, you can't do better than market. I mean a market rent is usually the objective of most landlords to hit a market rent. There are those unique situations, which we strive to find where we can capitalize on the value within our assets to achieve higher than market, as I referenced in those few examples that I've provided. As it relates to markets that have potential for more negative reversions, obviously, D.C. would be one. However, we do not anticipate seeing that in the renewal that I previously mentioned given the nature of that deal. Diablo would be another market that would potentially have negative reversions. But again, we're looking at creative options on how to avert that. But again, it's hard to do better than market. And unfortunately, some of these leases, when they expire, the rates that they're at are well above the current market that's in place.

Okay. On a net basis, would it be right to say that your portfolio rents are still at or below and we should expect this negative rent reversion trends to continue for the next few quarters at least?

Yes, that's probably a fair comment. I mean I see it tapering down as the market continues to improve. Also, I think it just depends on the mix of what we see within the quarter. The deals could line up in a way where it would be less or maybe even positive. But I think in general, if we were to generalize things, I think it's safe to say that they'll continue to be slightly negative. But again, that's dependent on what we see in the market. We're seeing a lot of positive signs in the market. I mean we're seeing continued return to office. More companies have announced return to office policies. We're seeing, in general, more people in the office from a population standpoint and overall demand in certain markets are picking up as well. So I think as the market continues to improve, we'll see less, if not maybe we turn to the positive in some of our future quarters. But I mean, that's obviously our objective, right? I mean our objective is to do market deals.

Got it. Sorry, one last question. I think you mentioned that you have been dialing into sponsor calls on a weekly basis to look at potential profile assets. Would that mean that sponsor is now more active, more supportive with the market conditions stabilizing at this point of time? And maybe can you give some color in terms of what would sponsor do differently or support differently for the REIT to gain long-term benefits?

Yes. So I appreciate that question. I would love to elaborate on that. So the sponsor has continued to be active in the market. We have weekly pipeline calls. They're national calls, so deals across the country. All active product types are brought there to the call. These are deals that are all in various stages from deals that are simply being looked at on the platform to deals that initial negotiations have started. It gives us great insight to be able to see these deals. Ironically, our Head of Acquisition e-mailed me this morning, sending me a deal, in particular, that's going to be on this coming Monday's call that I should look at closely because it lines up well for our portfolio and the returns. And so what we do is when we get that information, if it's something that I think checks the boxes on our strategy, then we internalize it amongst the team here and we run it through our models to see how it fits within the portfolio and our overall objectives. So it's extremely useful. I will say the types of deals that the sponsor and the pipeline is typically seeing are very accretive deals. They're not the over marketed, middle of the fairway, overpriced market deals. They're more to the effect of off-market, opportunistic, very more unique deals that would provide higher returns that would benefit us when we're at that point in time to officially move into the growth mode. When I say officially move in what I mean is our first acquisition.

I see next person with the raised hand, [indiscernible]

Yes. Well, my first question was just following the developments in the REIT. I mean, it doesn't look like for various reasons I know that we are able to bring the overall gearing down to below the 50% level, which is what the MAS wants, right? And then only we can really talk about DPU and so on possibly. So -- and it's partly because when you sell your buildings, they are at low valuations. So hence, you are not able to reduce the debt that much, right? So how are we going to bring that overall level down below 50%? I mean that's my first question, please.

Yes. So I'll take the first half and then I'll Mushtaque chime in as well. So one of the things that I think is important to highlight is you hear us talk a lot about strategic leasing. And the one thing that I don't think we've done a good job on highlighting as part of strategic leasing is I literally can tell the audience every deal that we have done since I joined has been accretive. And when I say a deal has been accretive, we've taken that deal and we have run it through the most recent valuation model and it's accretive within that valuation model. So we -- the deals that we're doing right now as an example, we will take the terms of that deal, we will run it through the fourth quarter valuation model that was provided to us by the appraisers and those deals need to be accretive within those models. So we don't change any of the assumptions. We don't change any of the investment inputs. We simply just add the line item for the NLA for that particular deal and it needs to be accretive against the most recent valuation model to determine that's a deal that we're moving forward. So I think that is important. That's important for a lot of reasons. But one of the ways that we can improve this is to see an upward tick in our overall valuations. So I'll let Mushtaque chime in.

Yes. So I think building on further from John's comments, there are 2 ways to improve leverage, as we all know, right, reducing debt, but we have been able to reduce significant debt, as we highlighted, but at the cost of obviously disposing assets, which is where when your numerator also decreases, you do not achieve the target leverage reduction that you're looking for. So now the most important thing is to grow the portfolio. The growing the value through leasing, through strategic leasing and improving the value of our current assets, supported by market recovery, which we cannot always hope or get, obviously, it will take its own course of time. But other than that is any dispositions tied to the path of growth. So when we grow our portfolio, will also help us achieve improve the leverage. As I mentioned earlier, the 10% decrease in valuation that was observed in 1 year, in the year 2024, absent or minus that 10%, we would have achieved 50% target leverage by purely what we did. So the strategy did work, but the valuation did not go in our favor. And now the strategy is to grow the portfolio, to bridge that gap and as well as improve our leasing and invest in our portfolio to improve the remaining -- the valuation of the remaining portfolio, which will help us bring to closer to the 50% or below from a leverage perspective.

But growing the portfolio will mean also taking on possibly additional debt again, right? And is that going to help us because then you'll be still way above the requirements in terms of debt levels. And again, acquiring a new building maybe in another sector is something new, we want to make it work, whether it will work or not, I think it's a kind of a risky proposition to go that way. I mean, I'm saying should we not focus on just how do we, first of all, stabilize the REIT with the remaining assets that we have, enhance the use as far as possible and then start resuming DPU before we talk about growth? Do you agree?

Well, let me just -- I'm not going to disagree with the comment, but I'm going to add sort of a different way to look at it possibly. One thing is we don't necessarily -- depending on what the acquisition is and we're recycling capital, we're not -- if we put debt on, it's going to be in line with keeping the leverage or the gearing to a level that we want it to be at. So the beauty of going into a different product class is you can buy a $30 million industrial project. You could buy a $20 million industrial project. It doesn't have to be a $200 million or $100 million acquisition necessarily. So I think that's a little bit wait and see and kind of how much debt or if any debt we put on an acquisition. I think the other thing to think about too is -- I forgot what I was going to say, I apologize. I wish I could remember. I had another point for you.

I think the -- where this is all headed is we need to go back to what our strategy was, right? The risk management was the first critical component of our strategy, as we highlighted, which -- where we wanted to stabilize. Now how we see this stabilization, if you keep the numbers aside, we have repaid more than $465 million of debt in the course of 18 months by selling 3 -- 4 assets in total, right? Now you can continue with that strategy, but this will lead into an unintended liquidation, which was not the goal of the recapitalization, which was not what we meant to achieve. It was always meant to achieve that we will recover this portfolio and grow this portfolio. And this is where the inflection point is that now we are not saying that dispositions will not happen. There will be dispositions, but they will be tied to a path of growth. And that growth is going to recover this portfolio from the leverage that you are seeing.

So I apologize. I now know what I wanted to share. So the other thing to think about on the growth side or the acquisition side versus sitting on our current base and waiting and hoping for it to recover from a capital market standpoint is that moving into a different product type has a different path of recovery and we see this as a very good vintage period of time to -- for acquisitions. There is dislocation in the market. There are other distressed sellers that are selling product types that have a lot shorter runway to recovery. I think there are a few assets in our portfolio that we see recovering faster than others. But as an example, D.C. or even Arizona, Tempe, those may have longer paths to recover. And I think putting your money to work in a product type that's currently experiencing some dislocation and we're able to be on the receiving side of purchasing something in a dislocated market that we know from experience has the ability to recover quicker, has less CapEx requirements and potentially is fully leased. I mean that would provide us with a lot of positives in the portfolio and put us on the road to growth and accomplish the objectives that we've outlined.

Sorry, John, I mean fair points. But could you just give us an idea of this product when you say the product -- different product that you want to look at, which segment are you looking at, please?

Yes. So again, we haven't finalized anything. So this is preliminary, but I'm happy to share sort of our preliminary thoughts. At this point, it would be industrial and multifamily. And then understand within those product classes, there's many different diversifications of industrial. I mean, for example, on the industrial side, you can have a single tenant, large industrial building. For example, the platform, the sponsor just recently purchased an off-market opportunity. It was a large industrial building. Tesla was the tenant. There was 11-year lease term, and it was a very healthy cash-on-cash. And again, it was an off-market opportunity. So we see that as a potential dislocation in the market that afforded us the opportunity to buy this off-market. This was something that we would potentially consider not as our first acquisition, but at some point, buying that level of WALE and credit and stability with that return would obviously complement the portfolio at some point in time. Again, that would not be appropriate given the size of it I think for our potential first acquisition, but again, that's something that we would be doing. Within industrial, you also have IOS, otherwise known as outdoor storage. You have small bay, industrial mid-bay, flex. There's all various different types that we can align based upon the returns and the profile of the asset to complement and help us in the growth phase. And then in addition with multifamily, you also have the benefit of those leases in the U.S. are typically 1 year. So you're able to mark-to-market more frequently. In the U.S., there's a shortage of housing. It's very rare in some product types. So again, within multifamily is a huge range from low income to luxury and multiple in between. And again, we would find the right product within that class that aligns itself best for our objectives as we move forward.

Okay. Could I just -- one other point, which I just wanted to clarify. I mean, in terms of when you dispose a property and so on, and you have done a few, what is the fee structure? Is the REIT paying fees for disposals? And also, has there been some concession given to the REIT by the managers given the difficult times you are facing on the base fees what you pay to the REIT?

I'll let Mushtaque go into more detail. But I will tell you at a high level, those dispositions have been extremely difficult. I completely understand from the unitholder standpoint, the pricing isn't where expectations were, but the markets have been extremely challenging. And I've been closely involved with all the dispositions since I've been here. And I will tell you, I have not experienced many that have been so challenging as those. So there's been a lot of work and effort and heavy lift that has gone into achieving what we've achieved, even though those results are not -- I know what everyone had hoped for.

And so in terms of your question about what was the divestment fee. So the divestment fee is 0.5% of net price at which we sell the asset. So lower -- it's tied to the pricing itself. For Capitol it was $0.6 million, for Plaza it was $0.2 million and for Peachtree it was $0.6 million. And that was what was paid to the manager.

I see Derek. Derek, can you unmute?