The issue has been resolved by adding the Exchange resource domain as a source for directory migration to Office 365 as described in detail in Complex Acquisition with a Hybrid section of Migrating to Mictosoft Office 365 document at https://support.quest.com/technical-documents/reference-materials-for-migration/8.14/migrating-to-microsoft-office-365/14#TOPIC-711749
Same Exchange resource domain has then been added as a source for mailbox synchronization in Migration Manager for Exchange.
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