Manulife Reit coy about location of next acquisition
Singapore
THE management of Manulife US Reit, which over the weekend announced its acquisition of an office building in New Jersey for US$313.2 million, is keeping mum on which other US cities it is planning to expand into next.
One thing clear though is that it will probably not enter gateway cities such as New York because of low office yields there.
On Saturday, the pure-play US Reit said it will undertake a rights issue to raise US$208 million to partly fund the acquisition of 10 Exchange Place, a 30-storey Class-A office building in Jersey City, its second and largest buy to date.
The estimated total cost of the acquisition, including the purchase price and other fees, is about US$332 million. This will be funded through debt financing and proceeds from the rights issue.
On Monday, the counter fell 2.6 per cent to S$0.94, as the Straits Times Index also declined 1.4 per cent to 3,230.97 after banking stocks retreated. Despite the sell-down, analysts generally agree that the building is a good-quality asset. Located on the Hudson River waterfront, the freehold office tower has unobstructed views of the Manhattan, New York City skyline and the Statue of Liberty.
It has a net lettable area of about 730,598 sq ft, and counts Amazon Corporate, global logistics company Kuehne & Nagel and software firm Opera Solutions among its top tenants.
The timing is also opportunistic, they said, as there is little new supply coming onstream in the Hudson area.
At a Monday briefing, when asked about future acquisitions, Jillian Smith, CEO of the manager, replied: "We're always looking at something, somewhere. (But) there is one place we might not be looking at - at the moment."
She was referring to New York City where the capitalisation rates of prime office buildings average about 4 per cent currently. Such assets would not meet the Reit's current yield of about 6.5 per cent. The Reit thus has to look at "key cities, but not the golden deals in gateway cities", bearing in mind still the quality of the assets and sustainability of their income growth.
Chief investment officer Jeffrey Wolfe also said that while 95 per cent and above seems to be the normal definition of "high occupancy" in Singapore, the situation is different in the US, where a high occupancy would be closer to the mid to high 80s. So 10 Exchange Place's occupancy rate of 93.1 per cent at end-July is actually high for its location.
Ms Smith also highlighted that the Reit has been performing better than its forecasts since listing in May 2016. In terms of organic growth, meaning gross revenue and net property income, it has been beating estimates. Inorganically, through acquisitions, it has also been making accretive additions.
The latest acquisition will boost its market capitalisation to about US$912 million, from about US$519 million at the time of listing. The Reit has made two acquisitions since listing; the other was 500 Plaza Drive, an 11-storey freehold Class-A office building also in New Jersey. It also has assets in Los Angeles, Irvine and Atlanta.
