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Manulife US Reit in US$142.1m equity fundraising to buy US$198.8m California office tower

400 Capitol - Exterior.jpg
Manulife US Reit plans to raise about US$142.1 million via equity fundraising to partially pay for its US$198.8 million acquisition of a Class A office building located at 400 Capitol Mall in Sacramento, California.

MANULIFE US Real Estate Investment Trust (Manulife US Reit) on Thursday said it intends to raise about US$142.1 million via a private placement and preferential offering to partially fund its US$198.8 million acquisition of a Class A office building in Sacramento, California. 

It is the third Reit this week to announce equity fundraising to fund new acquisitions, after Keppel DC Reit and Mapletree Industrial Trust. 

Manulife US Reit has proposed a private placement of new units at an issue price between US$0.849 and US$0.876 per unit to raise gross proceeds of no less than US$65 million, subject to an upsize option to issue additional units to raise another US$15 million. 

Its proposed equity fund raising also includes a preferential offering to eligible unitholders at an issue price of between US$0.833 and US$0.860 per unit to raise proceeds of about US$77.1 million, less the amount raised from the upsize option. 

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In the event that the upsize option is not exercised or not exercised in full, the balance of the amount to be raised had the upsize option been exercised in full, shall be raised as part of the preferential offering, the Reit manager said. 

The private placement issue price represents a discount of between 3.6 per cent and 6.6 per cent to the counter's US$0.9089 volume weighted average price (VWAP) on Sept 18, the full market day before the underwriting agreement was entered into, while the preferential offering issue price range represents a discount of between 5.4 per cent and 8.4 per cent to the VWAP.

The manager intends to use about US$134.8 million, or 94.9 per cent of the proceeds to partially finance the acquisition of the property located at 400 Capitol Mall in Sacramento, California. Another US$7.3 million will be used for placement and acquisition-related expenses. 

In a separate statement on Thursday, Manulife US Reit announced that it has entered into a purchase agreement with 400 Capitol Mall Owner, LP to acquire the freehold 29-storey office building for about US$198.8 million. 

The purchase price represents a 0.9 per cent discount to the US$200.5 million valuation by Cushman & Wakefield as of Aug 27, 2019. 

Total acquisition cost is estimated at US$206.1 million, comprising the purchase price of US$198.8 million, a US$2 million acquisition fee, and US$5.3 million for professional and transaction expenses. The manager will finance the acquisition through a combination of loans and the aforementioned equity fund raising, it said.

Located in Sacramento's central business district (CBD), 400 Capitol Mall occupies a net lettable area of 500,662 sq ft. It also has an occupancy rate of 94.9 per cent with 44 tenants, and a WALE (weighted average lease expiry) of 5.9 years. 

Jill Smith, CEO of the Reit manager said: "We are delighted to acquire the top Class A asset for Manulife US Reit’s blue chip office portfolio. As the capital city of California, just a drive away from San Francisco and the major tourist destinations of the Napa Valley and Lake Tahoe, Sacramento is a premier business hub with low business and living costs, and a flourishing economy driven by healthcare, government and tech. 

"Towering above the CBD, and benefiting from the US$2 billion rejuvenation of sports, entertainment and hospitality developments plus a residential boom, 400 Capitol is an address of choice to many leading international and professional service companies. It complements our existing high quality portfolio by improving tenant and income diversification. Not only is this acquisition 2.3 per cent accretive, based on our H1 2019 pro forma DPU (distribution per unit), but it may also trigger a re-rating story as we inch closer to the FTSE EPRA Nareit Index during its next review."