Manulife US Reit launches private placement to pay for US office deal

MANULIFE US Reit is buying two office towers in Virginia for US$122 million, and will pay for the bulk of this in a fresh private placement, with the rest of the purchase amount to be debt-funded.

The Reit manager unveiled plans on Monday to buy Centerpointe I & II in Fairfax, Virginia, about 30 kilometres west of the US capital of Washington, D.C.

The freehold Centerpointe development, which was built in 1987 and comprises two 11-storey blocks, has a net lettable area (NLA) of 419,981 square feet, with committed occupancy of 98.7 per cent and a weighted average lease expiry (WALE) by NLA of 6.9 years as at March 31, 2019.

Manulife US Reit's manager said that buying Centerpointe would raise the trust's enlarged portfolio's occupancy rate from 97.4 per cent as at Dec 31, 2018 to 97.6 per cent. The overall WALE, meanwhile, would increase from six years to 6.1 years.

The manager added that the deal should be distribution per unit (DPU)-accretive and could raise pro forma DPU for full-year 2018 by 3.3 per cent, from 5.57 US cents to 5.76 US cents.

Gearing is projected to improve from 37.6 per cent as at March 31 to 36.8 per cent, assuming that the Reit snags a US$33 million loan facility to cover the rest of the acquisition.

"There is no new supply of office product in the Fairfax Centre sub-market, given the high cost for new construction," the manager said in its announcement, as it laid out reasons for the deal.

"As a result, quality buildings like Centerpointe stand out and consistently outperform their peers in the sub-market on occupancy, rents and tenant retention."

The manager also said that Centerpointe tenants would increase Manulife US Reit's portfolio exposure to the technology and government sectors. Key tenants include Accenture subsidiary ASM Research, and Edelman Financial Services, as well as Fairfax county's government.

Manulife US Reit is gunning to raise US$94 million in gross proceeds from placing out up to 115.9 million new units to institutional and other investors, with DBS Bank, CLSA Singapore and OCBC as the joint lead managers and underwriters, under a placement agreement on Monday.

The issue price has yet to be confirmed, but will be between US$0.811 and US$0.836 for each new unit, said the Reit manager. This would make for a discount of between 4.4 per cent and 7.3 per cent to the volume-weighted average price of the counter on Monday.

Manulife US Reit named Centerpointe's vendor as Carr Properties, a privately-held real estate investment trust based in Washington, D.C. and Boston. Carr Properties had announced in 2011 that it was buying Centerpointe for US$125.7 million.

The property has since been valued at US$122.1 million as at March 20, 2019, based on an assessment by Colliers International, according to Manulife US Reit's manager.

The manager said that it expects to use the net proceeds of US$89 million from the private placement exercise to fund part of the Centerpointe purchase, with any remaining gross proceeds going towards general or working capital uses. But it also noted that it can "use the net proceeds from the private placement at its absolute discretion for other purposes", such as paying down debts.

Besides paying for the Centerpointe acquisition, the placement is also likely to improve the Reit's trading liquidity, the manager said.

Jill Smith, chief executive of the manager, added in a statement that the Centerpointe property is in a county that is "an economic engine for the nation's capital".

She highlighted the affluence of the surrounding area, as well as the property's proximity to Amazon's planned "HQ2" corporate headquarters in Crystal City, Virginia.

"We believe Centerpointe, which is a 30-minute drive from Amazon HQ2, could potentially benefit from a multi-sector office, residential, hospitality and retail boom that will follow this further injection of growth," said Ms Smith.

The counter closed up US$0.01 or 1.15 per cent on Monday to US$0.88 before the announcement.