Manulife launches US Reit in 2nd IPO attempt

The initial portfolio will comprise three US office properties: a 35-storey class A office building in the South Park district of downtown Los Angeles (above), a 19-storey office building in Irvine in Greater Los Angeles and a 27-storey block in Atla
The initial portfolio will comprise three US office properties: a 35-storey class A office building in the South Park district of downtown Los Angeles (above), a 19-storey office building in Irvine in Greater Los Angeles and a 27-storey block in Atlanta.PHOTO: MANULIFE US REIT

It is first IPO on SGX mainboard this year and first pure-play US office Reit to be listed in Asia

The year's first initial public offering (IPO) on the Singapore Exchange mainboard was launched yesterday.

Manulife US Reit, the first pure-play United States office real estate investment trust (Reit) to be listed in Asia, aims to raise from the offering gross proceeds of US$519.2 million (S$712 million), which includes money from its sponsor and cornerstone investors. It is the Reit's second listing attempt after an attempt last July was shelved due to unfavourable market conditions.

The offering, which consists of 396.6 million units at 83 US cents apiece, comprises an international placement of 350.8 million units to investors outside the US and 45.8 million units to the public here.

Investors subscribing for units under the public offer will pay $1.138 per unit. Concurrently, a unit of Reit sponsor Manulife has agreed to subscribe for another 59.4 million units at the offering price, while several cornerstone investors have agreed to subscribe for another 169.5 million units at the same price.

Manulife, a Canadian financial services group, had to battle various problems last year, including Chinese and global stock market volatility and falling oil prices, said Ms Jill Smith, the chief executive of Manulife US Real Estate Management, who was speaking at a briefing here yesterday. "It was only sensible to find a moment when markets were starting to settle again and give us a window of opportunity to launch."

The manager has also worked on improving on the Reit that it had put together last year, she added.

Forecast distribution yield is now 6.6 per cent for the forecast period 2016 on an annualised basis. This is expected to grow to 7.1 per cent in projection year 2017. This is up from the 6.3 per cent distribution yield for 2016 that was projected last year.

The increased distribution was achieved through an asset swap as well as shortening portfolio debt tenure from 10.3 years at 3.65 per cent last year to four years at 2.8 per cent this year.

The initial portfolio will comprise three US office properties with a total value of US$799 million and an aggregate net lettable area of about 1.8 million square feet.

It holds a 35-storey Class A building in the South Park district of downtown Los Angeles and near the Staples Centre, a 19-storey office building in Irvine, in Greater Los Angeles and a 27-storey block in Atlanta, which replaces a building in Washington, DC that was part of the Reit's proposed portfolio last year.

These properties house 74 tenants across diversified sectors and have an overall occupancy of 96.5 per cent.

The Reit aims to grow its portfolio by leveraging on sponsor Manulife's brand name and deal-sourcing capabilities in the US.

The proceeds from the listing will go towards paying for the properties, meeting costs incurred in relation to the offering and the debt financing, and for working capital.

Voyage Research chief executive Roger Tan said the Reit's value for Singapore investors is the diversification it can bring to their portfolio, although the dividend yield expected in the first year is only slightly higher than most Reits listed here.

"Investors must also remember that the Reit's portfolio consists of only three assets for now, so investors may have to be prepared that the Reit manager will have quite a few rounds of fund raising to do in the future if they wish to increase the size of their 'fleet'," he added.

From a foreign exchange point of view, rising interest rates should mean a stronger US dollar, which makes a US Reit a good investment, said RHB Research head Ong Kian Lin. "But the US Federal Reserve has been deferring rate hikes since last year, giving rise to uncertainty in this regard."

The public offer opened at 9pm yesterday and closes at noon on May 18. Units are expected to start trading at 2pm on May 20.

A version of this article appeared in the print edition of The Straits Times on May 13, 2016, with the headline 'Manulife launches US Reit in 2nd IPO attempt'. Print Edition | Subscribe