Manulife US Reit to undertake 41-for-100 rights issue to raise S$283m to partly fund 10 Exchange Place buy

Manulife US Reit announced it will be acquiring 10 Exchange Place (pictured) in Jersey City, New Jersey, on Sept 2, 2017.
Manulife US Reit announced it will be acquiring 10 Exchange Place (pictured) in Jersey City, New Jersey, on Sept 2, 2017. PHOTO: MANULIFE US REIT

SINGAPORE - Manulife US Real Estate Investment Trust will undertake a rights issue to raise US$208 million (S$283 million) to partly fund its largest acquisition to date - an office building in New Jersey, US.

In a statement on Sept 2, the Singapore-listed Reit said it had agreed to buy 10 Exchange Place, a 30-storey class A office building in Jersey City from John Hancock Life Insurance Company for US$313.2 million.

Manulife US Reit, the first pure-play US office Reit listed in Asia, has proposed to undertake an underwritten and renounceable rights issue of 299.3 million new units at the issue price of US$0.695 per unit to raise gross proceeds of some US$208 million.

The estimated total cost of the acquisition, comprising the purchase consideration, acquisition fee and professional and other fees and expenses, is about US$332 million, which will be funded through debt financing and proceeds from the rights issue.

The manager's acquisition fee will be paid in the form of units of Manulife US Reit.

Located on the Hudson River waterfront in New Jersey, the freehold office tower has unobstructed views of the Manhattan, NYC skyline and the Statue of Liberty.

With its glass façade, bowed front and tall spire, 10 Exchange Place is one of the most recognisable buildings along the Hudson River waterfront. It offers a "live, work, play" environment that provides around-the-clock amenities, street life, and attractive residential developments.

According to independent market research consultant, Cushman & Wakefield, the Hudson Waterfront District is considered to be the strongest office market within Northern New Jersey, having historically outperformed the greater regional market in terms of occupancy levels and rental rates.

With a net lettable area (NLA) of about 730,598 sq ft, 10 Exchange Place will be Manulife US Reit's largest acquisition to date.

As at July 31, the property was 93.1 per cent leased with a weighted lease expiry (wale) of 5.7 years by NLA.

It has a total of 25 tenants and the top five tenants (by cash rental income) are Amazon Corporate; ACE American Insurance Company; Rabo Support Services; Kuehne & Nagel and Opera Solutions.

The purchase price of US$313.2 million represents a discount to the property's appraised value by two independent valuers.

Upon completion of the acquisition, Manulife US Reit's aggregate appraised value and NLA will be enlarged by 34.2 per cent and 32.5 per cent, respectively.

10 Exchange Place will also further improve the tenant diversification. With this inclusion, the exposure to law firms would be reduced from 44 per cent at initial public offering to 27.8 per cent by cash rental income as atJuly 31.

Assuming the Acquisition was completed on May 20, 2016 (the date of listing of Manulife US Reit) and the Reit held and operated the property in financial year 2016, the pro forma distribution per unit (DPU) yield of the enlarged portfolio would increase by 2.2 per cent to about 6.23 per cent compared to the pro forma DPU yield of the current portfolio of about 6.1 per cent.

Unit holders will be offered to take up the rights issue at a ratio of 41 rights units for every 100 existing units held

At US$0.695 per Rights Unit, they are priced at a discount of 28 per cent to the closing price of US$0.965 on Aug 31, being the last trading day of the units prior to the announcement of the rights issue, and approximately 21.6 per cent to the theoretical ex-rights price of US$0.886.

The rights issue is expected to increase Manulife US Reit's market capitalisation and free float, potentially resulting in improved trading liquidity.

For illustrative purposes, Manulife US Reit's market capitalisation would increase by 29.5 per cent from US$704.4 million to US$911.9 million immediately following the completion of the rights issue as at Aug 31.