SINGAPORE (Sept 19): The manager of Manulife US Real Estate Investment Trust says it has entered into a purchase agreement to acquire a freehold 29-storey Class A office building in California for an estimated aggregate purchase consideration of US$198.8 million ($273.5 million).

Including the acquisition fee and the estimated professional and other transaction fees and expenses, the total cost of the acquisition is expected to come up to around US$206.1 million.

Located at 400 Capitol Mall in Sacramento, California, the property has a net lettable area of 500,662 sqft and currently enjoys an occupancy of 94.9% and a WALE of 5.9 years.

Based on an August valuation by Cushman & Wakefield, the property is valued at US$200.5 million.

The manager will finance the total acquisition cost through a combination of debt and equity fund raising, so as to ensure that the proposed acquisition will provide overall distribution per unit accretion to unitholders while maintaining an optimum level of gearing.

In a separate filing to SGX on Thursday, the manager of Manulife US REIT announced a proposed equity fund raising to raise gross proceeds of approximately US$142.1 million.

A private placement of new units will be offered to institutional and other investors at an issue price of between 84.9 US cents and 87.6 US cents per unit, which will see the REIT raise gross proceeds of at least US$65.0 million.

Including an upsize option, Manulife US REIT could raise gross proceeds of up to US$80.0 million in the private placement.

The private placement issue price range represents a discount of between 3.6% and 6.6% to the volume weighted average price (VWAP) of Manulife US REIT for the full market day on Sept 18 – the market day preceding the signing of the underwriting agreement.

At the same time, there will be a non-renounceable preferential offering of new units at an issue price of between 83.3 US cents and 86 US cents per unit on a pro rata basis to raise gross proceeds of approximately US$77.1 million.

In the event that the upsize option of the private placement is not exercised or not exercised in full, the balance of the amount to be raised shall be raised as part of the preferential offering.

The preferential offering issue price range represents a discount of between 5.4% and 8.4% to the VWAP.

Manulife (International), Manufacturers Life Reinsurance, and the manager of Manulife US REIT have each provided an irrevocable undertaking that it will accept, subscribe and pay in full its total provisional allotment of new units under the preferential offering.

Citigroup Global Markets Singapore and DBS Bank have been appointed as the joint lead managers and underwriters for the equity fund raising.

Some US$134.8 million, or approximately 94.9% of the gross proceeds of the equity fund raising, will be used to partially finance the proposed California office building acquisition.

The remainder will be used to pay the estimated fees and expenses incurred in connection with the proposed acquisition and the equity fund raising.

“Sacramento is a premier business hub with low business and living costs and a flourishing economy driven by healthcare, government and tech,” says Jill Smith, CEO of the manager. “Towering above the CBD, and benefiting from the US$2.0 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.”

“Not only is this acquisition 2.3% accretive, based on our 1H 2019 pro forma DPU, but it may also trigger a re-rating story for MUST as we inch closer to the FTSE EPRA Nareit Index during its next review,” she adds.

Manulife US REIT called for a trading halt at 7.34am on Thursday before the announcements. Units in the counter closed flat at 91 US cents on Wednesday.