(Sept 18): This coming week, at an extraordinary general meeting (EGM) scheduled for Sept 19, unitholders of Manulife US REIT will be asked to vote on the proposed acquisition of a building called 10 Exchange Place in Jersey City, New Jersey for US$312 million ($422 million), and a 41- for-100 rights issue of 299.29 million new units at a deeply discounted price of 69.5 US cents each. Giving their consent for these moves will enable the manager of Manulife US REIT to expand and diversify the real estate investment trust’s portfolio and boost its distributable income. It would also enable the manager to pocket higher recurring fees from the REIT.

REITs are seen by many investors as yield instruments, and valued primarily on the basis of their distributions per unit (DPUs). Yet, REITs are also voracious capital raisers, especially in the first few years after their formation. Even if they are acquiring high-quality assets on terms that are immediately yield-accretive, this risk of capital-raising exercises can be off-putting for investors, who are primarily seeking income.

Manulife US REIT, which was listed only in May last year after an IPO of its units at 83 US cents, announced the acquisition of 10 Exchange Place and the accompanying rights issue less than three months after announcing the acquisition of another property called 500 Plaza Drive for US$115 million. The acquisition of 500 Plaza Drive was partly financed by a placement of 97 million new units at just 83 US cents each, no higher than its IPO price. Units in Manulife US REIT, which closed at an all-time high of 96.5 US cents on Aug 31, immediately pulled back after the rights issue was announced. They closed at 96 cents on Sept 14. They are currently trading at a relatively high forward yield of 7%.

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