Monday, April 29, 2019

Manulife Reit Makes An Acquisition of Centerpointe

Barely a few days after Manulife Reit announces their Q1FY19 quarterly results which I covered here, they announces an M&A for two towers of Centerpointe I & II, which is South of Virginia (about 30 minutes from Washington DC).

The acquisition of these freehold properties is at the implied cap rate of 7.55% for a Class A commercial, which makes it an easy accretive target deal for them based on their current valuation.

The purchase price is $122m, which is about a tenth of their current market cap, so they didn't really need a lot of funding to buy this. 

The properties are leased at 94% occupancy rate at a nice long WALE of 6.9 years but we already know that deals typically in the US are based on long term, then subject to annual escalation.

Management is looking to raise approximately $94m by issuing 114m unit shares private placement, so that works out to be approximately based on 81.8 cents, which is about 6% discount based on last closing price.

What is good about this deal is that they not only managed to do a yield accretive acquisition with pro-forma post acquisition at 6.21 cents (2.6% increase in DPU), but gearing will also reduce marginally from 37.6% to 36.8%. This shows you how good a deal is with a 7.55% cap rate does to a portfolio and is surely an envy to most reits managers out there.

There will be an advance distribution for existing unitholders that will be in the range of 2.03 to 2.23 cents for the past quarterly performance + the current month until book close so look out for that one.

Meanwhile, I like this deal and am looking to get back in a position with this deal should there be a knee jerk reaction off the next couple of days.

Thanks for reading.

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  1. What price do you consider as attractive?

    1. Hi Anonymous

      I think current price is actually pretty attractive to go in if you have some cash, I don't have enough myself otherwise I'd be back in this.

  2. This is a new era for Manulife US REIT to me. This acquisition is dpu-accretive. The price to pay is a deep discount of 5.8% against the last traded price. This discount goes below my average holding price, which only means that my average price is not 'safe enough' to withstand future EFRs.

    However, the market price now seems to be holding above my average price, which I am hoping for it to continue doing so.


    1. Thanks for sharing your thoughts. May I ask another question, what do you think about the currency issue? Isn't it a risk that the dollar will weaken again?

    2. Hi CK

      I actually think its a rather good deal given the current situation they are in now thats why the market is reacting very minimally.

    3. Hi B,

      Yes,it is. The more important thing is the mgr is starting to take of unitholders now, rather than of only growing the AUM.


  3. Hi B,

    Long time lurker. Any thoughts about current valuations at USD 0.87?

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