Manulife US REIT: This is where we’re looking for acquisitions

U.S. one-dollar and five-dollar currency notes; taken September 2018.

With just eight properties, Singapore-listed Manulife US REIT is pretty small compared with its U.S.-listed peers, but MUST is seeking to change that description as it actively seeks acquisitions in the U.S.

But there are some places that are out of their budget, said Jill Smith, CEO of Manulife US Real Estate Management, the REIT’s manager.

“Clearly, we still can’t afford to buy CBD, we can’t afford Manhattan, we can’t afford central San Francisco. In fact, we probably wouldn’t be able to afford D.C. now because everything has been turned into a trophy building,” Smith said at a post-results media briefing.

(MUST owns two properties in the Washington, DC metro area: Penn, near the White House, and Centerpointe in Fairfax, Virginia.)

Smith did list some of the criteria for acquisitions, but declined to be specific about where the REIT was shopping.

“We’re looking at locations with above-average growth, with a catalyst for the future,” she said. “We’re looking where there’s higher population growth and we’re looking at specific trends in terms of the tenants and where they like to be.”

“When Amazon was “looking for a headquarters, they did hit some locations that looked pretty good for us and would have worked in terms of cap rates, costs, value, catalysts, [and] reasons for being there,” she said.

The list of 20 cities or regions Amazon selected as potential locations for its second headquarters was diverse, ranging from Texas to Tennessee to Maryland, New York and Florida.

When it came to competition for assets, she said the recent cuts to interest rates could both hurt and help the search.

Smith noted that three years ago, when the REIT held its IPO, there would be six to 12 competitors for every asset, but that’s now dwindled to four or five as the economic cycle has advanced.

“Unfortunately, also, there is some evidence, that with low interest rates, there are more buyers out there again,” she said. “I would say the flip side of that is there are more sellers, who actually think they might not be able to sell this time around, who might just creep out of the woodwork with their properties to sell.”

Smith also pointed to the REIT’s sponsor, insurer Manulife, as a source of strength as it looks for acquisitions.

“We’ve got a big army out there looking for the best deals for us,” she said, citing the insurer’s “huge assets.”

Growth is important for the REIT; while its yield compares favorably with U.S.-listed peers, its smaller portfolio makes it riskier.

Last Tuesday, MUST reported a second quarter distribution per unit (DPU) of 1.53 U.S. cents, suggesting an annualized yield of around 7 percent for its portfolio of eight properties.

By comparison, U.S.-listed REIT Boston Properties, which is reportedly the largest publicly-traded developer, owner and manager of Class A office properties in the U.S., has 193 properties in its portfolio, including 12 properties under construction. It has a dividend yield of around 2.99 percent, according to Bloomberg data.

Another U.S.-focused and -listed REIT, Corporate Office Properties Trust, has a core portfolio of 163 buildings, excluding two buildings in its “other” segment and its wholesale data center. It has a dividend yield of around 3.88 percent, according to Bloomberg data.

That’s not to say MUST has been sitting on the sidelines. The REIT acquired the Centerpointe property in May of this year and the Penn and Phipps properties in June 2018.

That drove the REIT’s 33.8 percent on-year growth in its second quarter net property income to US$27.26 million. Gross revenue for the quarter ended 30 June increased 33.2 percent on-year to US$43.31 million, the REIT said in a filing to SGX Tuesday.

While you’re here, we’re hoping you can help us out.

Shenton Wire has been providing you with quick news and market analysis. But we need your support to continue to bring you the news you’ve come to expect and to expand our reach beyond Singapore.

Your monthly contribution will directly fund our journalism.

S$2     S$4       S$8

S$18       S$28       S$88