It also bought the Phipps tower in Atlanta for $268.89m.
Manulife US REIT bought 1750 Pennsylvania Avenue in Washington, D.C. (Penn) and Phipps Tower in Buckhead, Atlanta (Phipps) for a total price of $507.69m (US$387m), it said in an announcement.
The Penn was bought for $238.72m (US$182m). About 97.2% of it is occupied, and tenants include the US Department of Treasury and the UN Foundation, which occupy 80% of the net leasable area (NLA) and have leases expiring in 2022 and 2028. The property is a 13-storey Class A office building totalling 277,243 sqft that is a block away from the White House and near the International Monetary Fund, the World Bank, and the US Fed.
Meanwhile, Phipps was bought for $268.89m (US$205m). About 97.3% is leased, and its tenants include OshKosh B’gosh designer Carter’s which has a 15-year lease expiring in 2030 and some other finance, consulting, and information firms.
The acquisition fee will be paid in the form of Manulife US REIT units and a mix of debt and securities.
Manulife US REIT said it aims to acquire prime properties which offer diversification in terms of trade sector and tenant base, “in order to enhance the resilience of Manulife US REIT’s portfolio. The acquisitions will increase exposure to key trade sectors of public administration and grant giving.”
The REIT added that the leases in Penn and Phipps are long-tenured, with over 90% of the leases by NLA expiring in 2022 and beyond. The current weighted average lease expiry (WALE) by NLA for Penn and Phipps are 6.8 years and 10 years respectively.
In Penn, 47.4% of the leases by NLA have annual escalations in the range of 2% to 3%, whilst in Phipps, 99% of the leases by NLA have either annual escalations in the range of 2% to 3% or periodic escalations which are equivalent to approximately 1.3% escalations annually over the course of the lease.
The purchase price represents a discount of 1.3% to Cushman & Wakefield’s total appraised and a discount of 2.3% to Colliers’ total appraised value.
“Assuming the acquisitions were completed on 1 January 2017 and the REIT held and operated both Penn and Phipps in 2017, the pro forma DPU of Manulife US REIT would increase by 1.4% to approximately 5.85 US cents, compared to the FY2017 DPU of 5.77 US cents,” the REIT said.
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