Manulife US Reit posts 1.5% increase in H2 DPU, but full year DPU falls 5.5%

US office-focused Manulife US Real Estate Investment Trust (Manulife US Reit) BTOU posted a distribution per unit (DPU) of US$0.0263 for the second half of the financial year ended Dec 31, 2021, up 1.5 per cent from US$0.0259 in the year-ago period.

But its full-year DPU has fallen by over 5 per cent for 2 financial years straight.

As the Singapore-listed Reit released its latest financials on Wednesday (Feb 9), its full-year DPU showed a 5.5 per cent decline year on year to US$0.0533, following on the heels of a 5.4 per cent drop in DPU from S$0.0596 in FY2019 to US$0.0564 in FY2020.

This was matched by FY2021 gross revenue tumbling 4.7 per cent to US$185.1 million from a year ago, while net property income fell 5.4 per cent to US$109.5 million from FY2020.

Despite the "disappointing" results, the US office sector will remain a core part of Manulife US Reit's portfolio given signs that offices are "still very much relevant" amid the economy's recovery from Covid-19, chief executive of the Reit's manager Jill Smith said.

In a call with reporters and analysts, Smith cited optimism from a surge in US leasing activity observed by real estate company JLL. According to JLL, the US office leasing market closed out 2021 with 156.9 million sq ft of leases executed for the year, a 14.6 per cent year on year growth, after experiencing 44.6 million sq ft of leasing volume in the fourth quarter.

Smith also pointed to the market's positive net absorption of 5.4 million sq ft in the fourth quarter - the first quarter of positive net absorption since Covid-19 started.

Adding that the Reit has witnessed a trend of a flight to quality, newer and green buildings that is expected to continue, she said: "Are we on trend? I believe we are on trend because we have those high quality trophy and Class A buildings."

"We've also been pivoting to the higher growth markets and tenant sectors to provide sustainable returns. And so I would say we are on the up," she added.

Late last year, Manulife US Reit made its first acquisitions in 2 years by sweeping up 3 US properties with a DPU accretion of 2.8 per cent - Diablo Technology Park and Park Place in Arizona, and Tanasbourne Commerce Centre in Oregon - for US$201.6 million. The move was said to raise the trust's assets under management in growth markets by 38.1 per cent to 29 per cent, as well as exposure to technology and healthcare tenants by 32 per cent to 12.8 per cent.

Moving forward, Smith said Manulife US Reit will be stepping up portfolio rejuvenation through accretive acquisitions, while placing "laser focus" on improving leasing and driving income.

"We must maintain the momentum that we have gained at the end of 2021. We will, of course, conserve spending, stable valuations, contain gearing (and) continue to explore joint ventures, mergers and acquisitions, and capital recycling for growth," she said.

Of note, the Reit's gearing ratio had risen to 42.8 per cent as at Dec 31, 2021, closer to the regulatory cap of 50 per cent, from 41 per cent a year ago, and Smith stressed that the manager "will be doing everything to contain" the gearing level in 2022.

In its bourse filing, the Reit manager said the full-year revenue decrease was mainly due to lower rental income arising from higher vacancies, higher rent abatements provided to tenants affected by Covid-19, lower portfolio car park income and higher non-cash amortisation of tenant lease incentives.

For the second half ended Dec 31, 2021, Manulife US Reit's distributable income grew 4 per cent year on year to US$42.6 million after adjusting for net fair value loss and other distributable adjustments.

However, the Reit's gross revenue dipped 1.4 per cent on the year to US$94.3 million, which the manager noted was from lower rental income arising from higher vacancies and higher non-cash amortisation of tenant lease incentives, and partly neutralised by higher portfolio car park income and revenue contribution from the trio of recent acquisitions.

H2 net property income also fell by 0.3 per cent year on year to US$53.5 million.

H2's rise in DPU was attributed to lower provision for expected credit losses and higher car park income, while noting that this was counterbalanced by lower rental income arising from higher vacancies.

Unitholders can expect to receive an advanced distribution of US$0.0231 for the period Jul 1 to Dec 8, 2021, which will be paid on Feb 17. The remaining distribution of US$0.0032 for the period Dec 9 to 31, 2021 will be paid on Mar 30, after the Feb 17 book closure date.

The split in distribution is a result of the Reit's private placement to raise proceeds for the acquisition of 3 US properties in December 2021, which raised gross proceeds of about US$100 million through the issuance of around 154.1 million units at US$0.649 per unit.

In its outlook, it said that its committed occupancy of 92.3 per cent and about 8 per cent net lettable area due to expire over the course of 2022 keeps the portfolio well positioned to weather any further market uncertainty from Covid-19.

Units of Manulife US Reit closed down 2.3 per cent or US$0.015 at US$0.63 on Wednesday after the announcement.

READ MORE:

• Manulife US Reit to acquire properties in Arizona and Oregon for US$201.6m; proposes private placement to raise US$80m
• How a sleepy Singapore Reit crushed the market
• Spooked by rate-hike fears, S-Reit sell-off could offer opportunity to dive in