Manulife US Reit posts 27.5% lower H1 distributable income per unit of US$0.0129
The Reit has halted distributions to unitholders until end-2025 as part of its ongoing recapitalisation plan and master restructuring agreement
MANULIFE US Real Estate Investment Trust (Reit)’s adjusted distributable income per unit for the first half ended Jun 30 declined 27.5 per cent year on year to US$0.0129, versus US$0.0178 in the year prior.
On Monday (Aug 5), the Reit manager said adjusted distributable income was down 27.8 per cent to US$22.9 million after accounting for higher finance expenses incurred due to higher interest cost.
The distributable income was adjusted to reflect the manager’s base fee of US$3.8 million, as well as a property management fee of US$2.5 million being payable in cash instead of units.
Revenue for H1 FY2024 was US$86.7 million, down 12.9 per cent overall and 8.1 per cent lower on a same-store basis.
Net property income (NPI) for the period was US$42.8 million, 22.7 per cent lower year on year. On a same-store basis, NPI was 16.7 per cent lower, largely due to TCW Group’s lease expiration at Figueroa on Dec 31, 2023 as well as higher property operating expenses.
The percentage declines are after adjusting H1 FY2023 gross revenue and NPI to exclude Tanasbourne and Park Place, which were sold in April 2023 and December 2023, respectively.
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As at end-June 2024, the Reit’s unencumbered gearing ratio stood at 60 per cent whilst its average leverage ratio was 56.3 per cent.
Interest coverage ratio declined 2.2 times as at Jun 30, 2024, from 2.3 times as at Mar 31, 2024. The manager also noted a slightly shorter weighted average debt maturity of three years as at Jun 30 versus 3.2 years as at Mar 31.
Manulife Reit’s percentage of hedged/fixed rate loans stood at 80.2 per cent as at end-June 2024, above its optimal hedge ratio target of between 50 to 80 per cent.
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The Reit also has a debt of S$131 million maturing in 2025. The successful completion of its divestments will allow the manager to repay its debts on or before its scheduled maturity, said the chief financial officer of the Reit Manager, Mushtaque Ali, during the Reit’s financial results briefing on Monday.
The Reit has halted distributions to unitholders until end-2025 as part of its ongoing recapitalisation plan and master restructuring agreement.
The new leverage guidelines proposed by the Monetary Authority of Singapore, will benefit the Reit and help accelerate its transition from stabilisation, to recovery and future growth, said Mushtaque, adding that the Reit will target to remain on the lower end of its hedge ratio target.
He added that the current cash available to the Reit is not enough to bring its aggregate leverage down to 50 per cent, which is the floor proposed by the regulator for all Reits. This is why the Reit manager remains focused on its asset disposition plan, said Mushtaque.
John Casasante, chief executive and chief investment officer of the Reit Manager, said the manager’s strategic focus centres “firmly” on improving returns for unitholders.
“The execution of our recapitalisation plan remains a top priority, and we have commenced the process to sell three carefully selected assets that we believe would attract liquidity amid the challenging environment. We have also commenced high level discussions with potential off-market buyers for other targeted assets in the portfolio,” he said.
Casasante added that the level of interest from such prospective buyers has been “encouraging”.
As at end-June 2024, Manulife US Reit’s committed occupancy was 78.4 per cent, down from 78.7 per cent as at end-March. Its portfolio weighted average lease expiry stood at 4.7 years versus 4.3 years the prior quarter.
The manager said both portfolio metrics provide some buffer to withstand additional market uncertainty from a slowing economy or weak occupational market in the office sector.
It however noted that the Reit’s portfolio remains susceptible to secular reductions in overall demand from office tenants.
Despite about 1.4 million square feet in the leasing pipeline, Manulife US Reit’s manager said the leasing environment remains “challenging”.
With this mind, it is “strategically prioritising leases that create liquidity and maximise value for Manulife US Reit and its unitholders over chasing higher occupancy”.
Nevertheless, Casasante said at the briefing that he expects more people in the US to return to office, improving the Reit’s leasing activity. He added that the US’ unemployment rate might increase from its current rate of around 4 per cent and that a higher unemployment rate could empower employers to get staff back in the office.
Units of the Reit closed US$0.001 or 1.3 per cent down at US$0.078 on Friday.
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