‘All the signs are positive’: Manulife US Reit manager sees improved outlook on US office recovery

[SINGAPORE] The manager of Manulife US Real Estate Investment Trust (Manulife US Reit) believes things are starting to look up for the US office-focused Singapore-listed Reit, as market conditions improve.

“There is improvement, we’re seeing it. We’re seeing institutional buyers slowly come back into the market again… We’re seeing lenders start lending again on multi-tenant offices,” said John Casasante, chief executive officer and chief investment officer of the Reit’s manager, at a media briefing on Wednesday (Nov 5). 

He added: “All the signs are positive. They’re all moving in the right direction at the moment. Unfortunately, it’s just moving slowly – that has been the biggest issue for us.” 

For the third quarter ended September, some 81,000 square feet (sq ft) of leases were executed, making up 2.3 per cent of the portfolio’s net lettable area, said the manager. Year to date, about 206,000 sq ft of leases were signed. 

The Reit’s manager said the weighted average lease expiry of leases executed in the third quarter stood at 4.7 years, although rental reversion in the period was negative at minus 11.3 per cent.

Casasante attributed the negative rental reversion to a deal where it renewed a 39-month lease by a government contractor at 30,000 sq ft with no tenant improvement allowance.

“If we had not done this deal, as an example, we would have had neutral reversion for the quarter,” he added. 

However, Manulife US Reit’s portfolio occupancy slipped further to 68.2 per cent in Q3, from 68.4 per cent in the preceding quarter. 

The way Casasante sees it, the upcoming 2028 Olympics to be held in Los Angeles could provide a boost to the Reit’s portfolio. “There are some leases that are coming through the market that are specifically tied to the Olympics.”

The Reit’s building, Figueroa, is adjacent to the Los Angeles Convention Center in downtown LA.

As at end-September, the Reit’s gearing stood at 59.6 per cent and its weighted average debt maturity was 2.6 years. 

Some 74.6 per cent of loans remained hedged or fixed as at end-September. The manager said it targets an “optimal hedge ratio” of 50 to 80 per cent as it repays debt from proceeds from expected sale of assets.

Mushtaque Ali, chief financial officer of the Reit’s manager, said that at this point in time, it is targeting to bring the ratio to the lower end of the range to maximise the benefits of the reduction in interest rates to the Reit’s advantage. 

The manager said about US$160 million of 2026 debts have been repaid from Plaza and Peachtree sales proceeds and no further debts are due in 2025. About 17 per cent of 2026 debt remains and is due in July 2026.

The entire portfolio has a weighted average lease expiry of 4.5 years based on net lettable area, with 9.4 per cent of leases expiring in the remainder of 2025.

Annual rent escalation is at an average of 2.3 per cent, with nearly three-quarters of the portfolio having annual rent escalations at that rate.

When asked about the visibility on when distributions will be paid again, Ali said that once the Reit resolves dealing with the disposition mandate under the Master Restructuring Agreement, the intention is to move towards the growth phase for the Reit, allowing it to resume distributions.

On Wednesday, units of Manulife US Reit fell 1.4 per cent or US$0.001 to US$0.072 at the close of trading.