Remote working trend a blip in office life, says Manulife US Reit

Singapore

WILL US office workers return to their cubicles? Manulife US Real Estate Investment Trust (Manulife US Reit) seems to think they will, citing a survey done during the Covid-19 pandemic that showed muted enthusiasm from American office workers about working from home.

The outlook comes even as the Reit's distribution per unit (DPU) rose by 0.3 per cent to 3.05 US cents for its first half of the year ended June 30, from 3.04 US cents a year ago, the manager announced on Monday.

After restating H1 2019's DPU as 3.03 US cents for a preferential offering where 72.9 million units were issued on Oct 18, 2019, DPU for H1 2020 rose 0.7 per cent.

Despite the uptake of work-from- home practices by employers globally amid the pandemic, Manulife US Reit's manager expects minimal impact to the office Reit's portfolio.

The work-from-home trend was established in the US in the 1990s, with up to 54 per cent of US workers entitled to work-from-home benefits as at March 31, 2020, the manager said, quoting economic research by jobs website Glassdoor.

But just an incremental 2 per cent of US workers preferred working from home full-time due to the coronavirus, the manager said, citing a work-from-home survey conducted in May by Gensler Research Institute.

The survey suggested that from an employer's perspective, a physical office space is still essential for the company's brand and culture, while driving employee connectivity, attracting talent, and raising productivity.

The manager said urban-suburban offices are likely to outperform gateway central business district (CBD) offices in the near term, as less dense "live, work, play" locations are preferred.

There is also a limited supply of new office properties, with minimal upcoming construction in the cities where the Reit has buildings.

To add, the "de-densification" of office spaces for safe distancing will likely mean tenants need more space for collaboration. Hot-desking may be made obsolete as health and safety for employees take top priority.

Currently, the legal, finance and insurance and retail-trade sectors make up the top three of the Reit's tenant base.

In terms of space needs, consolidation is unlikely for legal tenants as a majority of them have right-sized, the manager said. Meanwhile, finance and insurance tenants may need more space due to stricter safe-distancing measures.

Jill Smith, chief executive of Manulife US Reit's manager, called the outlook for the second half of the year "pretty steady" in a briefing for analysts and the media on Monday. This comes as more workers go back to work after the Labor Day holiday.

"Assuming there isn't a third wave (of Covid-19 cases), we will start to see things improve again, and that is what we are looking forward to in the third and fourth quarter," she said.

As at June 30, the Reit recorded occupancy of 96.2 per cent and a weighted average lease expiry by net lettable area (NLA) of 5.7 years. The Reit gained from rental escalations averaging 1.9 per cent per annum, with no-break clauses in its leases. More than half, or 55.1 per cent, of the Reit portfolio's leases by NLA will expire only in 2025 and beyond.

Ms Smith said over the first half, the manager signed about 217,300 sq ft of leases, achieving a positive 7.9 per cent rental reversion.

The Reit's nine office buildings remain open and are 10 per cent to 20 per cent occupied, with most tenants working from home. Rental collections remained strong, the manager said. It collected an average of 96 per cent rents for the second quarter.

For the first-half period, gross revenue was up 18.3 per cent to US$98.6 million from US$83.3 million a year ago. Net property income grew 18.8 per cent on the year to US$62.2 million for the first half, from US$52.3 million.

The increase was mainly due to contributions from newly acquired Centerpointe and Capitol in May 2019 and October 2019 respectively, partially offset by lower rental income mainly from Michelson and lower portfolio carpark income.

Income available for distribution to unitholders rose 20 per cent year on year to US$48 million, from US$40 million.

The Reit's gearing ratio stood at 39.1 per cent as at June 30.

The distribution will be paid out on Sept 25, after books closure on Aug 12. Manulife US Reit units closed up 0.5 US cent or 0.7 per cent to 77.5 cents on Monday on a cum-distribution basis.