With US leasing recovery in full swing, Manulife US Reit eyes acquisitions
THE manager of Manulife US Reit BTOU is looking to new acquisitions to boost growth, amid a surge in transaction volumes for Class A office properties in the US.
"We've looked at some 46 properties this year in earnest. Obviously, we surely to goodness must get closer to finding something that we like," said Jill Smith, chief executive officer of the US office-focused real estate investment trust (Reit) manager, at a briefing on Wednesday (Nov 3) accompanying its operational updates for the third quarter.
"In the third quarter, we have seen a real improvement in transaction volumes as the market has sprung back into life. Those are up some 46.4 per cent quarter on quarter," she added.
The manager said it was seeking accretive deals with capitalisation rates of between 6.5 per cent and 7.5 per cent. It added that it was eyeing growth in the technology and healthcare segments, among others, in potential US markets such as Austin, Texas; San Diego, California; and Denver, Colorado.
As at Sep 30, the Reit has a gearing ratio of 42 per cent, with a weighted average debt maturity of 2.9 years and interest coverage of 3.3 times.
"Size does matter, and we must seize growth opportunities, especially seeking accretive acquisitions in the sunbelt or magnet cities with great tenants," Smith said.
The Reit's acquisition plans come amid a recovery in the wider US economy from the Covid-19 pandemic, which has spurred leasing activity at its current assets.
The Reit manager noted that leasing volume across the US has increased to 39.2 million square feet (sq ft) in Q3 FY2021, from 34.7 million sq ft in Q2 FY2021, with tenures growing to 7.7 years in Q3, from 7.4 years in Q2.
"With the US recovery in full swing, we've seen a growing corporate confidence reflected in the surge of new leases," Smith said. "Month by month, in fact, almost week by week, we're seeing an increasing amount of new leasing interest translating into actual negotiations. This is all very encouraging news."
The manager said nearly a third of the 185,000 sq ft of leases executed by the Reit so far in the second half of the year, up to Oct 25, was from new leases, while the remainder were renewals. In contrast, new leases only made up 3.3 per cent of the 305,000 sq ft of leased property executed in the first half of the year.
A bulk of the improvement comes from the Reit's Michelson property, which saw occupancy rates jump to 87.2 per cent as at Oct 25, compared to 80.4 per cent in Q2.
Overall, however, total portfolio occupancy dipped to 90.9 per cent as at end September, from 91.7 in the preceding quarter. The Reit manager added that post-Q3, portfolio occupancy has increased to 91.6 per cent as at Oct 25.
Portfolio weighted average lease expiry (WALE) dipped to 5.1 years in Q3, from 5.3 years as at end-June. However, the Reit manager noted that WALE for leases executed between Jul 1 and Oct 25 was higher at 5.7 years.
In the year to date up to end-September, the Reit has clocked rental reversion of 1.3 per cent.
"All in all, the green shoots in our portfolio are for real, and they are starting to propel growth opportunities for us," Smith said.
Units of Manulife US Reit closed 2.8 per cent or 2 US cents lower at 69.5 US cents on Nov 3, after the operational updates were announced.
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