Manulife US Reit posts 11.5% drop in H1 DPU to 2.7 US cents on lower rental income

US-FOCUSED office property landlord Manulife US Real Estate Investment Trust (Manulife US Reit) on Thursday announced a distribution per unit (DPU) of 2.7 US cents for the six months ended June 30, down 11.5 per cent from the DPU of 3.05 cents for the year-ago period.

Distributable income fell 10.4 per cent to US$43.0 million, from US$48.0 million a year ago.

The decline was largely attributed to lower rental income from Michelson, Centerpointe and Capitol arising from higher vacancies, rent abatements provided to tenants affected by Covid-19, and lower portfolio car park income.

Portfolio occupancy rates dipped to 91.7 per cent as at end-June, down 0.3 percentage point from 92 per cent in Q1 2021. On a year-on-year basis, portfolio occupancy was 4.5 percentage points lower than the 96.2 per cent in H1 2020.

"We have slowed the rate of decline to almost nothing," said Jill Smith, chief executive officer of the manager, in a briefing following the results announcement on Thursday morning.

In H1, the Reit executed leases amounting to around 305,000 square feet (sq ft), or 6.5 per cent of the portfolio by net lettable area (NLA), at an average positive rental reversion of 1.3 per cent. Another 2.9 per cent of leases by NLA will expire in the remainder of 2021.

"The good news is that our leasing momentum is actually accelerating quite fast into the second half," Ms Smith said, noting that 127,000 sq ft is expected to be signed in the third quarter.

"We have been concluding and signing leases in the last few days that amount to 69,000 sq ft of that 127,000 sq ft. That is a pretty good achievement and gives us good cause for optimism," she added.

Weighted average lease expiry for the portfolio stood at 5.3 years as at June 30.

Manulife US Reit's gross revenue was down 7.9 per cent to US$90.8 million for H1, while net property income of US$56.1 million was 9.8 per cent lower than the previous year.

"Our year-on-year occupancy and DPU levels suffered from the full brunt of the pandemic, given that the impact was only felt in the US from April 2020," Ms Smith said in a bourse filing before market open on Thursday.

The decline in rental income was led by a drop in occupancy at Michelson to 80.4 per cent, from 90.1 per cent in the year-ago period, due to the departure of two tenants. At the same time, Centrepointe's occupancy fell to 91.6 per cent in H1, from 98.7 per cent a year ago, and Capitol's occupancy dropped to 85.4 per cent from 94.1 per cent.

Meanwhile, due to lower physical occupancy at the Reit's office properties amid the Covid-19 pandemic, car park income fell around 43 per cent or US$2.7 million to US$3.6 million in H1.

"Having weathered the worst of the pandemic and with leasing accelerating, we have a clearer path towards the recovery of our office portfolio," Ms Smith said. "As we look ahead, some 60 per cent of our tenants have indicated their plans to return to the office from September, lifting revenue such as car park income."

While the Reit's gearing ratio stood at 42.1 per cent as at June 30, the manager noted that this has since been reduced to 41.6 per cent, following a partial debt repayment of US$15.0 million in July.

Manulife US Reit's weighted average debt maturity was extended to 3.2 years as at end-June, from 2.3 years at Dec 31, 2020.There are no outstanding loans due in 2021.

Net asset value per unit slipped to US$0.71 as at June 30, 2021, down from US$0.73 as at Dec 31, 2020.

The H1 DPU of 2.7 US cents will be paid out on Sept 27.

Looking ahead, the manager said it was exploring avenues for growth, both with its sponsor as well as with third parties.

"To be frank, we have people coming to us all the time with ideas for individual portfolios, for M&A (mergers and acquisitions) deals, for joint ventures, for partnerships, some of them even for capital recycling," said Ms Smith. "From an acquisition point of view, it's very encouraging. Certainly, in the last month, there has been a real surge in these sorts of opportunities coming to us."

Units of Manulife US Reit closed flat at 76.5 US cents on Thursday, following the announcement.

READ MORE

• Manulife US Reit obtains US$250m sustainability-linked loan from DBS, OCBC
• Remote working trend a blip in office life, says Manulife US Reit