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Manulife US Real Estate Investment Trust’s Latest Earnings Update: Strong Growth In Distributions

Yesterday morning, Manulife US Real Estate Investment Trust (SGX: BTOU) reported its 2018 third quarter earnings update. As a quick introduction, Manulife US REIT is the first pure-play US office real estate investment trust listed in Singapore. The REIT’s portfolio, which currently has a value of US$1.7 billion and a net lettable area of 3.7 million square feet, consists of seven prime and freehold office buildings in the US.

Let’s take a quick look at the important points about Manulife US REIT’s latest results:

1. Gross revenue for the reporting quarter increased by a whopping 75.3% year-on-year to US$40.38 million. Net property income followed suit, rising 74.9% to US$25.15 million.

2. The uptick in revenue and net property income resulted in a 64.9% jump in distributable income to US$19.26 million. The growth in distributable income in turn led to a 33.6% rise in distribution per unit (DPU) from 1.13 US cents a year ago to 1.51 US cents. The increase in revenue and DPU is attributed to the strong income contributions from the four Trophy and Class A quality office properties acquired in 2017 (Plaza and Exchange) and 2018 (Penn and Phipps).

3. As of 30 September 2018, Manulife US REIT’s gearing stood at 37.4%, which is a little close to the regulatory gearing limit of 45%. The REIT’s weighted average interest rate came in at 3.27% per year, and it had a weighted average debt maturity of 3.0 years. The interest cover was 4.4, and the REIT also reported that 100% of its loans were on fixed rates – the absence of floating-rate debt mitigates any risk from interest rate hikes.

4. Manulife US REIT reported an occupancy rate of 96.5% for 2018’s third quarter, and a weighted average lease expiry by net leasable area of 6 years. The REIT only has 0.7% of its leases up for renewal for the rest of 2018. Manulife US REIT also reported that it had signed renewed or signed eight new leases at an average rental reversion rate of 13.5% during the reporting quarter.

5. Manulife US REIT’s net asset value came in at US$0.80 per unit, down from US$0.84 per unit a year ago.

6. In its latest earnings update, Manulife US REIT gave some useful comments on the conditions of the US office property market:

“Office absorption during the third quarter of 2018 remained in line with the previous quarter, with JLL (JLL United States Office Outlook Q3 2018) reporting absorption of 7.9 million square feet in the period, as a continued result of skilled talent shortages and rightsizing. The nation’s vacancy rate increased slightly to 15.2% at the quarter ended 30 September 2018. The competition for talent and a growing
number of availabilities in new supply is accelerating tenants’ flight to quality, making Class A properties the sole driver of net absorption at the expense of Class B and C in the quarter. Rents increased 2.8% over the last twelve months, however concession packages continue to increase due to greater competition between landlords.”

Manulife US REIT’s unit price is currently at US$0.76, which gives the REIT a price-to-book ratio of 0.95.

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The Motley Fool Singapore contributor Esjay contributed to this article. Esjay does not own shares in any companies mentioned. The information provided is for general information purposes only and is not intended to be personalized investment or financial advice. The Motley Fool Singapore writer Chong Ser Jing does not own shares in any companies mentioned.