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Manulife US REIT’s Q2 2019 Earnings: Strong Growth in DPU

Manulife US Real Estate Investment Trust (SGX: BTOU) is the first pure-play U.S. commercial real estate investment trust (REIT) listed in Asia. The REIT’s sponsor is Manulife, which is part of a leading Canada-based financial services group.

This week, the REIT announced its financial results for the second quarter ended 30 June 2019. Let’s look at the highlights from its announcement.

Financial summary

Manulife US REIT’s gross revenue for the reporting quarter surged 33.2% year-on-year to US$43.3 million – mainly due to contributions from the newly-acquired Centerpointe in May 2019, and Penn and Phipps properties acquired in June 2018.

Meanwhile, net property income grew 33.8% to US$27.3 million, distribution income climbed 25% to US$20.6 million, and distribution per unit (DPU) increased by 17.7% to 1.53 US cents, up from 1.30 US cents a year back.

Balance sheet strength

As of 30 June 2019, the REIT had a gearing ratio of 37.1% with a weighted average interest rate of 3.3%. Manulife US REIT’s net asset value (NAV) per unit stood at US$0.79 at the end of the quarter. A year ago, the gearing ratio and NAV per unit stood at 37.3% and US$0.83, respectively. The decline in NAV per unit was due to an enlarged unit base in the latest quarter.

The latest gearing ratio of around 37% is below the regulatory limit of 45% set by the Monetary Authority of Singapore (MAS). There is debt headroom for Manulife US REIT to gear up for further yield-accretive acquisitions amid the low-interest-rate environment (should the opportunity arise).

Operational highlights

The portfolio’s occupancy rate, as of 30 June 2019, was high at 97.2% (well above the market rate of around 90%) while its weighted average lease to expiry (WALE) by net lettable area was long at 6.2 years, with more than 60% of leases expiring in 2024 and beyond. The long WALE gives a predictable income stream for the REIT.

Manulife US REIT’s portfolio rental escalation rate was decent at 2% per annum, as of 30 June 2019. The following chart shows the breakdown of rental escalations on a portfolio basis.Source: Manulife US REIT Q2 2019 earnings presentation (Note: GRI stands for “gross rental income”)

Manulife US REIT’s portfolio is also well-diversified in terms of its tenants’ income contributions. The top tenant contributed 6.7% by GRI while the top 10 tenants collectively contributed 38.9% by GRI.

The Foolish takeaway

It was a strong quarter for Manulife US REIT, with its DPU mainly boosted by acquisitions. Its high portfolio occupancy rate, long WALE, and well-diversified tenant base are also attractive factors to REIT investors. At Manulife US REIT’s current unit price of US$0.89, it has a price-to-book ratio of 1.1 and a trailing distribution yield of 6.8%.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. The Motley Fool Singapore has recommended shares of Manulife US REIT. Motley Fool Singapore contributor Sudhan P doesn’t own shares in any companies mentioned.