Manulife US REIT Review @ 20 February 2023

Basic Profile & Key Statistics

• Main Sector(s): Office
• Country(s) with Assets: United States
• No. of Properties (exclude development/associate/fund): 12

Key Indicators

Performance Highlight

Gross revenue and NPI improved yoy mainly due to contributions from Tanasbourne, Park Place and Diablo which were acquired in Dec 2021, higher car park income and lower rent abatements. Distributable income declined slightly mainly due to higher finance costs. The manager has retained $3.8 mil for general corporate and working capital purposes, resulting in a drop in distribution amount; where DPU is more significant because of the retention and enlarged unitholders base.

Rental Reversion

Rental reversion is at +0.7% for FY2022.

Sensitivity to Interest Rate

For every 1% increase in interest rate, DPU is impacted by 0.132 cents, which is around 2.8%.

Distribution Breakdown

• Distributable Income Breakdown:
• 84.1% from Operation
• 15.9% from Fees Payable/Paid in Units
• Distribution = 95.7% of Distributable Income

Related Parties Shareholding

• REIT Sponsor's Shareholding: Below median for more than 20%
• REIT Manager's Shareholding: Below median for more than 20%
• Directors of REIT Manager's Shareholding: Below median for more than 20%

Lease Profile

• Occupancy: Below median for more than 5% 
• WALE: Above median for more than 10%
• Highest Lease Expiry within 5 Years: Below median for more than 20%; Falls in FY2025
• Weighted Average Land Lease Expiry: 100% freehold properties

Debt Profile

• Gearing Ratio: Above median for more than 20%
• Cost of Debt: Above median for more than 10%
• Fixed Rate Debt %: ± 10% from median
• Unsecured Debt %: ± 10% from median
• WADM: ± 10% from median
• Highest Debt Maturity within 5 Years: Below median for more than 10%; Falls in 2027
• Interest Coverage Ratio: Below median for more than 10%

Diversification Profile

• Top Geographical Contribution: Below median for more than 20%
• Top Property Contribution: Below median for more than 20%
• Top 5 Properties' Contribution: Above median for more than 10%
• Top Tenant Contribution: Below median for more than 20%
• Top 10 Tenants' Contribution: Below median for more than 10%

Key Financial Metrics

• Property Yield: ± 10% from median
• Management Fees over Distribution: Below median for more than 20%; $9.52 distribution for every dollar paid 
• Distribution on Capital: Above median for more than 10%
• Distribution Margin: Below median for more than 10%

Trends

• Slight Downtrend: Property Yield
• Downtrend: DPU, NAV per Unit, Occupancy, Interest Coverage Ratio, Distribution on Capital, Distribution Margin

Relative Valuation

• P/NAV: Below -1SD for 1y; Below -2SD for 3y & 5y
• Dividend Yield: Above +1SD for 1y, 3y & 5y

Author's Opinion

Favorable	Less Favorable
Long WALE	Low REIT Sponsor's Shareholding
Well Spread Lease Expiry	Low REIT Manager's Shareholding
100% Freehold Properties	Low Directors of REIT Manager's Shareholding
Well Spread Debt Maturity	Low Occupancy
Low Top Geographical Contribution	High Gearing Ratio
Low Top Property Contribution	High Cost of Debt
Low Top Tenant & Top 10 Tenants' Contributions	Low Interest Coverage Ratio
Competitive Management Fees	High Top 5 Properties' Contribution
High Distribution on Capital	Low Distribution Margin
	DPU Downtrend
	NAV per Unit Downtrend
	Occupancy Downtrend
	Interest Coverage Ratio Downtrend
	Distribution on Capital Downtrend
	Distribution Margin Downtrend

As compared to 1H performance, the NPI and distributable income have declined due to higher property expenses and finance expenses. The gearing ratio has increased to 48.8% due to the declined in valuation, especially for Figueroa, Los Angeles. 

To improve the current situation, MUST has appointed a financial advisor in November 2022 to conduct a strategic review and is expected to receive proposals by the end of March. Furthermore, MUST is in negotiations with the Sponsor regarding a potential disposition. In addition to disposition, MUST is exploring other options as well such as a distribution reinvestment plan, equity fundraising, or partnering with capital partners.

For more information, check out:

SREITs Dashboard - Detailed information on individual Singapore REIT

SREITs Data - Overview and details of Singapore REIT

REIT Review - List of previous REIT review posts

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*Disclaimer: The information presented on this blog is for educational and informational purposes only. The materials, including research and opinions, are based solely on my findings and should not be considered professional financial advice or a definitive statement of fact. I cannot guarantee the accuracy, completeness, or reliability of the information provided. I shall not be held liable for any errors, omissions, or losses that may occur as a result of using the information presented on this blog. It should be noted that the information presented on this blog does not constitute a buy, sell, or hold recommendation for any security. It is crucial to conduct your own thorough research and due diligence before making any investment decisions.