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Manulife US REIT 1QFY2022 Updates

Manulife US REIT 1Q2022 Summary

Today, Manulife US REIT has provided their key business and operational updates for 1QFY2022.

An operational update means that there are no detailed financial information being provided. Below is a quick update from Manulife US REIT on its occupancy, lease expiry profile, debt and business operational updates.

In the update, Manulife US REIT shared that decision makers are unclear on office space requirements due to global uncertainties and employees’ slow return to office.

As employers adopt the hybrid working model, the manager may see an increase of 10% of employees working from home. Thus, Manulife US REIT is facing headwinds right now.

The good news is that employment in most office-using sectors are above
pre-COVID-19 levels, led by professional services (+5.2%), information (+0.7%) and financial activities (+0.3%).

1Q 2022 leasing volume increased by 13.8% Quarter-on-Quarter with overall leasing volume at estimated 80% of pre-pandemic levels.

Occupancy

Overall portfolio occupancy stood at 91.7% which is above the U.S. Class A average of 83%.

Lease Expiry Profile

Weight Average Lease Expiry (WALE) is long at 5 years.

If you look at the below lease expiry profile bar chart on the bottom left, it shows the leases that are expiring in 2022, 2023 etc.

Based on Gross Rental Income (GRI) and Net Lettable Area (NLA), only 6.4% and 6.2% are expiring respectively.

Debt

Gearing stood at 42.8% with Weighted Average Debt Maturity at 2.6 years. In my opinion, the gearing is high and I hope the REIT manager can reduce its debt. For comparison purposes, the gearing is only 41.3% in 1Q2021.

As you can read below, every 1% increase in interest rate will impact the Distribution Per Unit (DPU) by 0.075 US cents.

In my opinion, US Manulife REIT will suffer when Fed increases interest rates to control inflation in the U.S. Borrowing cost is higher when Fed raise interest rates.

Current Dividend Yield

Based on the current share price of US$0.61 and FY21 full year DPU of 5.33 cents, this translate to a current dividend yield of 8.74%.

I am expecting US Manulife REIT to cut its dividends given that Fed has raised interest rates several times this year.

Summary of Manulife US REIT 1QFY2022 Updates

In summary

  • Fed interest rate increase is going to impact Manulife US REIT. Not just this REIT, most REITs will in fact be impacted.
  • Occupancy is stable at the moment with minimal leases expiring in 2022.
  • Increasing debt is a concern as gearing is high at 42.8%.
  • No clarity if hybrid working model is here to stay. This is a headwind for office REITs. Manulife US REIT is not spared.
  • Attract current dividend yield of 8.74%.

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