Manulife US REIT net property income up 75 percent on strong income from four assets

U.S. one-dollar and five-dollar currency notes; taken September 2018.U.S. one-dollar and five-dollar currency notes; taken September 2018.

Manulife US REIT said on Monday that its net property income for the third quarter rose 74.9 percent on-year to US$25.15 million, mainly on strong income contributions from four office properties acquired in 2017 and 2018.

Gross revenue rose 75.3 percent on-year to US$40.38 million, it said in a filing to SGX before the market open on Monday.

Distribution per unit (DPU) rose 33.6 percent on-year to 1.51 U.S. cents, up from 1.13 U.S. cents in the year-ago period, as it was calculated on the enlarged unit base from a rights issue to fund the acquisition of the Exchange property, but didn’t yet include any income from that property, it said.

“We are delighted to report a strong set of third quarter 2018 results,” Jill Smith, CEO of Manulife US Real Estate Management, the REIT’s manager, said in the statement. “This was largely due to the strong income contribution from the four assets purchased in the past 15 months.”

She pointed to strong leasing momentum, with an average positive rental reversion of 13.5 percent and total portfolio occupancy at 96.5 percent as two properties at full occupancy.

“Moving forward, we believe our high quality portfolio will mitigate the impact of future rate hikes with close to 100 percent fixed rate loans and built-in rental escalations,” she said. Around 95 percent of the portfolio’s leases by gross rental income have built-in rental escalations, with 56 percent having annual rental escalations averaging around 2.6 percent, the statement said.

In its outlook, Manulife US REIT’s manager pointed to solid U.S. economic growth, but also to headwinds from uncertainties over U.S. trade policy which is increasing sector-specific risks as well as creating uncertainty that could be reflected in more-modest-than-expected business investment.

The REIT’s manager also noted that a competition for talent and the growing availability of new office supply has meant that concession packages continue to increase amid greater competition between landlords. But it also said that there was a “flight to quality” among tenants to Grade A properties due to the new supply.

For the nine-month period, net property income rose 63.2 percent on-year to US$65.17 million, while gross revenue increased 65.8 percent on-year to US$104.05 million, the REIT manager said.

DPU for the nine-month period fell 7.1 percent on-year to 4.04 U.S. cents from 4.35 U.S. cents in the year-ago period as the unit base was enlarged  by a preferential offering to partially fund the Penn and Phipps acquisitions, while the income contribution from the properties wasn’t included until late June, the REIT manager said.

Manulife US REIT has a portfolio of seven properties it calls Grade A in the U.S., located in California, Atlanta, New Jersey and Washington, D.C.


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