Manulife US REIT reports 4Q18 net property income rose 38 percent, beating DBS forecast

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 reported on Monday its fourth quarter net property income increased 38.4 percent on-year to US$25.49 million on the four office properties acquired in 2017 and 2018.

In April 2018, the REIT acquired 1750 Pennsylvania Avenue in Washington, DC, and Phipps Tower in Atlanta, GA for a total cost of US$387.0 million, bringing its portfolio to seven U.S. properties.

Gross revenue for the quarter ended 31 December increased 38.4 percent on-year to US$40.50 million, it said in a filing to SGX before the market open on Monday.

The distribution per unit (DPU) for the quarter was 1.53 U.S. cents, up 7.7 percent from 1.42 U.S. cents in the year-earlier quarter, the filing said.

For the full year, net property income rose 55.4 percent on-year to US$90.67 million on gross revenue of US$144.55 million, up 57.1 percent on-year. Full-year DPU was 5.57 U.S. cents, down 3.5 percent from 5.77 U.S. cents in the year-ago period on an enlarged unit base due to a preferential offering to fund the April acquisitions.

In a January note, DBS had forecast full-year net property income of US$89.3 million on gross revenue of US$141 million, with a DPU of 5.53 U.S. cents.

Jill Smith, CEO of Manulife US Real Estate Management, the REIT’s manager, called it a “bountiful” full-year result.

“We remain confident of the growth in the world’s largest real estate market,” she said in the statement. “We continue to distinguish ourselves through our high-quality portfolio of Trophy and Class A assets, which will provide strong income in upcycles and remain resilient during down cycles.”

The portfolio occupancy rate was at 96.7 percent at end-December, and around 94 percent of leases by gross rental income have built-in rental escalations, the filing said.

It added that it has begun asset enhancement initiatives at two properties, which are expected to be completed in the fourth quarter of this year through the first quarter of next year.

In the January note, DBS had rated the units at Buy, with a target price of US$0.88. On Friday, the units ended at US$0.85, down 0.58 percent.

“MUST is exposed to rising office markets and its continues to deliver healthy rental reversions,” DBS said in January.

In its outlook, the REIT pointed to a positive U.S. market outlook, with the country reporting an annualized real gross domestic product (GDP) growth rate of 3.4 percent for the third quarter. Office absorption in the U.S. also more than doubled in the fourth quarter, according to data from real estate services company JLL, with leasing activity broad-based, the REIT said.

But it also noted that continued trade tensions and a slowing global economy could weigh on growth.

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