“We are pleased to report a strong set of 1Q 2017 results. Our DPU this quarter has surpassed projection by 8.6%. With a portfolio occupancy of 97.2%, weighted lease expiry of 5.6 years and no debt expiring till 2019, we expect the portfolio to deliver a stable performance. The U.S. economy remains strong with an unemployment rate of 4.5% in March 2017 and lower vacancy rate of the office sector by 10 basis points to 10.3% in 1Q 2017. We remain confident in the overall U.S. commercial real estate market and will continue to seek investment opportunities that will deliver long term value to Unitholders.”
Ms Jill Smith, Chief Executive Officer
1.65 cents USD (1Q 2017)
Manulife US REIT’s 1Q 2017 DPU beats Projection1 by 8.6%
- Net property income of US$12.8 million above projection by 2.7%
- Achieved distributable income of US$10.4 million while Distribution per Unit (“DPU”) of 1.65 US cents outperformed projection by 8.6%
- High occupancy of 97.2% with weighted average lease expiry of 5.6 years as at 31 March 2017
- Demand for U.S. office space remains strong with lower national average vacancy rate
Manulife US Real Estate Investment Trust (“Manulife US REIT” or the “REIT”), the first pure-play U.S. office REIT listed in Asia, today announced that its distributable income for the reporting period from 1 January 2017 to 31 March 2017 (“1Q 2017” or the “Reporting Period’) has exceeded projection by 7.3% largely due to higher property income and lower interest costs.
The REIT recorded net property income of US$12.8 million and distributable income of US$10.4 million for the Reporting Period, which outperformed projection by 2.7% and 7.3%, respectively. The higher distributable income was mainly due to higher net property income and lower interest expenses. As a result, the REIT recorded a DPU of 1.65 US cents in 1Q 2017, which was 8.6% higher than the projected DPU of 1.52 US cents2.
For the Reporting Period, gross revenue was 1.3% below projection due to lower recoveries income3, which was partially offset by higher rental and other income mainly arising from rental escalations and higher car park income.
Ms Jill Smith, Chief Executive Officer of Manulife US Real Estate Management Pte. Ltd. (the “Manager”) said, “We are pleased to report a strong set of 1Q 2017 results. Our DPU this quarter has surpassed projection by 8.6%. With a portfolio occupancy of 97.2%, weighted lease expiry of 5.6 years and no debt expiring till 2019, we expect the portfolio to deliver a stable performance. The U.S. economy remains strong with an unemployment rate of 4.5% in March 2017 and lower vacancy rate of the office sector by 10 basis points to 10.3% in 1Q 2017. We remain confident in the overall U.S. commercial real estate market and will continue to seek investment opportunities that will deliver long term value to Unitholders.”
Portfolio Updates
As at 31 March 2017, the portfolio’s occupancy has improved to 97.2% based on committed leases. The average passing rent for the properties increased by 3.0% in 1Q 2017 as compared to 4Q 2016. With a weighted average lease expiry of 5.6 years and minimal leases expiring in 2017, the Manager expects the portfolio to deliver a stable return.
Moving forward, the Manager will continue to focus on asset, lease and capital management of the portfolio.
Continued Demand for Offices in U.S.
The U.S. reported an annualised real GDP growth rate of 2.1% for the fourth quarter of 2016 and 1.6% for the full calendar year. The unemployment rate declined by 20 basis points (“bps”) to 4.5% in March 2017 and the U.S. economy created 533,000 non-farm jobs in the first quarter of 2017. This rate of employment growth is supportive of continued healthy absorption in the office market.
While the Federal Reserve increased interest rates by 25 bps in December 2016 and its expectation is for two to three additional increases in 2017, the REIT’s current borrowings were not impacted as all borrowings are at fixed interest rates with no refinancing required until 2019.
Office absorption during the current U.S. business cycle has been relatively strong, with demand exceeding new supply for most of the past six years. The national average vacancy rate decreased by 10 bps to 10.3% during the first quarter of 2017. Furthermore, the U.S. office market has generated more than 84 million square feet of net absorption over the last 12 months.
Market conditions continue to be generally favourable in the three markets that Manulife US REIT has invested in, with minimal new supply and rising market rents.
Distribution Policy
Manulife US REIT’s distribution policy is to distribute 100% of its distributable income up to the financial year ended 31 December 2017 on a semi-annually basis. The REIT has paid its first distribution of 3.55 US cents per Unit on 30 March 2017, which had exceeded the forecast4 by 4.8%.
IMPORTANT NOTICE
This announcement is for information purposes only and does not constitute or form part of an offer, invitation or solicitation of any offer to purchase or subscribe for any securities of Manulife US REIT in Singapore or any other jurisdiction nor should it or any part of it form the basis of, or be relied upon in connection with, any contract or commitment whatsoever.
The value of units in Manulife US REIT (“Units”) and the income derived from them may fall as well as rise. The Units are not obligations of, deposits in, or guaranteed by the Manager, DBS Trustee Limited (as trustee of Manulife US REIT) or any of their respective affiliates.
An investment in the Units is subject to investment risks, including the possible loss of the principal amount invested. Holders of Units (“Unitholders”) have no right to request that the Manager redeem or purchase their Units while the Units are listed. It is intended that Unitholders may only deal in their Units through trading on Singapore Exchange Securities Trading Limited (the “SGX-ST”). Listing of the Units on the SGX-ST does not guarantee a liquid market for the Units. The past performance of Manulife US REIT is not necessarily indicative of the future performance of Manulife US REIT.