3Q21 Update: Proxy To US Office Recovery

For 3Q21, MUST’s overall portfolio occupancy dipped slightly to 90.9% even as leasing sentiment improved. New leases formed 32% of total leases signed while about 453,000sf of leases were executed at +1.3% positive rental reversion. MUST continues to highlight its plans to capture demand from high-growth trade sectors such as tech and healthcare tenants. Maintain BUY with a same target price of US$0.84.


• 3Q21 update. Manulife US REIT (MUST) provided operating metrics for 3Q21 with no financials given.



• Lower portfolio occupancy. Overall portfolio occupancy fell to 90.9% (2Q21: 91.7%) due to tenants downsizing and non-renewals. However, MUST’s occupancy rate is still above US Class-A’s average occupancy of 83%. MUST also stated that portfolio occupancy improved to 91.6% post 3Q21 results. Michelson, (approximately 16% of portfolio AUM) saw portfolio
occupancy rise to 87.2% (+6.8ppt qoq).

• Improving physical occupancy boosts carpark income. 3Q21 overall average physical occupancy improved to 20-30% from 15% in 2Q21 across MUST’s portfolio, with the highest being at 60%. With carpark income historically contributing roughly 6-7% of total annual revenue, improving physical occupancy would help underpin a recovery in carpark income and total revenue from 2022 onwards.

• Stronger leasing sentiment. Improving tenant sentiment among corporates was seen across MUST’s portfolio as new leases formed 32.3% of leases signed in 3Q21 as compared with 3.3% in 2Q21. As of Sep 21, about 453,000sf of leases have been executed ytd (9.7% of portfolio), with positive reversion of +1.3%.


• Steady WALE. MUST’s portfolio with a long weighted average lease expiry (WALE) of 5.1 years remains intact as 52.0% of leases by NLA are expiring in 2026 and beyond. Expiring leases in 2021-22 by NLA have softened to 12.6% from 16.0% in 2Q21. Overall rental collections in 3Q21 were robust at 99.6%. The top 10 tenants, mostly from retail trade, finance and legal sectors, form 36.2% of the total gross rental income and had 100% rental collections.

• Gearing remains steady. Gearing levels remained unchanged at 42.0% (2Q21:42.1%) in 3Q21. With debt headroom of about US$300m (50% gearing), we reckon MUST may add on acquisitions due to favourable macroeconomic tailwinds. MUST has earmarked emerging industries such as tech and healthcare as their next focus.