Manulife US REIT · SGX:BTOU
Manulife US REIT — H1 2020 Earnings Presentation
45 slides from Manulife US REIT's earnings presentation, Aug 3, 2020
Slide 1: 1H 2020 Financial Results
1H 2020 Financial Results 1 Jan 2020 to 30 Jun 2020 3 August 2020 1
Slide 2: Important Notice
Important Notice This presentation shall be read in conjunction with Manulife US REIT’s financial results announcement dated 3 August 2020 published on SGXNet. This presentation is for information purposes only and does not constitute or form part of an offer, invitation or solicitation of any offer
Slide 3: Contents
Contents 01 Key Highlights 05 Looking Forward 02 Financial Highlights 06 Appendix: U.S. Outlook 03 Portfolio Performance 07 Appendix: About MUST 04 The Future of Office 3
Slide 4: Key Highlights
Centerpointe, Virginia 2Q 2019 Key Highlights Key Highlights 01 4
Slide 5: 1H 2020 Key Highlights
1H 2020 Key Highlights Distributable Income Long WALE US$48.0 m 5.7 Years Increased 20.0% YoY Distribution per Unit (DPU) High Occupancy 3.05 US Cents 96.2% Increased 0.3% YoY Maiden Green Loan for Rental Reversion Peachtree’s Refinancing +7.9% US$100.0 m For new/renewed leases of ~217,300 sq ft No
Slide 6: Financial Highlights
Gross Borrowings Figueroa, Los Angeles US$837.5 m Gearing Ratio 39.1%1 Weighted Ave. Interest Rate 3.26% Weighted Ave. Debt Maturity 2.3 years 02 Financial Highlights Interest Coverage 3.8 times2 Data as at 30 Jun 2020 (1) Based on gross borrowings as percentage of total assets (2) Based on net inco
Slide 7: 1H 2020 Distributable Income Increased by 20.0%
1H 2020 Distributable Income Increased by 20.0% 1H 2020 1H 2019 Change Gross Revenue, NPI, and DI (US$’000) (US$’000) (%) higher due to: • Contributions from Centerpointe Gross Revenue 98,630 83,339 18.3 and Capitol (acquired in 2019) Partially offset by: Net Property Income (NPI) 62,173 52,342 18.8
Slide 8: Delivering Robust Income through Fortified Portfolio
Delivering Robust Income through Fortified Portfolio Net Property Income1 (US$ m) 62.2 Higher NPI due to contributions from Centerpointe and Capitol, partially offset by overall lower 52.3 carpark income due to COVID-19 and lower rental income from Michelson 7.9 8.1 8.3 9.7 10.4 10.6 6.2 6.2 5.3 5.1
Slide 9: Well-Spread Debt Maturity; Greater Financial Flexibility
Well-Spread Debt Maturity; Greater Financial Flexibility Secured 5-Year US$100.0 m Maiden Green Loan for Peachtree’s Refinancing at 1.85% p.a.1; Total Undrawn Committed Credit Facilities of US$134.5 m2 Debt Maturity Profile as at 31 Jul 2020 30 Jun 2020 31 Jul 20201 US$ m 250 Weighted Average 3.26%
Slide 10: Strong Balance Sheet and Distribution Schedule
Strong Balance Sheet and Distribution Schedule 100% Payout of Distributable Income for 1H 2020; Minimum 90% Required as Stated in Trust Deed As at 30 Jun 2020 1H 2020 Distribution Schedule (US$’000) Investment Properties 2,034,500 Ex-Distribution Date Total Assets 2,140,507 11 Aug 2020 Borrowings 83
Slide 11: Portfolio Performance
Michelson, Irvine AUM US$2.0 b Occupancy 96.2% WALE 5.7 years Rental Reversion +7.9% Portfolio Performance 03 Rental Escalations 1.9% p.a. 11 Data as at 30 Jun 2020
Slide 12: Minimal Expiries Due in 2020 (3.4%) and 2021 (5.7%)
Minimal Expiries Due in 2020 (3.4%) and 2021 (5.7%) Strong WALE of 5.7 Years Achieved via Proactive Leasing Lease Expiry Profile as at 30 Jun 2020 (%) 55.0 55.1 New leases executed to be reflected when current tenant vacates in Aug 2020 17.1 17.5 7.9 7.9 8.8 8.9 1.6 1.5 6.1 5.7 3.5 3.4 2020 2021 202
Slide 13: Strong Leasing Momentum with Positive Reversions in 1H 2020
Strong Leasing Momentum with Positive Reversions in 1H 2020 Leases Executed in 1H 2020 Portfolio Rental Escalations as at 30 Jun 2020 Net Lettable Area • Portfolio escalations of 1.9% p.a. • 96% of leases by GRI have rental escalations ~217,300 sq ft Renewed: 50% | New: 42% | Expansion: 8% 4% Annual
Slide 14: Diversified Tenant Base Provides Stability during Pandemic
Diversified Tenant Base Provides Stability during Pandemic Trade Sector by Gross Rental Income (GRI) Strength of Top 3 Trade Sectors Legal 22.0% Finance and Insurance 19.9% Legal Retail Trade 13.5% Core Business: Corporate litigation Information 7.2% Real Estate 5.8% Opportunity: Business restructur
Slide 15: 6.3 Years WALE by Top Tenants; Majority Listed/Govt/HQ
6.3 Years WALE by Top 10 Tenants; Majority Listed/Govt/HQ Top 10 Tenants by Gross Rental Income (GRI) Strength of Top 3 Trade Sectors (Cont’d) NLA Tenant Sector (sq ft) % of GRI Retail Trade The William Carter Retail Trade 304,013 6.2% Tenants’ Core Business: TCW Group Finance and Ins 188,835 4.0% M
Slide 16: Valuation Softening due to COVID-19, Expected to Reverse
Valuation Softening due to COVID-19, Expected to Reverse Cap Rates Remain Stable; Lower Rental Growth Assumptions due to COVID-19 Valuation Implied Cap Rates Property 30 Jun 2020 31 Dec 2019 Change 30 Jun 2020 30 Jun 20202 31 Dec 20193 (US$ m) (US$ m) (%) (US$ Per Sq Ft1) (%) (%) Figueroa 329.1 337.
Slide 17: Competitively Positioned Rents Below Market Provide Buffer During Downturn
Competitively Positioned Rents Below Market Provide Buffer During Downturn Cautiously Optimistic for Leases Expiring in 2020 and 2021 Average 2020 – 2021 Below/Above Property Passing Rent Remarks: Market Rent expiries (%)1 Market Rent Figueroa US$42.67 US$44.20 1.8% 4% Not comparable as data include
Slide 18: Limited Supply with Minimal Upcoming Construction
Limited Supply with Minimal Upcoming Construction New Construction (’000 sq ft) Buckhead Atlanta • Delivery year: 2021 • Minimal impact as Phipps 100% leased with 7.6 year WALE 679 Midtown Atlanta • Delivery year: 2021 482 • 40% pre-leased (mainly Google) • Not comparable as asking rent 80% higher 3
Slide 19: The Future of Office
Plaza, Secaucus The Future of Office 04 19
Slide 20: Unlike in Singapore, U.S. Introduced WFH in 1990s
Unlike in Singapore, U.S. Introduced WFH in 1990s 54%1 Eligible to Work from Home (WFH) Latest Survey Shows Incremental 2%2 before Pandemic Prefer to WFH Access to WFH Benefits1 (%) 49 54 5 days at home 12% 41 43 45 35 39 28 28 29 3 or 4 days at home 18% 1 or 2 days at home No days at home 44% 2011
Slide 21: Office in the 21st Century: Era of Mobility
Office in the 21st Century: Era of Mobility Move Towards Worker Mobility Started Office of the Future Decades Ago, COVID-19 Accelerating Trend Silent partner to company’s brand and • Physical office critical component of hybrid workplace – Acts culture as hub that connects geographically dispersed e
Slide 22: Minimal Impact on MUST Portfolio
Minimal Impact on MUST Portfolio Urban Suburban Likely to Outperform 1 Gateway CBD in Near-term 2 Limited Supply in Foreseeable Future • Workers delay returning to dense gateway CBD offices • Limited bank loans for developers which require travel via public transport – less dense Live, • New constru
Slide 23: Looking Forward
Capitol, Sacramento Looking Forward 05 23
Slide 24: COVID-19 Updates
COVID-19 Updates All nine MUST offices remain open; buildings are 10% – 20% occupied 96% of rents collected for 2Q 20201 Apr: 99% | May: 97% | Jun: 93% Provided rental deferment of 0.3%2 and abatement of 0.3%2 Upgraded air filters, increased frequency of cleaning, and issued guidebook for tenants’ r
Slide 25: Potential Faster U.S. Recovery from COVID-19 Compared to GFC
Potential Faster U.S. Recovery from COVID-19 Compared to GFC Rent Growth Forecast Economic disruption mitigated due to massive fiscal and monetary stimulus • Bigger COVID-19 relief package of ~US$3.5 trillion vs US$0.7 trillion GFC package Compared to GFC: • Banks better equipped to maintain market
Slide 26: Well-Anchored Portfolio to Ride Out Crisis and Emerge Stronger
Well-Anchored Portfolio to Ride Out Crisis and Emerge Stronger Portfolio with minimal High 2H 2020 rental collections Proactive leasing: Conduct virtual tours, 2020/2021 expiries, long expected with majority top-quality target resilient tech and healthcare sectors; WALE of 5.7 years and tenants from
Slide 27: For enquiries, please contact:
For enquiries, please contact: Ms Caroline Fong, Head of Investor Relations (65) 6801 1066 [email protected] Manulife US Real Estate Investment Trust (Company registration no. 201503253R) 27 8 Cross Street, #16-03 Manulife Tower, Singapore 048424 http://www.manulifeusreit.sg
Slide 28: Appendix: U.S. Outlook
Exchange, Jersey City Appendix: U.S. Outlook 06 28
Slide 29: World's Largest Economy Declined but Less than Expected
World’s Largest Economy Declined but Less than Expected U.S. GDP Growth (YoY %)3 -32.9% 11.1% 2Q 2020 Increased 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 GDP Growth1 unemployment2 -0.3 -2.8 2.5 1.6 2.2 1.7 2.4 2.6 1.6 2.3 2.9 2.1 Q2 -32.9 U.S. Unemployment (%)4 13.3 m 4.8 m 11
Slide 30: Favourable U.S. Office Real Estate Outlook
Favourable U.S. Office Real Estate Outlook U.S. Office Employment (YoY %)2 14.8%1 +2.9%1 -0.1 5.5 2.7 2.7 2.2 2.7 2.1 2.0 2.0 1.7 2Q 2020 Annual vacancy increase in rents 2010Q2 2011Q2 2012Q2 2013Q2 2014Q2 2015Q2 2016Q2 2017Q2 2018Q2 2019Q2 2020Q2 -11.1 U.S. Office Net Absorption (m sq ft) and Occup
Slide 31: Diversified and Resilient Portfolio with Highest Population and Strongest GDP
Diversified and Resilient Portfolio with Highest Population and Strongest GDP MUST’s Properties Located in Top 10 Largest MSAs out of 383 in the U.S. with High Median Household Income Median 2 Ranked by 3 Ranked by MSA 1 Population GDP Household Income Population GDP U.S. 57,652 327,167,434 - 20,494
Slide 32: Limited Supply in Our Cities
Limited Supply in Our Cities Gross Net Net Last 12 Months New Properties 2Q 2020 RBA Vacancy Delivery Asking Rent Absorption Delivery Rent Growth1 Under Construction Class A Market (mil sq ft) (%) Year (US$) (‘000 sq ft) (‘000 sq ft) (%) (‘000 sq ft) Downtown Los Angeles 42.8 14.4 44.20 (41.4) 0 4.3
Slide 33: Best-in-Class Properties Exceed Market Occupancies
Best-in-Class Properties Exceed Market Occupancies Occupancy (%) Meadowlands 100.0 98.9 100.0 • Vacancy includes old/ 98.3 98.7 96.1 incomparable buildings 95.8 93.5 94.1 • Plaza’s competitive set has ~5% vacancy rate 90.1 90.0 88.5 85.6 84.8 84.6 83.9 Fairfax Center • Supply of quality office 77.6
Slide 34: Located in Cities with Strong Growth Factors and Live, Work, Play Environment
Located in Cities with Strong Growth Factors and Live, Work, Play Environment Downtown Los Angeles Jersey City • Surrounded by entertainment venues such as Staples Center, • Located across Hudson River from Manhattan the LA Convention Center and LA Live • Affordable office and residential alternativ
Slide 35: Appendix: About MUST
Penn, Washington, D.C. Appendix: About MUST 07 35
Slide 36: Supported by Reputable Sponsor with Proven Track Record
Supported by Reputable Sponsor with Proven Track Record Vertically-Integrated Real Estate Platform: Global Real Estate AUM of US$18.8b Vancouver Calgary Kitchener/Waterloo Toronto Canada Edmonton Ottawa US$7.2 B Montreal AUM AUM US$832b Halifax 70% of Real Estate in Office U.S. Others Retail Asia 2%
Slide 37: Key Milestones since IPO
Key Milestones since IPO 1H 2020 DPU: 3.05 US cents 2020 AUM: US$2.0 b | Market Cap: US$1.2 b Apr: Acquisition of Centerpointe (US$122.0 m) 2019 Sep: Acquisition of Capitol (US$198.8 m) FY 2019 DPU: 5.96 US cents Apr: Acquisition of Penn and Phipps (US$387.0 m) 2018 FY 2018 DPU: 5.57 US cents Jun: A
Slide 38: Return to Office: Tenant Guidebook by Manulife
Return to Office: Tenant Guidebook by Manulife A guide to facilitating tenants’ return to office amidst COVID-19 6 Key Focus Areas: Building Common Areas Building Systems Tenant Improvements Advise use of face coverings; Enhanced cleaning and sanitisation General contractors must share health provid
Slide 39: Building Guidance During COVID-19
Building Guidance During COVID-19 39
Slide 40: Sustainability: Targets Achieved in 2019
Sustainability: Targets Achieved in 2019 Energy Intensity Water Intensity Time Volunteered CSR Contribution 17.1 ekWh/sf 55.5 L/sf 182.5 hours S$25,478 Reduced 2.0% YoY Reduced 2.4% YoY Increased 2.2% YoY Increased 27.4% YoY Work Average Training Participation in Employee Incidents of Non- Diversity
Slide 41: Sustainability: Accolades and Certifications
Sustainability: Accolades and Certifications Capitol Michelson, Exchange, Penn, Phipps Global Real Estate Sustainability Benchmark 2019 Awarded 5 Green Stars with a score of 93; Figueroa, Michelson, Peachtree, ranked 3rd out of 12 listed U.S. office REITs Plaza, Exchange, Phipps, Capitol 41
Slide 42: Tax Advantaged Tax Structure
Tax Advantaged Tax Structure MUST’s tax advantage For illustrative purposes only US REIT S-REIT1 Manulife US REIT • No U.S. corporate taxes (21%) DPU Yield 4.3%2 8.3% 8.3%3 • No U.S. withholding taxes (30%) U.S. Withholding Taxes (1.3%) - - Net Yield – 3.0% 8.3% 8.3% Singapore Retail Investor • No S
Slide 43: Tax Structure
Tax Structure1 Sponsor Unitholders i Parent U.S. REIT Structure Manulife (9.8% limit)2 • Tax transparency – Dividends distributed are deductible 0% Tax • Income shielded by interest expense and depreciation ii U.S. Portfolio Interest Exemption Rule • No 30%4 withholding tax on interest and principal
Slide 44: Portfolio Overview
Portfolio Overview Figueroa Michelson Peachtree Plaza Exchange Penn Phipps Centerpointe Capitol Location Los Angeles Irvine Atlanta Secaucus Jersey City Washington, D.C. Atlanta Virginia Sacramento Property Type Class A Trophy Class A Class A Class A Class A Trophy Class A Class A Completion Date 19
Slide 45: Additional Disclaimer
Additional Disclaimer CoStarPS does not purport that the CoStarPS Materials herein are comprehensive, and, while they are believed to be accurate, the CoStarPS Materials are not guaranteed to be free from error, omission or misstatement. CoStarPS has no obligation to update any of the CoStarPS Mater