Manulife US REIT Cuts Dividend per Unit by 11.5% in their 1H 2021 Update.

Manulife US REIT this morning announced their 1st half 2021 results.

They also declared a half-yearly dividend per unit of $0.027. This brings the annualized dividend yield based on the current share price of $0.765 to 7.1% a year. (You can compare this dividend yield to other REIT and high yielding dividend stocks in my Dividend Stock Tracker)

This dividend per unit decreased by 11.5% compared to a year ago.

Manulife US REIT is not the only office REIT to announced that they decreased the dividend declared for the half-year. Prime US REIT also decreased their dividend per unit.

If you review my dividend stock tracker, you would be able to observe that both peers Keppel Pacific Oak and Prime US REIT trade at 8.4% and 8.0% respectively.

What caused Manulife US REIT’s dividend to fall?

Gross profit for the first half of the year fell by 7.9%. The main reason was that overall occupancy dipped from 96.2% to 91.7%.

I think there is some transitory lease expiry at Michelson. Occupancy declined by 10% in that property alone.

However, Manulife provided some colour in that they managed to successfully lease 70% of those vacancies lost which is accounted for in third quarter 2021.

For many months, the office properties were operating at 20% capacity. Since the car park was not utilized, the revenue from car park was affected.

This update is not too surprising as in my May update on Manulife US, Prime and Keppel Pacific Oak, I highlighted that the updates showed possible signs that rental outlook will impact the financials going forward.

Leasing during this post-covid period has proved challenging as tenants and prospective tenants adopted a wait-and-see attitude.

Thus we see that net absorption, which measures how fast available office space is taken off the market, is still negative.

But as the United States starts opening up, and companies get more adjusted to work from home, more companies may gain clarity that they need office space that is closer to the sub-urban and occupancy may pick up.

From my observation, almost all but one property saw their net property income fall versus a year ago.

Net property income probably includes straight-lining, thus the annual rental escalation should be factored in. I am quite startled how come almost all the properties (except Plaza) faced some sort of falling NPI from a year ago.

Summary

I always think back to the investors who had invested prior to COVID-19 when the US office REITs were trading at US$1.00.

If we have invested then, we would have invested with a dividend yield of 6-6.5%.

The investor would see their dividend yield fall to 5.4% today.

Manulife could not catch a break since its IPO. So do their investors. They are waiting for the REIT to show a rising dividend per unit quarter on quarter.

So far, the REIT has struggled to show that.

COVID was a bad break for them and going forward, they have to show their ability to improve the occupancy.

To some opportunistic investors, Manulife US REIT may present an opportunity at a 7.1% dividend yield.

If this is the worse it gets, and they are able to improve their occupancy by 5 percentage points, that will provide a healthy rental reversion.

Their share price may re-rate accordingly.

You can read my in-depth deep dives on all aspects of REIT investing in Learning about REITs below.

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