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Manulife US REIT, Prime US REIT and KORE’s Results show Challenging US Office Environment.

The three Singapore-listed US office REITs have released their quarter 1 2021 updates.

During these operation updates, not a lot of financial results were released.

However, if we look at certain metrics from their updates, we might be able to detect certain strengths and weakness about the commercial office markets in the United States.

Manulife US REIT’s Occupancy has been falling

Manulife US REIT update on Q1 2021
Manulife US REIT update on Q4 2020
Manulife US REIT update on Q3 2020

The occupancy level for Manulife US REIT has been coming down quarter by quarter (read the high occupancy).

The weighted average lease expiry (WALE), came down from Q3 2020 to Q4 2020 and stabilized in Q1 2021.

A WALE that is going up or maintaining gives us indication that the manager is able to successfully renew long leases.

Manulife US REIT Reported Positive Rental Reversions

Manulife US REIT Q1 2021
Manulife US REIT Q4 2020
Manulife US REIT Q3 2020

Manulife US REIT have been renewing leases every quarter but its average rental esclations has come down from 2.4% a year to 2.0% a year and stabilized at 2.1% this quarter.

Rental reversions for newly signed leases and renewed leases are still possitive but have come down (2.1%, 0.1%, 7.9%)

Generally, Vacancy is creeping up, with lower asking rent, poorer absorption in Manulife US REIT’s operating cities.

Manulife US REIT Q1 2021
Manulife US REIT Q4 2020

Data from CoStar gives us more color about the leasing profile of the sub-markets Manulife operates in.

Vacancy is generally up but in there are some sub-markets that held steady like Washington, Fairfax, Sacramento. In some sub-market the asking rent is also higher.

The general way to think about overseas countries is like each state is like a Singapore. There is no US commercial office market but a few different markets.

Prime US REIT’s Topline and Bottomline have come down

in MillionsQ1 2021Q4 2020Q3 2020
Gross Revenue35.936.7
Net Property Income23.023.324.2
Distributable Income17.518.317.9

The table above shows the reported financials of Prime US REIT quarter by quarter.

We can compare across the periods generally because the tenants should stay consistent and there was no new acquisitions during the period.

Generally, the net property income and sitributable income have come down.

Prime US REIT still signed up pretty good rents.

Prime US REIT Q1 2021
Prime US REIT Q4 2020
Prime US REIT Q3 2020

Prime US REIT have been reporting their rental reversion. Generally, it has been strong (9.5%, 8.9%, 6.9%).

What is perplexing is with the strong reversion, how come the distributable income shows a trend of going down.

The leases that Prime US REIT signed up was longer duration between Q3 and Q4 2020.

The lease that Prime US REIT signed up was either only 1 year out or 3 years out to 2024.

Perhaps with the uncertainty, tenants do not wish to sign long leases. Landlords like Prime do not wish to sign a longer lease based on poorer terms as well.

Prime US REIT’s Occupancy has been falling

The main reason for the poorer financial metrics was because the occupancy have started to come down as well.

Prime US REITQ1 2021Q4 2020Q3 2020

Keppel Pacific OAK’s Top and Bottomline is more stable

in millionsQ1 2021Q4 2020Q3 2020
Gross Revenue34.634.634.5
Net Property Income20.420.620.5
Distributable Income14.914.814.7

The table above shows Keppel Pacific OAK’s selected financials for the past 3 quarters. Distribtuable income and gross revenue is the strongest among the three office REITs.

The net property income is largely stable as well.

Keppel Pacific OAK shows strong Rental Reversion but Weakening Occupancy

Keppel Pacific Oak Q1 2021
Keppel Pacific Oak Q4 2020
Keppel Pacific OAK Q3 2020

Keppel Pacific OAK like Prime shows strong rental reversion quarter on quarter (14.1%, 10.2%, 5.7%)

The WALE is going down, seemingly signally that the leases signed are shorter than historic.

Occupancy started coming down as well (92.8% to 92.3% to 91.6%)


The data from the 3 REITs show that tenants are taking a wait and see atitutde whether to sign on long-term leases.

Occupancy has come down. This is affecting distributable income.

The rental escalation of Prime and Keppel Pacific OAK have held up their performance. Manulife US REIT is not showing that, and therefore hurting their bottomline.

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