Manulife US REIT 1H 2025 Financial Results: Analysis & Outlook

Manulife US Real Estate Investment Trust (“Manulife US REIT” or “MUST”) released its 1H 2025 financial results on 14 August 2025. The REIT operates a diversified portfolio of commercial properties in the US, and its performance in the first half of 2025 reflects ongoing challenges in the US office real estate market, significant portfolio restructuring, and an active approach to debt management. Below, we summarize and analyze the key financial metrics, operational highlights, and strategic developments disclosed in the report.

Key Financial Metrics

Operational and Portfolio Highlights

• Occupancy: 68.4% (stable QoQ, 1Q 2025: 68.6%)
• WALE: 4.6 years (1Q 2025: 4.8 years)
• Leases Executed: ~125,000 sq ft, representing 3.5% of portfolio NLA (excl. Peachtree asset)
• Rent Reversion: -10.0% in 1H 2025; 8 of 10 office leases signed above market rent
• Aggregate Leverage: 57.4% (improved from 59.4% in 1Q 2025 following asset sales and debt repayment)

Historical Performance and Trends

• Revenue and NPI Declines: YoY declines primarily due to asset sales (Capitol, Plaza, Peachtree) and increased vacancies, particularly at the Diablo property. Same-store declines are also notable, driven by market-wide office leasing challenges and lower lease termination income.
• Distribution Suspension: As part of the Recapitalisation Plan and Master Restructuring Agreement (MRA), distributions to unitholders have been halted until 31 December 2025, unless early reinstatement conditions are achieved.
• Debt Reduction: Significant progress has been made in repaying maturing debt using asset sale proceeds (\$160m of 2026 debts repaid), with no further debts due until July 2026.
• Asset Dispositions: Three major properties were sold over the past 12 months: Capitol (Oct 2024, \$110m), Plaza (Feb 2025, \$40m), Peachtree (May 2025, \$123m).

Strategic and Corporate Developments

• Portfolio Restructuring: Focused on stabilizing the portfolio, maximizing returns from disposals, and proactively managing debt maturities.
• Leasing Initiatives: The REIT has been prioritizing strategic deals to maximize liquidity and optimize capital, with a focus on low tenant incentives (TIs) and higher net effective rents (NERs).
• Defensive Asset Management: The REIT has adopted prudent capital spending and liquidity management given the challenging market environment. Leasing strategies target tenants needing quick occupancy and those attracted by move-in ready spaces and amenities.
• Potential for Growth: Management has signaled readiness to tap into the sponsor’s real estate platform for higher-yielding assets as markets recover.
• Macroeconomic Risks: The US office market remains challenged by macroeconomic uncertainty, slow recovery in office demand, and cautious investor sentiment. However, some stabilization in rents and tenant incentives is observed in the REIT’s submarkets.

Chairman’s Statement

No explicit Chairman’s Statement is included in the report. The management tone throughout the presentation is cautiously optimistic, focusing on risk management, stabilizing the business, and preparing for future growth once debt and liquidity positions have improved.

Exceptional Items and One-offs

• Significant one-off reductions in NPI due to asset disposals and lower lease termination income.
• Successful property tax appeals at two properties (Figueroa and Michelson) resulted in lower property expenses, partially offsetting income declines.

Major Risks and Forward-looking Events

• Distributions Suspended: No distributions until at least 31 December 2025, significantly reducing near-term income appeal for unitholders.
• Debt Maturity Profile: No further debt due in 2025, ~17% of 2026 debt remains after July 2025 repayments. Aggregate leverage expected to improve further.
• Macroeconomic Headwinds: The US office sector faces persistent vacancy and slow leasing activity, though stabilization signs are emerging in key markets.
• Potential for Additional Asset Sales: Further divestments may occur as the REIT continues to optimize its portfolio and manage leverage.

Conclusion and Recommendations

Performance & Outlook: The overall financial performance of Manulife US REIT in 1H 2025 remains weak, driven by lower revenues, net property income, and distributable income following asset sales and persistent market headwinds. However, significant progress in deleveraging and prudent management of liquidity and capital spending has positioned the REIT for potential recovery once the broader market stabilizes. The management’s tone is cautiously optimistic, with a stated focus on moving from stabilization to recovery and eventual growth.

Investor Recommendations

• If you are currently holding the stock: Consider maintaining your position if your investment horizon is long-term and you believe in a US office market recovery. The REIT is actively managing risks and has made progress in deleveraging. However, investors seeking income should note that distributions are suspended until at least end-2025, and near-term capital gains are unlikely until the US office sector stabilizes.
• If you are not currently holding the stock: It may be prudent to adopt a wait-and-see approach. With no near-term distributions and ongoing challenges in the office sector, the risk-reward balance does not currently favor new investment. Monitor for further progress on leasing, debt reduction, and signs of sector recovery before considering entry.

Disclaimer: This analysis is based solely on information contained in the company’s published financial report for 1H 2025. It is not investment advice. Investors should conduct their own due diligence and consider their risk tolerance before making any investment decisions.

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