Manulife US REIT Q3 2025: Strategic Debt Repayment, Leasing Momentum, and Signs of Recovery Signal Turning Point

Manulife US REIT (MUST) has released its Q3 2025 operational update, revealing substantial progress in debt reduction, leasing activity, and portfolio optimisation amid a challenging US office sector. For investors, these developments could mark a pivotal moment for the REIT and have significant implications for share value.

Key Financial and Operational Highlights

• Aggregate Leverage Improved: MUST’s aggregate leverage dropped to 56.2% in Q3 2025 (down from 57.4% in Q2), a notable achievement given prevailing asset value pressures. This is especially significant as it brings leverage closer to regulatory thresholds and signals prudent capital management.
• Targeted Debt Repayment: Approximately US\$160 million of 2026 debt was repaid using proceeds from Plaza and Peachtree asset sales. No further debt is due in 2025, and only ~17% of 2026 debt remains, due July 2026. This de-risking of the balance sheet is a key milestone and could positively impact investor sentiment.
• Interest Coverage Ratios (ICR): MUST’s Bank ICR stands at 1.9x, comfortably above the relaxed 1.5x covenant under the Master Restructuring Agreement. Sensitivity analysis shows resilience even under stress scenarios (e.g., a 10% drop in EBITDA or a 100bps rise in interest costs).
• Interest Rate Management: 74.6% of loans are hedged/fixed, mitigating exposure to floating rates. Every 50bps decrease in SOFR could boost distributable income by ~US\$0.7 million, directly benefiting shareholders.
• Portfolio Valuation and Occupancy: The portfolio is valued at US\$0.9 billion, with net lettable area (NLA) of 3.5 million sq ft across 97 tenants. Occupancy remains stable at 68.2%, with a WALE of 4.5 years, reflecting a robust tenant mix and lease expiry profile.

Leasing Performance and Recovery Signals

• Leasing Momentum: ~81,000 sq ft of leases executed in Q3 2025 (2.3% of portfolio NLA), with ~206,000 sq ft executed year-to-date (YTD). Importantly, WALE for new leases is a healthy 4.7 years.
• Rent Reversion: Q3 2025 rent reversion was -11.3% (YTD: -10.4%), but notably, over 70% of leases signed YTD had no tenant improvement (TI) allowances and 10 of 14 leases were above market rents. This signals strategic leasing discipline and higher net effective rents (NERs).
• Top Tenant Renewals: Five of MUST’s top 10 tenants have renewed or expanded since 2023, with stable sector exposure—Finance & Insurance (18.5%), Legal (15%), Retail Trade (9.6%), Public Administration (8.4%), Real Estate (8.2%).
• Annual Rent Escalations: 74.6% of leases include average annual escalations of 2.3%, providing additional income growth visibility.
• Strategic Leasing Examples: Noteworthy deals include a new lease with Banc of California (Figueroa, LA) at above-market rent and low TI for L.A. 2028 Olympics, and a 65-month lease at Phipps, Atlanta, with TI ~50% below market averages.

Market Environment: Signs of Recovery

• US Office Market Stabilises: Gross leasing volume grew 6.5% QoQ to 52.4 million sq ft, just short of a post-pandemic record. Construction pipeline declined by 20% in Q3, indicating a net negative inventory environment likely to persist for >2 years.
• No New Competitive Supply: In MUST’s submarkets, there is zero competitive new supply under construction, supporting future rent growth and occupancy stability.
• Economic Backdrop: US GDP grew 3.8% in Q2 2025; CPI rose to 3.0%. Unemployment edged up to 4.3%, but the Fed cut rates twice (Sep and Oct 2025), bringing the fed funds rate to a three-year low (3.75–4.00%). These macro shifts may encourage office demand and support asset values.
• Divestment Activity: Up 45% YoY, with YTD sales volume at US\$32 billion. Larger tenants cut only 2.2% of their footprint, and sublease additions continue to drop.

Capital Management and Outlook

• Portfolio Optimisation Strategy: MUST is prioritising debt repayment, recycling capital into higher-yield asset classes, and proactively marketing for accretive leases. Hold-sell analysis and capital allocation will be used to enhance asset performance and unitholder value.
• Sustainability Leadership: 90% of properties by NLA are LEED certified. MUST achieved a top 1% global ESG rating, a 5 Star GRESB rating since 2018, and ranks 13th out of 42 Singapore REITs in sustainability.
• Sponsor Strength: Backed by Manulife Investment Management with US\$19.4 billion global real estate AUM, providing significant financial and operational support.

Potentially Price-Sensitive and Share Value Impacting Information

• Debt Reduction and Liquidity Improvement: Aggressive repayment of near-term debt, especially the significant settlement of 2026 maturities, improves balance sheet flexibility and reduces refinancing risks—a key factor for share price upside.
• Leasing Pipeline and Strategic Deals: The ability to sign leases above market rents with low TI allowances, as well as substantial leasing pipeline (~1.1 million sq ft, or ~30% of total NLA), could drive occupancy and rental income higher in coming quarters.
• Stabilising US Office Market: Signs of recovery, including the absence of new competitive supply and improving leasing metrics, may trigger a re-rating of US office assets, which could benefit MUST’s valuation and share performance.
• Interest Rate Sensitivity: Further Fed rate cuts could materially lift distributable income, supporting higher dividends and share prices.
• Sustainability Accolades: Enhanced ESG ratings may attract institutional investors, offering non-financial upside to share value.

Conclusion

Manulife US REIT’s Q3 2025 update demonstrates significant progress in deleveraging, leasing discipline, and portfolio optimisation, against a backdrop of stabilising US office fundamentals. These developments are likely to be price-sensitive and could have positive implications for share value, especially as the REIT positions for recovery and future growth.

Disclaimer: This article is for informational purposes only and does not constitute investment advice. All forward-looking statements are subject to risks, uncertainties, and assumptions. Actual results may differ materially from those projected. Please conduct your own due diligence before making any investment decisions.

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