Manulife US Real Estate Investment Trust is considering shaking up its portfolio as occupancies decline across its office properties in major markets across the country.
Sponsored by multinational Canadian insurance company Manulife Financial Corp., the REIT appointed Citigroup Global Markets Singapore Pte. Ltd. as its financial adviser in the review. It comes as the renewal of leases by existing tenants fell to historic lows for the REIT at a time of rising financing costs, which the REIT reported earlier in November would probably cut into its returns.
The move comes as office real estate demand has fallen from pre-pandemic levels around the country as usage declines with the increase in employees working fully or partially from home.
Manulife US REIT reported a drop in portfolio occupancy to 88.1% at the end of September down from 90% at the end of June. The REIT attributed most of the decline to the law firm of Quinn Emanuel Urquhart & Sullivan downsizing by about 71,000 square feet at 865 S. Figueroa St. in downtown Los Angeles. Almost half of the building is now available for lease, according to CoStar data.
The Los Angeles property is one of 12 office buildings in the REIT’s 5.5 million-square-foot portfolio as of September, with buildings in major cities in Arizona, California, Georgia, New Jersey, Oregon, Virginia and Washington, D.C.
Manulife US REIT has formed a strategic working group comprising the senior managers and board members to review a variety of options. Company representatives did not respond to requests from CoStar News for additional information on what those options might include. News reports in Singapore said options identified by the REIT include selling some properties and buying others as well as diversification into other asset classes and geographical markets.
Manulife announced earlier this year that it would embark on an effort that could see it dispose of select buildings and repurpose some properties.
In its third-quarter earnings presentation, it said it plans to convert its 28-story Eleven Hundred Peachtree office building in midtown Atlanta from a traditional office tower to a concept it calls "hotelization." Such a conversion calls for providing amenities to the building more typical of hotel. The work would provide new features including an entrance, lobby, conference center, coffee bar and lounge and an outdoor terrace, should it be able to secure or renew an anchor tenant in conjunction with these works.
Manulife US REIT said there is no assurance that will implement any options or what the timeframe was to decide.