Manulife US REIT - Annual Report 2020

Lease Expiry Profile by GRI as at 31 December 2020 (%) Manulife US REIT’s portfolio encompasses nine high-quality office buildings located in key U.S. markets with an NLA of 4.7 million sq ft, long WALE of 5.3 years and a high occupancy rate of 93.4% as at 31 December 2020. Active Management During a Challenging Year The onset of the COVID-19 pandemic in the U.S. in the first quarter of 2020 resulted in amajor disruption to the U.S. office market as many companies commenced a WFH operating model. While in the U.S. it has been common for corporations to offer workers remote and flexible working options since the 1990s, either full time or part time, COVID-19 spurred an immediate and unprecedented WFH order for nearly all corporations and their office-using employees which ultimately brought both the economy and the office leasing market to a complete standstill. Given the challenges and uncertainty, the Manager moved expeditiously to preserve occupancy and income across each asset within the portfolio. Some notable efforts included the installation of new air filters, bespoke operational handbooks and guidelines for each tenant tailored to their specific state and municipality. As the year progressed, the Manager also worked with the tenants to devise return-to-office protocol and safety measures and key capital expenditure projects while tenants were largely WFH. As a result of the proactive and defensive efforts combined with the quality of the portfolio’s assets, locations and tenants, MUST recorded several positive outcomes despite the challenges faced: • Committed occupancy of 93.4% outperformed the U.S. Class A average occupancy levels of 84.0% 1 • ~99.0% 2 of gross rent collected for FY2020 • Executed ~279,000 sq ft of leases mainly from the Legal, Real Estate, Information, Finance and Insurance sectors • Modest positive rental reversion rate of +0.1% (+4.7% excluding one mark-to-market lease renewal executed in 4Q2020) • Finished extensive lobby refurbishment projects at Exchange and Figueroa • Commenced elevator modernisation project at Plaza Market Pause on Transactional Activity MUST has achieved strong AUM growth since its IPO and believes there are further opportunities to identify properties that offer durable and growing income streams over the long term. The challenges brought about by the pandemic, however, resulted in a temporary pause on transactional activity and no assets were acquired during the year. This pause was not unique to MUST as the broader U.S. office transactional market effectively froze from early March 2020. Sellers postponed plans for fear of limited buyer pools and concern as to how any still-active buyers would underwrite 1 Source: JLL Q42020 US Office Outlook. 2 Data as at 12 February 2021. 3 Source: Real Capital Analytics January 2021. or price new transactions. On the buy side, many groups who were likely to invest in U.S. office real estate in 2020 simply put their plans on hold due to a reduced risk appetite, the desire to preserve liquidity and the heightened uncertainty around how and when COVID-19 would conclude. As a result, 2020 office transactional volumes plummeted roughly 44.0% 3 below levels experienced in both 2019 and the average between 2015 and 2019. Transactional activity was put on hold for reasons including: • Liquid and cheap debt markets that enabled owners to refinance instead of sell • Significant bid-ask spread between buyers and sellers • Uncertainty of future occupational demand and market rent assumptions • Strong income/rent collection across the market • A general wait-and-see approach to how the pandemic and political cycle might play out Longer Term Lease Expiry Profile with Manageable Roll in the Near Term A key theme toMUST’s acquisition and portfolio construction strategy is to assemble a portfolio which delivers a durable income stream derived from a diversified mix of market, property and tenancy exposure. This approach resulted in a portfolio lease expiration profile that aims to avoid any outsized expiration risk in any given year and heavily weights the bulk of expirations to later years. Considering this strategy, the portfolio is reasonably well-positioned to withstand further COVID-19 related uncertainty with only 5.8% of leases by GRI expiring in 2021 and 48.1% of leases by GRI expiring in 2026 and beyond. Further, MUST’s ongoing core competency is to manage the properties and lease maturities through proactive and regular engagement with tenants. Additionally, the Manager engages top leasing brokers to assist in identifying and attracting prospective tenants to fill vacancies where needed. 2021 2022 2023 2024 2025 2026 and beyond 5.8 8.7 9.5 10.2 48.1 17.8 Note: Amounts may not sum to 100.0% due to rounding. 23 ANNUAL REPORT 2020 OPERATIONAL REVIEW