Manulife US REIT - Annual Report 2021

ANNUAL REPORT 2021 25 Net Income/(Loss) MUST’s base fee and performance fee are based on its distributable income and DPU growth respectively, so as to better align the interests of the Manager and Unitholders. Under the Trust Deed, the Manager is entitled to receive a base fee of 10.0% per annum of the distributable income, as well as a performance fee of 25.0% of the difference in DPU in a financial year compared with the preceding financial year, multiplied by the weighted average number of issued Units. The base fee for FY2021 was 3.8% lower than FY2020 due to lower distributable income. The Manager has elected to receive the base fee in Units. No performance fee was recorded for FY2021. Other trust expenses decreased by 5.7% to US$2.5 million in FY2021 mainly due to the absence of one-off fees incurred in FY2020 in relation to the restructuring pursuant to the U.S. tax regulations which was completed in April 2020, partially offset by higher distribution costs incurred in relation to the advanced distribution as well as additional administrative and professional fees arising from the newly acquired properties. Finance expenses of US$29.1 million were 2.0% lower than FY2020, mainly due to interest savings from the refinancing of the mortgage loans for Peachtree in July 2020, Michelson and Penn in April 2021 at lower interest rates. The interest savings were partly offset by additional borrowings drawn to partially fund the acquisitions in December 2021, capital expenditure and leasing costs. Net fair value gain on derivatives of US$13.9 million recognised in FY2021 was attributable to the fair valuation of interest rate swaps entered into to hedge against interest rate exposures. 1 Based on gross borrowings as percentage of total assets. 2 Computed by dividing the trailing 12-month earnings before interest, tax, depreciation and amortisation (excluding effects of any fair value changes of derivatives and investment properties, and foreign exchange translation), by the trailing 12-month interest expense and borrowing-related fees as set out in the Code on Collective Investment Schemes (CIS Code) issued by MAS. 3 Based on appraised values as at 31 December 2021 and 31 December 2020, respectively. . Net fair value loss on investment properties of US$42.4 million in FY2021 was largely due to the appraiser factoring in higher vacancies and higher leasing costs assumptions, adjusted for capital expenditure and other costs related to investment properties. Tax expense of US$1.1 million in FY2021 was mainly due to deferred tax expense from tax depreciation, partially offset by deferred tax income arising from net fair value loss in investment properties. Due to the effects of the above, the Group recorded a net income of US$39.4 million compared to the net loss of US$43.3 million in FY2020. Income Available for Distribution Income available for distribution to Unitholders of US$85.6 million was 3.8% lower than FY2020 largely due to lower net property income. This translated to a DPU of US 5.33 cents, which was a decrease of 5.5% from FY2020. MUST continues to pay out 100.0% of the distributable income to Unitholders. Portfolio and Net Asset Value (NAV) With the completion of the acquisition of the three new properties in December 2021, the portfolio value of MUST increased by 9.6% or US$191.6 million to US$2,184.4 million as at 31 December 2021. The increase in portfolio value from the acquisition was partially offset by net fair value loss on investment properties during the year. The net fair value loss was largely due to appraisers factoring in higher vacancies and higher leasing costs assumptions. Net assets attributable to Unitholders increased by 2.6% to US$1,187.7 million, which translated to NAV per Unit and adjusted NAV per Unit (excluding distributable income) of US$0.67 as at 31 December 2021. Key Financial Indicators As at 31 December 2021 As at 31 December 2020 Gross borrowings (US$ million) 975.0 856.5 Gearing ratio 1 (%) 42.8 41.0 Weighted average cost of debt (%) 2.82 3.18 Weighted average debt maturity (years) 2.4 2.3 Interest coverage ratio 2 (times) 3.4 3.5 Unencumbered properties as % of total portfolio 3 (%) 70.4 42.0