KEPPEL PACIFIC OAK US REIT (former Keppel-KBS US REIT)

[cyclone]

Will you buy the IPO of Keppel-KBS US REIT ?

Offering Price: US$0.88 per Unit
Keppel-KBS US REIT is making an offering of 262,772,400 units.

In addition, concurrently with, but separate from the Offering, each of the Cornerstone Investors has entered into a separate subscription agreement to subscribe for an aggregate of 246,365,400 Units.
Cornerstone Investors :
1. Affin Hwang Asset Management Bhd
2. Credit Suisse AG
3. DBS Bank Ltd.
4. DBS Bank Ltd. (on behalf of certain private banking clients)
5. Hillsboro Capital, Ltd.

The total number of outstanding Units immediately after completion of the Offering will be 628,565,000 Units.
 
The initial portfolio of Keppel-KBS US REIT will comprise 11 office properties in the United States, with an aggregate NLA of 3,225,739 sq ft. The IPO Portfolio consists of the following properties :
West Coast =>
1. The Plaza Buildings (Bellevue)
2. Bellevue Technology Center
3. Iron Point
Central Region =>
4. Westmoor Center
5. Great Hills Plaza
6. Westech 360
7. 1800 West Loop South
8. West Loop I & II
East Coast =>
9. Powers Ferry Landing East
10.Northridge Center I & II
11.Maitland Promenade II
 
The IPO Portfolio has a stable weighted average lease expiry ("WALE") by NLA as at 30 June 2017 of 3.7 years. No single year has more than 20% of total leases expiring.

As at 30 September 2017, the IPO Portfolio enjoys a high committed occupancy of approximately 90.0%, with most of the Properties within the IPO Portfolio experiencing occupancy rates above or in line with their respective markets.

Keppel-KBS US REIT offers an attractive distribution yield – the distribution yield for Forecast Year 2018 is 6.8%, with expected distribution yield growth of 5.8% in Projection Year 2019 to 7.2%.

Approximately 97.5% of existing leases by Cash Rental Income and 97.5% of existing leases by NLA have built-in rental escalations. The rental escalations generally range from 2.0% to 3.0%.

The top 10 tenants of the IPO Portfolio contribute not more than 22.3% by Cash Rental Income. In addition, the top 10 tenants have a WALE of 5.2 years.

Top 10 tenants of the IPO Portfolio by percentage of estimated Cash Rental Income for the month of June 2017 (% of Cash Rental Income)
1. Zimmer Biomet Spine, Inc. (3.0%)
2. Unigard Insurance Company (2.7%)
3. ServiceLink Field Services LLC (2.3%)
4. Ball Aerospace & Tech Corp (2.2%)
5. Reed Group, LTD (2.2%)
6. US Bank National Association (2.2%)
7. Oracle America, Inc. (2.1%)
8. Regus PLC (1.9%)
9. Blucora, Inc. (1.9%)
10.Health Care Service Corp (1.8%)

Key Investment Highlights :
1. Attractive Office Real Estate Fundamentals Supported by the Highly Sustainable Economic Growth in the US
2. Quality and Resilient Portfolio Located in Key Growth Markets in the US
3. Attractive Distributions with Visible Organic Growth Potentia
4. Reputable Sponsors and US Asset Manager with Strong Track Record
5. Experienced Management Team

More details in https://eservices.mas.gov.sg/opera/4b697...shresource

[cyclone]

IPO of Keppel-KBS US Reit Registers Strong Demand
A Distinctive Office REIT with Investment Properties in Key US Growth Markets

Highlights :
1. Largest Property Trust IPO on the SGX year-to-date with approximately US$448.0 million1 raised
2. Trading commences on the Main Board of the SGX-ST at 2.00 pm on Thursday, 9 November 2017
3. Public Offer of 34,090,600 Units approximately 6.7 times subscribed valid applications amount to approximately US$200.4 million
4. The Offering consists of an international placement of 228,681,800 Units to investors outside of the US (the "Placement Tranche"), and an offering of 34,090,600 Units to the public in Singapore (the "Public Offer").

[stam]

Anyone know the reasons for the big drop?

[Dosser]

Anyone know the reasons for the big drop?

Seems to be driven primarily by their rights issue. Announcement in September dropped the price a bit, as the original rights price was at a discount. The really steep slide took off when they unexpectedly repriced the rights at an even steeper discount in October. Rights issue, as repriced, has a mildly negative effect on both NAV and DPU:


http://www.probutterfly.com/blog/is-the-...nitholders

There has also been mention of another potential acquisition, so maybe more need to raise cash?

Combine all that with rising interest rates and the resulting negative sentiment to all REITS and you have the perfect storm.

[cfa]

Looks like another reit of which the sponsor's interest is not aligned in the interest of the unitholders . Another SABANA ?

[AQ.]

Combine all that with rising interest rates and the resulting negative sentiment to all REITS and you have the perfect storm.

should prob throw in the uncertainty behind their tax structure. DPU hit is sizeable if not efficient.

[Dosser]

Combine all that with rising interest rates and the resulting negative sentiment to all REITS and you have the perfect storm.

should prob throw in the uncertainty behind their tax structure. DPU hit is sizeable if not efficient.

AQ.

Can you explain your concerns over their tax structure? Unit holders have to fill in a US form, W8-BEN for non-resident aliens (most of us), concerning their tax residency and citizenship, in order to apply to get paid without the 30% withholding tax being deducted.

http://www.kepkbsusreit.com/en/content.aspx?sid=7424

This is a bit of extra hassle compared with a Singapore based REIT. Are you concerned that the 30% withholding tax might be applied if the structure of the REIT is not appropriate, or if the US changes the rules? Manulife US REIT looks as if it has the same general issues. 30% is a big hit, so would be grateful if you could share.

[AQ.]

Well, the US tax reforms of 2017 means that the structure has already changed,with both Man & KBS adopting a new structure involving Barbados SPVs. I'm not sure how efficient this setup is - i suspect there will be leakage, but prob not the full 30%. 

Manu just released their 3Q results, and at the end of the announcement is the following:

"Tax 

Changes in taxation legislation, administrative guidance or regulations, and/or any disagreement as to the interpretation thereof, may adversely affect Manulife US REIT and the US Subsidiaries 

Any change in the tax status of the Group or change in taxation legislation, administrative guidance, or regulation (or any disagreement as to the interpretation thereof) that applies to the Group, could adversely affect the Group and/or the distribution paid by Manulife US REIT. 

In addition, any such tax changes could adversely affect the value of the Group’s investments, and/or increase the US and non-US tax liabilities of Manulife US REIT and/or affect the Group’s ability to achieve its investment objectives. Such changes could have a negative impact on Manulife US REIT and its Unitholders. 

For example, the US tax legislation modifying the US Internal Revenue Code enacted in late 2017 (“2017 Tax Legislation”) impacted the deductibility of certain interest expense for taxable years beginning after 31 December 2017. As a result, Manulife US REIT restructured certain subsidiaries (the “Barbados Restructuring”), which resulted in certain costs being incurred. In this regard, although the Manager believes that the Barbados Restructuring is responsive to the relevant provisions in the 2017 Tax Legislation, the Manager cannot predict whether such restructuring will remain viable in either the near or long term. The US Internal Revenue Service has indicated that certain guidance with respect to the international provisions of the 2017 Tax Legislation is imminent. The Manager cannot predict when such regulations or other administrative guidance will be released, whether any such regulations or administrative guidance will adversely affect the deductibility of interest by Manulife US REIT’s US subsidiaries or in any other way, or whether any such regulations or administrative guidance will have retroactive effect.

If regulations or administrative guidance result in the non-deductibility of any interest payments by Manulife US REIT’s subsidiaries, the Group may face material US and/or non-US tax payments and other costs, and may be required to engage in further restructuring at additional costs (including costs incurred on an on-going basis). Such regulations and/or administrative guidance may also potentially render restructuring to preserve the deductibility of interest payments by Manulife US REIT’s subsidiaries impossible. All such additional tax and/or costs would potentially have a material adverse effect on Manulife US REIT’s financial condition, cash flows and results of operations."

Personally, i think the tone of the message is ominous but perhaps I am just sceptical.

In anycase, as u pointed out, potential impact to dpu is significant and since event is not exactly low-delta, it pays to be cautious.

[Dosser]

Well, the US tax reforms of 2017 means that the structure has already changed,with both Man & KBS adopting a new structure involving Barbados SPVs. I'm not sure how efficient this setup is - i suspect there will be leakage, but prob not the full 30%. 

Manu just released their 3Q results, and at the end of the announcement is the following:

"Tax 

Changes in taxation legislation, administrative guidance or regulations, and/or any disagreement as to the interpretation thereof, may adversely affect Manulife US REIT and the US Subsidiaries 

Any change in the tax status of the Group or change in taxation legislation, administrative guidance, or regulation (or any disagreement as to the interpretation thereof) that applies to the Group, could adversely affect the Group and/or the distribution paid by Manulife US REIT. 

In addition, any such tax changes could adversely affect the value of the Group’s investments, and/or increase the US and non-US tax liabilities of Manulife US REIT and/or affect the Group’s ability to achieve its investment objectives. Such changes could have a negative impact on Manulife US REIT and its Unitholders. 

For example, the US tax legislation modifying the US Internal Revenue Code enacted in late 2017 (“2017 Tax Legislation”) impacted the deductibility of certain interest expense for taxable years beginning after 31 December 2017. As a result, Manulife US REIT restructured certain subsidiaries (the “Barbados Restructuring”), which resulted in certain costs being incurred. In this regard, although the Manager believes that the Barbados Restructuring is responsive to the relevant provisions in the 2017 Tax Legislation, the Manager cannot predict whether such restructuring will remain viable in either the near or long term. The US Internal Revenue Service has indicated that certain guidance with respect to the international provisions of the 2017 Tax Legislation is imminent. The Manager cannot predict when such regulations or other administrative guidance will be released, whether any such regulations or administrative guidance will adversely affect the deductibility of interest by Manulife US REIT’s US subsidiaries or in any other way, or whether any such regulations or administrative guidance will have retroactive effect.

If regulations or administrative guidance result in the non-deductibility of any interest payments by Manulife US REIT’s subsidiaries, the Group may face material US and/or non-US tax payments and other costs, and may be required to engage in further restructuring at additional costs (including costs incurred on an on-going basis). Such regulations and/or administrative guidance may also potentially render restructuring to preserve the deductibility of interest payments by Manulife US REIT’s subsidiaries impossible. All such additional tax and/or costs would potentially have a material adverse effect on Manulife US REIT’s financial condition, cash flows and results of operations."

Personally, i think the tone of the message is ominous but perhaps I am just sceptical.

In anycase, as u pointed out, potential impact to dpu is significant and since event is not exactly low-delta, it pays to be cautious.

You are right, new warning issued this afternoon by J.P. Morgan that the revised US tax rule could result in the DPU being subject to withholding tax, so a 30% downside - with both Keppel-kbs and Manulife US REITS mentioned as potentially affected.

[Dosser]

There is more detail in this link:

https://tradingforexislami.com/manulife-...-the-dark/

Again, about Manulife rather than Keppel-kbs, but it looks as if both US REITS have been following a similar general strategy.