Taxing questions for US-based S-REITs as DPU yields expand

SINGAPORE (Nov 26): On Oct 30 and 31, Manulife US Real Estate Investment Trust (MUST) fell sharply to a low of 69.5 US cents, but rebounded on Nov 1. Its decline followed a protracted fall by Keppel-KBS US REIT (KORE), from 73 US cents on Oct 16 to a low of 53 US cents on Nov 5. KORE has since stabilised at 57 US cents to 58 US cents, and MUST has stabilised at 77 US cents. KORE was listed at 88 US cents about a year ago, but has traded below this level for much of this year. 

On Oct 30, KORE published a circular to unitholders for its 295-for-1,000 rights issue to raise US$93 million ($127.8 million). The rights circular highlighted a tax leakage, the fourth time that KORE had drawn attention to it this year, alarming analysts and fund managers. The tax issue, coupled with the announcement of an acquisition (on Sept 28) and a dilutive rights issue (on Oct 17), sent KORE’s unit price tumbling, and subsequently caused MUST’s unit price to fall as well.

To take a step back, non-resident aliens such as Asian investors face a dividend tax rate of 30% on dividends paid out by US companies. This rate can be lower, depending on the treaty between the alien’s home country and the US. 

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