Somewhere in September 2018, the share prices of two Office REITs with properties in the United States went down a lot.

In Keppel Pacific Oak’s rights issue document, they stated, in a certain formal way that, that should there be changes in certain tax rules, there might be material impact on their dividend per unit.

This has got to do with whether their United States sub corporation can use interest expense as a tax shield.

We know that with interest expense, you can bring down your taxable income, thus you pay less tax expense. This increases the cash flow to pay dividends.

If a company cannot do that anymore there will be a material impact.

The worry is that REITs like Keppel Pacific OAK, Manulife US REIT’s dividend per unit will be impacted by 30%.

Thus their share prices plunged.

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