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Sunday, 29 October 2017


Keppel-KBS US REIT ("Keppel US REIT") is offering 262,773,400 units at US$0.88 per unit (with over-allotment option). The REIT is established to invest in a diversified portfolio of income-producing commercial and real estate related assets in United States. While the IPO is not registered yet (should be in the coming days), the public offer will close on Nov 7 at 12pm.

(Side comments: It is quite difficult to locate the lodged prospectus on MAS website and I can never understand why SGX don't have it in the Catalogue either... you can find the link here. Having said that, i have to commend that this is a relatively easy to read prospectus with detailed information 👍)

Key Objectives

The key objectives are to provide unit holders with regular and stable distributions while maintaining appropriate capital structure and sustainable growth in DPU and NAV.

IPO Portfolio

The initial portfolio comprises 11 office properties in the United States as follows:

West Coast (3) - The Plaza Buildings in CBD of Seattle, Bellevue Technology Center close to Microsoft Global HQ in Seattle and Iron Point located in Folsom Sacremento.

Central Region (5) - Westmoor Center in Northwest Denver, Great Hills Plaza in Northwest Austin in Texas, Westech 360 in Northwest Austin Texas, 1800 West Loop South, West Loop I & II  in Houston.

East Coast (3) - Powers Ferry Landing East and Northridge Center I & II  in Atlanta and Maitland Promenade II  in Orlando, Florida. 

Distribution policy

The first distribution will be from Listing Date to 30 June 2018 and be paid to unitholders on or before 30 Sep 2018 (quite a long wait). The distributions will be declared in USD and can be paid in either USD or SGD, depending on the arrangement with the custodians. Subsequent distributions will be semi-annually thereafter.

What I like about the REIT
  • Direct play on the United States - similar to Manulife US REIT, this offers the "second" pure play access to the US Real Estate market. If you are bullish about the US economy growth trajectory and the office real estate outlook, then this is a REIT which will provide that exposure. According to Cushman, the projected GDP growth will continue to be stable at around 2% but those in the IPO portfolio are above the national average (see chart below)
  • Quality portfolio in key growth markets - Frankly i am not an expert in the US real estate market but based on the description, it seemed like the properties are well located and diversified in the cities of Seattle, Austin Texas and Atlanta. According to the prospectus, major US markets in which the IPO portfolio is located have experienced higher job growth in 2016 than previously estimated and these bode well for the US office real estate market and those properties in the IPO portfolio have growth rates that are above the national average (see chart below). Many of the cities serve as national or regional headquarters of Fortune 500 companies
  • Attractive distributions with visible organic growth  - The yields look decently attractive to me with built in rental revisions that will help ensure improvement in DPU. In addition to the built in escalations, the prospectus provided a nice "uptrending asking rental chart" based on national average. 

Keppel US REIT is projecting the yield to increase from 6.8% in FY2018 to 7.2% in FY2019 as shown below.

This is underpinned by the below average lease rental which will be up for "renewal" in 2018 and 2019. Investors who want the projections can refer to page 64 of the prospectus.  

  • Well diversified portfolio by asset and tenants mix and geographically. It also has a stable lease expiry profile - The income is highly diversified as demonstrated by the charts below with a stable lease expiry profile. No more than 20% of lease expire in a single year
  • Freehold properties with decent leverage - All the properties in the IPO portfolio are freehold (same as Croesus Retail Trust) and at 36%, there is still much headroom to take on debt and the debt is not up for refinancing until 2021 and 2022. I like freehold properties 😀
  • Strong institutional support

The issuance is well supported by cornerstone investors such as Affin Hwang, Credit Suisse, DBS and Hillsboro Capital. 
  • Reputable sponsors and experienced team - I like the Keppel branding behind the combined Keppel-KBS name. It is a name which local investors can identify with and you know they are here for the longer term. While Keppel Capital is based here, KBS is headquartered in California with more than 180 specialists (See geographical footprint of KBS below)

Some of my concerns

  • How long will the partnership last? The Manager is jointly owned by Keppel Capital ("KC") and KBS Pacific Advisors Pte. Ltd ("KPA"). The shareholders in KPA are 4 individuals from KBS Capital Advisors ("KBS"). KC is the asset management arm of Keppel Corporation. As in all corporate partnerships, they will not last forever and eventually they will split. 
  • Rights issues is unavoidable, investors have to be prepared for rights issue in future - As you can see from the article in Manulife US REIT, rights issues is unavoidable as the REIT starts to grow and acquire new properties. According to the prospectus, there is a strong pipeline of potential acquisition properties. As REIT has to distribute at least 90% of its income, investors in this REIT must be prepared to fork out cash when acquisition kicks in. 
  • Forex exposure - For investors in Singapore, you will be exposed to USD at both the asset level as well as the distributions. Personally, i don't mind but for some investors, you may lose out on forex based on the share price movement and whenever the distributions are converted into SGD
  • IPO at premium to NAV - The current NAV is US$0.84 (page 60 of the prospectus). Investors who subscribed at US$0.88 will be paying a slight premium to book of 1.047x. 
  • Long waiting period till next distribution  - Investors who buy into existing REITs will get their distributions in the next 6-9 months, whereas IPO subscribers in this REIT will only receive their first distribution in Q3 2018. This makes it less attractive for investors who finance their acquisition with debt.   
Fair Value

The closest listed peers is actually Manulife USD REIT where my original write up is here. According to REITDATA and Shareinvestor, it is currently trading at a yield of 7.06% and a price to book of 1.09x.

Let's see how was its performance since launch. The IPO price was $0.83 and it languished for an extended period of time before investors appreciate it better and the price finally moved above its IPO price about 9 months later.

Keppel KBS US REIT is fairly priced at its IPO price of US$0.88 which represents around 6.8%-7.2% yield and price to book of 1.04x. 

Based on the valuation metrics of Manulife USD REIT, it should trade at a fair value trading range of between 85 cents (assuming investors require a minimum yield of 7% yield) and 92 cents (assuming Keppel USD REIT trades up to 1.09x book value).

My Ratings

As I have mentioned a few times, REITs are not meant for flipping. You invest only if you like the yield. As such, i will give it a one chilli rating for the IPO.

Having said that, i actually prefers this IPO to the Manulife USD REIT. I felt that investors are able to appreciate the Keppel branding and the well-diversified nature of the US IPO portfolio. If investors want to consider diversifying their REIT exposure beyond Singapore to the United States, this should be a name that can be considered. I will subscribe some shares for my longer term hold.

Polling time

Saturday, 14 October 2017

Lion-Phillip S-REIT ETF

I received at least 10 private messages asking if i will be covering the ETF. Even though i don't really consider this an IPO, i will share my thoughts with you.

What is an Exchange Traded Fund ("ETF")?

A short while ago, ETF was not accessible to retail investors until MAS relaxes that in April 2015! If you ask me what an ETF is, it is basically a fund tracking a particular index which it is set up for. In this particular case, this ETF is set up to track the Morningstar Singapore REIT Yield Focus Index.

Key information

The minimum application amount is 50,000 units (or $50,000) and it will be listed on 30 October 2017. The Managers are Lion Global Investors Limited and Phillip Capital Management. The Manager intends to pay out dividends semi-annually and you can find more information about the ETF here. You can find the FAQs here.

Who is ETF suitable for?

Investors who want regular distribution and seeking an "index-based" approach towards investing in a diversified basket of Singapore REITs listed on SGX. According to the prospectus, the ETF will not be actively managed as the Manager do not intend to actively select the REITs to outperform the market or take defensive positions in declining markets.

What i like about the ETF
  • Low cost way for investors to start planning for their retirement. While the initial minimum subscription is $50,000, investors with less capital can subsequently buy and sell in smaller units once the ETF is listed
  • Diversification. Investors are able to gain exposure to a diversified basket of REITs despite the small outlay 
Index REITs

The ETF is supposedly going to track the above REITs based on the weightings. While there could be some tracking error as the Manager tries to replicate the index but investors can expect that their money to be invested in the above basket of stocks

Some of my concerns
  • Low liquidity - Looking at the current trading volume of ETFs on SGX, trading liquidity is likely to be limited. However, investors could ask participating dealer to create or redeem the units
  • Inefficient tax structure - It seems like there is a tax leakage as retail investors who invest in the REITs directly will be "better off" than investing through the ETF even though they will probably not "feel" it as it will not be so evident. See tax treatment for individuals by IRAS versus tax treatment for the ETF below.
Page 66 of the prospectus: "Taxable income distribution from Real Estate Investment Trusts ("REITs") listed in Singapore derived by the Fund will generally be subject to tax withheld at source at the prevailing income tax rate, currently 17%. Such taxable income distribution derived by the Fund is a non-Designated Income and will be subject to tax at the prevailing income tax rate, currently 17%, which could be offset by the tax withheld at source. The gains or profits derived by the Fund from the disposal of units in REITs listed in Singapore are Designated Income."
  • Lower returns. The targeted yield of 4 to 5% after tax is not high enough for me for this asset class
Fees involved
  • Transaction fee and Duties of $500 per $50,000 means investors who subscribe to the ETF incur a 1% creation charge. The rate is similar to placement fees in an IPO, except that this is not an IPO. Investors who didn't sell through the exchange but via redemption subsequently will incur a 1% redemption fee as well
  • Manager's Fee  of 0.5% per annum
I didn't comment on the fee levels as you don't expect this to be created for free isn't it? So you have to access for yourselves whether you are comfortable with the fees you are paying

Mr IPO's views

The ETF is great for retail investors who wants to start their retirement plans and wants to build up their portfolio in a disciplined way but do not know how to choose the REITs. It is a safe way to build up a diversified portfolio from day one. To me, the best way to invest in this ETF is to set aside a small amount of cash regularly and nibble at the ETF through SGX. 

For investors who are more savy and have more capital, my view is that you are better off creating their own "index" of REITs. There is no point paying for low liquidity and low returns and incurring the transaction and manager's fees. I will give it a miss personally. If you have $50,000 to invest, you can start creating your own portfolio and enjoy a better after tax returns. 😎  Maybe i can charge 0.5% as advisory fees next time? 😋

Saturday, 7 October 2017

IPOing 101 - Share Application Rules

For the IPO newbies, i have previously written a few articles that may still be relevant and for your benefit, i am posting the links here.

  1. IPOing 101 - How to apply for IPO shares
  2. How to increasing probability of getting IPO shares from the public tranche
  3. How to lay your hands on placement shares
Even though these articles were written in 2007 (wow more than 10 years ago 🙂), I took a quick glance and think that they are still applicable. Please let me know if you spot any mistakes. 😂

Having said that, I am still learning new things everyday! Here are some questions for today and see if you have the answers. For the purpose of this article, i will not be using the printed forms anymore. At this time and age, i think they should eliminate the printed forms to save the 🌲...

Let's take a look at Appendix F using the most recent APAC Realty IPO as an example and see if we can learn something new.

Question 1: Must you physically be in Singapore when you apply for the IPO shares?


The answer is yes, you have to be in Singapore! It was printed in BOLD and Capital Letters, indicating that this is an important point! In other words, it is illegal to apply for the shares through the internet banking if you are physically in United States at the point of application... feeling guilty now? 🈲

Question 2: What is the minimum number of shares you can subscribe for and in what multiples? Example, can you apply for 2,000 shares, or 2400 shares or 2,688 shares?

Answer: The minimum initial subscription is for 1,000 Offering Shares. You may subscribe for or
purchase a larger number of Offering Shares in integral multiples of 100. Your application for
any other number of Offering Shares will be rejected. 

In other words, the rules are: (1) you must first apply at least 1,000 shares and (2) it must be in multiple of 100. Based on the question above, if you apply for 2,688 shares, it will be rejected but if you apply for 2,000 or 2,400 shares, it will be accepted.

Question 3: Can you apply for the same IPO placement shares with different banks or brokers? Example - Applying for Netlink Trust placement tranche through DBS, Credit Suisse and UOB?

Answer: Multiple applications may be made in the case of applications by any person for the
Placement Shares only (by way of Application Forms for Placement Shares or such other form of application as the Sole Issue Manager, Bookrunner and Underwriter may in its absolute discretion deem appropriate)

In other words, you can apply for Netlink placement shares through different banks or brokers

Question 4: Can you apply for the same IPO under both placement and public tranche?

Answer: Multiple applications may be made in the case of applications by any person for the Placement Shares together with a single application for the Public Offer Shares whether by way of an Application Form for Public Offer Shares or an Electronic Application.

In other words, you can apply for the placement tranche multiple times but you can only the public tranche once

Question 5: Can you apply for the same IPO public tranche using ATMs from different banks? 

Answer:  Only one application (be it using physical form or electronically) may be made for the benefit of one person for the Public Offer Shares in his own name. Multiple applications for the Public Offer Shares will be rejected. Persons submitting multiple applications for the Public Offer Shares may be deemed to have committed an offence under the Penal Code, Chapter 224 of Singapore, and the SFA, and such applications may be referred to the relevant authorities for investigation. 

In other words, you can only make ONE application for the public tranche 🏧 and it is a serious offence and you can be charged in court for this. 👮

Question 6: Why can't i use the ATM network or Internet Banking platform of certain banks for some IPOs (the answer is not found in the Appendix F) 😋

This is an additional question which i have added which i think some people may not know. 


Usually the issuer will have to decide which banking network they would want to use to distribute the shares during the IPO application. The de facto bank will be DBS bank. DBS has the widest ATM network compared to the other 2 local banks. If the issuer decides that DBS is adequate, it may not extend the ATMs to UOB or OCBC, especially for smaller issuance.

in addition, some banks has internal restrictions. I understand UOB has certain restrictions internally on distributing perpetuals through its ATM network.

Internet Banking

DBS has the most advanced Internet banking and mobile app platform among the three banks. As such, DBS users can apply for IPO using both internet banking or mobile app platform. I have been using the DBS internet banking to apply for shares for the longest time. At the time of writing, the UOB and OCBC internet platform is still not ready for IPO applications. Do let me know if my understanding is wrong. 

Polling time: Link is here

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