Brokers' take

Manulife US Reit | Buy (maintained) Target price: US$0.97 Nov 1 close: US$0.73 DBS Group Research, Nov 1

The risk of an unfavourable tax ruling on the back of US tax reforms late last year, could result in a potential 30 per cent cut in Manulife US Reit's distribution per unit (DPU). The fears over the cut in DPU arises from the US tax authorities potentially ruling that its Barbados entity which is used to repatriate cash from the US to Singapore is deemed as a "hybrid entity".

By using the Barbados entity which pays corporate tax, it avoids one of the criteria for being deemed a hybrid entity. As the US tax authorities have not provided any rulings or guidance on the validity of the use of Barbados entities and no clarity of timing on when this may happen, this creates some degree of uncertainty and regulatory/tax …