SINGAPORE (April 14): On Apr 13, Manulife US REIT’s manager announced that it will revert to its IPO tax structure. Since the implementation of the US Jobs and Tax Act 2017 which was signed into law on Dec 22, 2017, MUST changed its structure to a Barbados structure.
Robert Wong, CFO of MUST’s manager says it’s no longer necessary to preserve the Barbados structure, as it is cumbersome from an administrative and operational angle, and was more expensive
“We’ve been preparing for this and will be in a position to unwind the Barbados structure before the end of month with no more tax leakages,” Wong says in a teleconference.
The Barbados tax structure impacted FY2019’s distributable income by 1.5%, or US$1.3 million. However, investors looking for an uplift need to be patient. Up to the end of April, MUST will remain on the Barbados structure. In addition, factoring in tax consultants, audit and compliance costs, any savings for this year are likely to be negated Wong adds.
The IPO structure consisted of sub-REITs for what was then around three or four properties. MUST now owns nine properties. The REIT needs to create a sub-REITs for each property, where their net property income flows up to a US parent REIT. In a nutshell in the US, 50% of the income gets shielded by depreciation and the other 50% is shielded by interest expense. Subsquently, the income flows into Singapore where foreign-sourced income is tax-exempt.
Wong says that distributable income will rise by 0.7% in FY2021 versus 2019. The reason why distributable income isn’t completely recouped is because the IPO tax structure will have to absorb the costs of maintaining the sub-REITs.
Dividends from the US are subject to a 30% withholding tax. MUST’s distributions will not be subject to any tax, and unitholders will get their full distributions per unit, which is a positive.
MUST’s unit price is up 30% since its low of 56 cents in March. Based on FY2019’s DPU of 5.96 cents, DPU yield is 8.1%.
