FHT's Australian subsidiary loses Manage Investment Trust benefits as tax rate rises due to share swap

Following the share swap between InterBev Investment (IBIL), a unit of Thai Beverage Y92 Public Company (ThaiBev) and TCC Assets, completed in September, TCC Assets owns 86.89% of Frasers Property Tq5 (FPL). As a result, TCC Assets owns more than 10% in Frasers Hospitality Trust Acv (FHT), Frasers Hospitality REIT, and FHT Australia Trust (FHTAT). 

In Australia, under a Managed Investment Trust (MIT), S-REITs benefit from a lower tax rate of 10%. To qualify as a withholding MIT, there are several conditions that must be met and among other requirements, no individual (who is not a resident of Australia, i.e. “Foreign Individual”) can directly or indirectly hold, control or have the right to acquire an interest of 10.0% or more in FH-REIT (and therefore, FHTAT) at any time during the income year. 

Following the completion of the share swap on September 20, FHTAT would not qualify as a withholding MIT for FY2024 (for the 12 months to September 30). FHTAT will not enjoy this preferential Australian withholding tax rate and the distribution from FHTAT in respect of FY2024 would be subject to an effective Australian tax rate of 37.5%. The reduction in FHT’s distributable income for FY2024 is estimated to be approximately $1.3 million. Based on FY2023's distributable income, this represents a 2.5% reduction. 

FHT closed at 46 cents on Oct 8, down 9% year-to-date.