With the Singapore Overnight Rate Average continuing its decline in 2HFY2025, this will continue to have a positive impact on its unhedged loans, around two thirds of the total, says Natarajan in his Sept 8 note.
In addition, following a ruling from the Australian tax authorities, it is deemed to have retained its managed investment trust (MIT) structure in Australia for FY2025.
This will result in the REIT's Australian income, which makes up 18% in 1HFY2025, to be taxed at 10% or 15% on distributions vs the effective Australian tax rate of 30-45%.
As a recap, earlier this year, the REIT announced that it would not qualify for MIT due as the stakes of its major shareholders have crossed 10%.
Since then, they have restructured their holdings, and Suntec REIT is now compliant.
"The Australian Taxation Office has ruled that the inability to meet the requirements was only temporary and beyond the control of the REIT, and that it was fair and reasonable to treat the trust as a MIT.
"As a result, Suntec REIT will be reversing the $4 million tax provision made in 1HFY2025 and will continue to enjoy lower tax rates moving forward. In addition, it has joined the UK REIT regime in April, which will lower its UK tax rates by 10ppts and result in an estimated GBP1-1.5m tax savings per year.
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In addition, Suntec's operating performance remains resilient, with its Singapore portfolio committed occupancy at more than 98% with a stable outlook. In 1HFY2025, Singapore rent reversions were strong at the office, up 10% while retail has been hiked by 17.2%.
Further revisions are expected to remain in the high single digits in the near term, figures Natarajan.
Over in Australia and UK, the portfolios are seen for improvements too, with the REIT currently in active leasing discussions, he adds.
For the current FY2025 and coming FY2026, Natarajan estimates Suntec's DPU to be increased by 5% and 4%, after taking into account lower tax and finance costs.
Between FY2025 and FY2027, Natarajan expects the DPU to see a CAGR growth of 5%.
"Suntec remains a potential M&A and internalisation candidate, given its high quality portfolio size and 35% discount to book," says Natarajan.
Suntec REIT units changed hands at $1.35 as at 1.35 pm. It is up 12.5% year to date.
