- Real estate investment trusts (Reits) should be allowed to count stock dividends towards their 90 per cent income distribution requirements, say the country’s biggest developers.
The British Property Federation (BPF) has written to the Treasury calling for the amendment to be made in the upcoming pre-Budget report.
The trade body, which represents developers, investors and agents, believes the amendment would help real estate firms conserve cash during the recession and leave them better placed to expand over the coming year.
The federation’s director for finance policy, Peter Cosmetatos, has emphasised that the change would not cost anything to the Exchequer.
In its submission, the BPF says that allowing the amendments would help Reits conserve cash, strengthening their balance sheets and making it easier for them to invest in the current economic climate.
Reits are required to distribute 90% of their property income into the hands of the investors in return for not paying corporation tax. Currently, they can offer shareholders the alternative of taking stock in lieu of a cash dividend. But this does not count toward the 90 per cent distribution requirement, which must be in cash.
John Richards, vice-president of the BPF, said:
“Refinancing by the Reits over the last year has shown strong confidence in the sector and many are now assessing opportunities for new investment. Allowing Reits to have greater flexibility over how they manage their cash will benefit our economy as we begin to see improvements in occupier demand. Without the necessary government support, we could quite possibly see a more serious under-supply in new space, and increased upward pressure on rents, reducing new employment opportunities. This amendment, however, would be a win-win move for the government.”
Peter Cosmetatos, BPF director for finance policy, said:
“This change would allow Reits to manage their way through difficult times while maintaining shareholder value by giving shareholders the option of accepting cash or a stock dividend. We are of course acutely aware of the state of the public finances – but as tax would still be collected when the distribution is made, the Exchequer would not lose out under these proposals.”
Chris Grigg, chief executive of British Land, said:
“Reits are obliged to pay out a higher proportion of profits in cash than other listed companies, so this straightforward amendment would level the playing field, have no downside to Government as tax paid would be the same, while giving REIT investors the choice of leaving cash efficiently in the business. Under the current set-up, Reits and their shareholders are disadvantaged by a legislative approach already deemed ‘unduly cautious’ by the House of Lords Select Committee on Economic Affairs.”
Francis Salway, chief executive of Land Securities and former BPF president, said:
“The Reit legislation has stood up well in the face of the extreme stress testing of recent market conditions, but it is clear that both companies and shareholders could benefit from the increased flexibility of being able to offer stock dividends.”
Ian Coull, chief executive of Segro, the UK’s largest industrial developer, said:
“There would be no loss to the Exchequer as stock issued is taxable in the same way as cash property income is. The benefits of Reits being able to strengthen their own balance sheets, conserve cash and maintain buoyancy, would have positive consequences for the property market and the wider economy.”
For more information, contact Andrew Teacher at the BPF on 07968 124545 / ateacher@bpf.org.uk
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