Archive | UK-reits

Published 4 May 2006

Hammerson plc said today it would opt to become a reit if the UK Government’s Finance Bill proposals for real estate investment trusts stay substantially in their current form.

In a speech for Hammerson’s annual meeting, in London on Thursday, chairman John Nelson gave 4 tax benefits as reasons for switching:

on the basis of the company’s current projections, the savings of tax on income & capital gains will exceed the initial costs of entering the regime
entry into the regime will remove Hammerson’s substantial deferred tax liability on unrealised gains. This will both increase the group’s net asset value/share and allow the group to make decisions regarding disposals based on property fundamentals rather than on tax considerations
surpluses from Hammerson’s substantial development programme will, in future, be tax exempt, provided developed properties are retained for 3 years, and
shareholders will be investing in Hammerson on the basis that their investment is taxed only once, rather than twice.To enter the new regime, Hammerson will be required to pay a one-off entry charge of 2% of the value of its UK property assets at 31 December 2006 (on the 2005 books, it would be £83 million). Thereafter the company will be exempt from corporation tax on UK rental income and gains arising on UK property sales.

It will be required to pay dividends to shareholders at a level of at least 90% of the tax-exempt income and shareholders will then be liable to pay tax on those dividends, subject to their individual tax circumstances. In future, shareholders will, in effect, be investing in reits on a similar basis to investing in properties directly.

“We believe the introduction of reits will provide additional opportunities to grow the business over the next few years and enable Hammerson to continue to play a leading role in the transformation of our towns & cities. I believe it will also add impetus to the regeneration of the UK’s infrastructure, at the same time providing an attractive medium for investors,” Mr Nelson. Hammerson’s French business already enjoyed a similar tax-exempt status after the group entered into the SIIC regime in France at the beginning of 2004.

At December 2005, Hammerson had £5.7 billion of properties, £2 billion of net debt.

Earlier stories:

18 December 2005: UK-reit draft law published

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Published 17 January 2006

Asian Growth Properties Ltd began trading on the London Stock Exchange’s Aim (alternative investment market) on Monday at a premium to pro forma net asset value, but early trading on Tuesday took the price below asset backing.

Asian Growth comprises the 75% of New Zealand-listed Trans Tasman Properties Ltd’s assets which are in Hong Kong. Trans Tasman was left as a net $100 million company with assets in New Zealand & Australia, and a small percentage of the new Hong Kong company.

Initial trading was in a range of 62-65p/share, compared to asset backing of 54p. But the first trade on Tuesday (London time) was at 55p, followed by trades at 53.87p.

Website: Asian Growth page at LSE

Earlier stories:

19 December 2005: Trans Tasman stake in HK sister only 2.5%

15 December 2005: Full Asian Growth split approved

26 November 2005: Trans Tasman split documents in the post

12 November 2005: 25 November record date to set Trans Tasman reconstruction rolling

5 November 2005: SEA will keep majority in both Trans Tasman companies

23 October 2005: Trans Tasman sets course for Asian split

29 September 2005: Trans Tasman proposes splitting Asian assets into new company

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Attribution: Company statement to LSE, Aim trading, story written by Bob Dey for this website.

Published 18 December 2005

The UK Government published draft legislation on Wednesday, 14 December, for its long-awaited UK-reit structure.

It launched the formal consultation on draft clauses to be part of the Finance Bill 2006 and wants comments back by Friday 27 January.

Key features:

the regime will be open to UK-resident listed companies
at least 75% of the reit’s business must relate to rental activity
a reit must have at least 3 properties, none of them representing more than 40% of total value of the rental business
other business can include development “undertaken with the purpose of generating a trading profit”
companies or groups that meet the UK-reit eligibility criteria won’t pay corporation tax on qualifying property rental income or qualifying chargeable gains
gains from non-ring-fenced business (such as development) will be subject to normal corporation tax
reits will be required to distribute at least 95% of net taxable profits on rental income, which investors will then pay tax on at their marginal rate.

Law firm CMS Cameron McKenna also noted:

the legislation looks like it will include hotels as reit-qualifying businesses
non-resident investors will be treated in the same way as residents, so presumably distributions will be treated as income from a property business and therefore taxable in the UK; whether this approach will comply with the UK’s obligations under its double-taxation treaties will need to be considered further
the Government has opted not to specify mandatory gearing requirements. Instead, the reit will be subject to tax on interest payable on its ring-fenced business exceeding an interest cover ratio of 2.5.

The Government said it remained committed to ensuring no overall loss of revenue from the introduction of UK-reit legislation.

RICS (the Royal Institution of Chartered Surveyors) said it welcomed the dialogue but felt the property industry might find the current proposals over-restrictive, particularly on the ability to borrow.

Website: UK Revenue & Customs, UK-reit executive summary

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