News that UK REITs will be allowed to count stock dividends towards their 90% income distribution requirements under plans announced in yesterday's UK Budget received a broad welcome. The British Property Federation welcomed the news and said the move was a victory for the organization's drive to bring about the change.
A budget announcement said: "The Government intends to legislate in a Finance Bill to be introduced as soon as possible in the next Parliament, to allow real estate investment trusts (REITs) to issue stock dividends in lieu of cash dividends in meeting the requirement to distribute 90% of the profits from the REIT's property rental business."
Liz Peace, chief executive of the BPF, said: "Refinancing by the REITS 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."
Robert Moir corporate partner at international law firm Pinsent Masons said the property industry will welcome that this measure "has finally been implemented, as preservation of cash is key at the moment". However, he cautioned of itself the measure is unlikely to lead to a significant number of new REITS. "Concerns remain in terms of the relative inflexibility of REITS when compared to say closed-ended listed vehicles, in terms of asset mix, gearing and of course the costs of set up. There has been no movement on improving the rules for residential REITS, or the possibility of a more flexible AIM REIT." Moir added.
Source: BLJ Financial