LONDON-Government plans to introduce REITs are in doubt after the industry's leading lobby group, the British Property Federation (BPF), called for a major relaxation of the planned debt restrictions.
The BPF said the current REIT structure is "unworkable". Its members have warned that, unless widespread changes are made to the current proposals, UK REITs will be a "lame duck". The industry had hoped the investment-friendly structures would make it easier for private investors to buy stakes in the new vehicles and attracting more global capital.
It is understood that the BPF wants the gearing restriction of 2.5 times income or interest cover to be changed. The organization ideally wants it to be left to the market to decide but, failing that, it believes there should be a test based on an investment grade credit rating of BBB or better, backed by an alternative test of either a loan-to-value limit of 65% or an income cover of 1.25 times--half the existing proposal.
The BPF also raised concerns about proposals to limit the maximum shareholding for any one investor to 10%. In its response to the government consultation paper, the BPF said that it understands the rationale for the restriction, but wants penalties for breach of the rules taken away from the REIT and placed on the shareholder.
It also said that, given the restrictions on debt and the 10% shareholding limit, the Treasury must take a "pragmatic and sensible" approach to any conversion charge it will levy on companies wishing to convert to REIT status.
The government should also look at introducing a provision to facilitate the movement of assets into a REIT on a tax-neutral basis in a similar way to the US system, the BPF said.
The BPF also wants the way to be left open for unlisted REITS as soon as possible, preferably in the 2007 Finance Bill, particularly because this would probably encourage smaller REITS.
"We are engaged in a very constructive dialogue with officials and we expect this to continue for some weeks yet," Liz Peace, chief executive of the BPF, said.
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