REIT rules "unlikely to change
The government is unlikely to change legislation covering real estate investment trusts (REITs) in the short term in order to help pub companies convert to REIT status.
In a warning to companies considering a move, Gareth Lewis, director of finance and investment at the British Property Federation, said this reticence meant it "could be unwise for these pub companies to evolve strategies on the expectation of such improvements in the legislation".
Lewis was responding to comments last week from HM Customs & Revenue cautioning pub operators not to use REITs as a means to avoid paying tax, as well as a statement from the Treasury that REIT legislation would be subject to ongoing review (thepublican.com, City, January 26).
These assertions, from government departments closely connected to the working practices of REITs, prompted concerns from observers that going down the REIT route might prove a fruitless exercise for those asset-rich pub companies seeking a more tax efficient structure.
In an article to be published in next week's Publican, Lewis outlines that a pub operator's income streams "do not fall within the tax authority's traditional strict analysis of property income" and consequently there could be problems for groups seeking to convert into a REIT.
Lewis notes the issue of rental income - 75 per cent of a REITs' income must be derived from rent - must be taken into consideration and that other factors could lead to "some significant restructuring in order to comply with the legislation".
A number of pub operators, including Mitchells & Butlers, Punch Taverns and Enterprise Inns are considering whether to become REITs. However, Enterprise's chief executive Ted Tuppen has said that he is reluctant to be a REIT 'pioneer', given the government's predilection for altering legislation on the hoof.
