Factors to consider when deciding whether to become a REIT |
Holding property in a REIT enhances shareholder value by approximately 11% for an individual and over 38% for a pension fund. REITs do not need to be pure property companies and some of the new REITs are hybrid business such as self-storage and serviced offices.
Entry into the REIT regime will impact every area of a company’s operations. Companies will therefore need to consider a number of issues before deciding whether to become a REIT.
These issues will include:
- The cost of the entry charge compared to the ongoing benefit of tax exemption, together with costs of complying with the listing requirement;
- The requirement for diversity of ownership;
- Implications of meeting the ongoing requirements in order to maintain REIT status;
- Complying with the company, distribution, balance of business and interest cover conditions and tests;
- Whether the company’s existing reporting tools provide the outputs that will be required as a REIT (monitoring of conditions, accurate forecasting, accounting information);
- The need to increase operational efficiency in order to provide attractive yields to investors.