Industry welcomes new rules on REITs

Hotel owners using management contracts to operate their properties may now be eligible to take part in Real Estate Investment Trusts (REITs), experts claim.

At a meeting of industry leaders held last week in London, law firm CMS Cameron McKenna revealed a split property-ownership/operating-company structure that would allow hotels with management contracts to participate in REITs.

The structure means the operating company is not technically a subsidiary of the property company, thereby complying with the new legislation.

Industry experts had previously expressed concern that investment potential in REITs would be limited, as only properties with leasehold contracts would comply.

Mark Nichols, tax partner at CMS Cameron McKenna, said: "We're confident that the structure will work, but can't be 100% sure until the final government regulations and Stock Exchange rules come out later this autumn."

British Hospitality Association chief executive Bob Cotton said: "I'm delighted we now have a structure which is understood and workable."

But he warned that REITs would not be appropriate for every hotel property. "REITs are unlikely to attract new hotel investors but may well work for companies that have owned their property for a long time and want to capitalise on those assets in a tax-efficient way," he said. It was now a matter of waiting to see the levels of demand from the industry and investors, he added.

What is a REIT?

A Real Estate Investment Trust is a tax-efficient investment vehicle which allows individuals to invest in property through the Stock Exchange.

Properties within the portfolio must comply with Schedule A - so must generate their own income, generally through a fixed commercial rent. Individually owned hotels and restaurants are now allowed to be part of a REIT. An individual can own a maximum of 10% of each trust.

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By Emily Manson

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