BECOMING A UK-REIT 17
INVESTOR BASE The decision to join the UK-REIT regime will, ultimately, only be made if it is considered to be in the best interests of the holding company’s shareholders. Entry into the UK-REIT regime will have implications for existing shareholders, as set out in Section 4. Being a UK-REIT may make the group more attractive to other types of investors, which may help it to grow. A UK-REIT cannot be closely held (broadly, under the control of five or fewer participators, or any number of directors who are participators), although there is a grace period such that a new entrant to the UK-REIT regime has up to three years to meet the diverse ownership rule. If the company does not wish to dilute its existing shareholder base, unless there are sufficient institutional investors, UK-REIT status may not be appropriate.
FUTURE COMMERCIAL PLANS Only profits of a UK-REIT’s property rental business are exempt from UK tax. As a result, UK-REIT status may not be attractive if the group’s forecasts include significant non-property rental business income or assets, for example: X Development of properties with a view to sale X Realisation of all investments in the short to medium term X An intention to hold portfolio investments in other property companies that are not UK-REITS.
CURRENT AND FUTURE FINANCING PLANS
Conversion to a UK-REIT may enhance the ability of the group to access the capital markets by having its shares admitted to trading on the stock exchange. If the group has sufficient access to capital for its medium term plans, through existing cash surpluses, private finance or bank facilities, the additional regulation and compliance obligations of being in the UK-REIT regime may well dilute its commercial attractiveness.
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