Hammerson To Launch UK's First REIT

by Robert Lee, Tax-News.com, London

08 May 2006

Hammerson plc, a leading European property company based in the UK, has announced that it will become the first British company to convert into a real estate investment trust, or REIT, following the announcement in the 2006 budget that legislation giving effect to the new vehicles will enter into force next year.

To enter the new regime, Hammerson will be required to pay a one-off entry charge of 2% of the value of its UK property assets at 31 December 2006. Thereafter the company will be exempt from corporation tax on UK rental income and gains arising on UK property sales.

Hammerson will be required to pay dividends to shareholders at a level of at least 90% of the tax exempt income, and shareholders will then be liable to pay tax on those dividends, subject to their individual tax circumstances.

The new legislation announced by Chancellor of the Exchequer, Gordon Brown has been generally well-received by the property industry, which has viewed the current draft as a significant improvement on earlier proposals.

"The Board of Hammerson has decided that, if the Bill is enacted substantially in its current form, the company will elect for REIT status to take effect at the beginning of 2007," John Nelson, Chairman, Hammerson plc, revealed at the company's annual general meeting last Thursday.

The new laws will become effective on January 1, 2007.

According to Mr Nelson, the move will be advantageous to both companies and investors, because substantial future savings of tax on income and capital gains will exceed the initial costs of entering the regime. Entry into the regime will remove Hammerson’s substantial deferred tax liability on unrealised gains, increasing the group’s net asset value per share, while allowing the group to make decisions based on property fundamentals rather than on tax considerations. Also, shareholders will be investing in Hammerson on the basis that their investment is taxed only once, rather than twice.

"We believe that the introduction of REITs will provide additional opportunities to grow the business over the next few years and enable Hammerson to continue to play a leading role in the transformation of our towns and cities," Mr Nelson stated.

Hammerson currently has a portfolio of around 1.2 million square metres of retail space and over 260,000 square metres of prime offices, spread across its operations in the UK, France and Germany and worth about GBP5.7 billion. It is listed on the London Stock Exchange and Euronext Paris.

Hammerson’s French business already enjoys a similar tax exempt status following the group’s entry into the SIIC regime in France at the beginning of 2004.

The German government is also finalising proposals towards the introduction of similar tax-efficient property investment vehicles.

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