REIT conversions continue in UK

A second wave of conversions has brought the number of UK quoted property companies operating as tax-efficient real estate investment trust vehicles (REITs) to 13. Three listed property investment companies have become the latest to convert. London-based Shaftesbury, Warner Estate, and Reading-based McKay Securities, which has property assets of £ 285 mln (EUR 419 mln), adopted the status as of 1 April.

Warner Estate had £2.8 bn in property assets under management in September 2006. It said the precise amount of the conversion charge to be paid when converting to a REIT will depend on an independent open market valuation of its assets which will be ready by June. The conversion charge amounts to 2% of a company’s qualifying assets. Shaftesbury held property assets in excess of £1.2 bn in late 2006.

Storage company Big Yellow announced in mid March that had elected to convert after HM Revenue and Customs dropped a challenge to the eligibility of its properties under the REIT legislation. Big Yellow’s conversion was backdated to 15 January.

Nine UK listed properties companies - accounting for 65% to 70% of the market capitalisation of the sector - were the early-bird converters, adopting the status on 1 January 2007, the day the legislation came into force. Two other quoted property companies, Derwent London and Mucklow (A & J) Group, have signalled the intention to convert on or by 1 July. Reita, the REITs lobby and information organisation in the UK, says that a further 26 UK quoted property companies are unlikely to convert to REIT.