UK - Real estate investment trusts in the UK will be able to issue stock dividends in lieu of cash dividends if the current government remains in power after the next general election.
UK chancellor Alistair Darling made the announcement in his pre-election Budget on Wednesday following lobbying pressure from the British Property Federation (BPF).
The proposed change in the law would allow REITs to issue stock dividends as part of their legal obligation to distribute 90% of their rental profits, potentially enabling them to conserve cash during the recession and consolidate with a view to expanding in the future.
The BPF is claiming a victory for the REIT sector in the UK, having lobbied for this move and written to the country's finance ministry ahead of Darling's budget announcement.
The change would happen after the UK's general election, expected in May, but the BPF said the move had attracted cross-party support, implying it could come into effect regardless of which political party takes a majority in the Parliament.
"Refinancing by the REITs has shown strong confidence in the sector and many are now assessing opportunities for new investment," said Liz Peace, chief executive at the BPF.
"Allowing REITs to have greater flexibility over how they manage their cash will benefit our economy as we begin to see improvements in occupier demand."
Phil Nicklin, real estate tax partner at Deloitte, who leads REIT technical groups for both the UK finance ministry and the Property Industry Alliance, said the proposed changes were "most welcome" and part of a "positive Budget for property".
He said: "The industry has been lobbying hard for the government to make changes to the REIT regime, so that stock dividends can count towards a REIT's 90% distribution requirement.
Nicklin said the practice of offering investors shares in lieu of a cash dividend had proved popular recently, and the changes would help REITs to conserve cash.
"This is particularly important in an environment where new debt is difficult and expensive to come by," he said.
"This change is a win, win, win situation. REITs conserve cash and shareholders can choose to receive shares, and the Government still gets its tax."
 

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