Published 4 May 2006
Hammerson plc said today it would opt to become a reit if the UK Government’s Finance Bill proposals for real estate investment trusts stay substantially in their current form.
In a speech for Hammerson’s annual meeting, in London on Thursday, chairman John Nelson gave 4 tax benefits as reasons for switching:
on the basis of the company’s current projections, the savings of tax on income & 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. This will both increase the group’s net asset value/share and allow the group to make decisions regarding disposals based on property fundamentals rather than on tax considerations
surpluses from Hammerson’s substantial development programme will, in future, be tax exempt, provided developed properties are retained for 3 years, and
shareholders will be investing in Hammerson on the basis that their investment is taxed only once, rather than twice.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 (on the 2005 books, it would be Â£83 million). Thereafter the company will be exempt from corporation tax on UK rental income and gains arising on UK property sales.
It 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. In future, shareholders will, in effect, be investing in reits on a similar basis to investing in properties directly.
“We believe 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 & cities. I believe it will also add impetus to the regeneration of the UK’s infrastructure, at the same time providing an attractive medium for investors,” Mr Nelson. Hammerson’s French business already enjoyed a similar tax-exempt status after the group entered into the SIIC regime in France at the beginning of 2004.
At December 2005, Hammerson had Â£5.7 billion of properties, Â£2 billion of net debt.
18 December 2005: UK-reit draft law published
Attribution: Company statement, story written by Bob Dey for this website.