Liberty International to convert to REIT

Posted On Tuesday, 28 November 2006 02:00 Published by
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Liberty International plans to convert into a Real Estate Investment Trust in order improve on tax efficiency
By Ray Faure
UK property group Liberty International's proposed conversion to a real estate investment trust (REIT) will remove tax inefficiencies of the current structure, ultimately resulting in higher returns for shareholders, the group's chairman, Sir Robert Finch, said on Monday.
On a visit to South Africa with CEO David Fischel to encourage South African shareholders - who own about 46% of the UK group - to support the switch to REIT, Sir Robert said the conversion would also result in greater flexibility in asset management decisions, without tax being a constraining factor.
Moreover, it would see the creation of a globally recognised structure as a REIT, which should broaden the group's potential investor base, as well as eliminate the current contingent taxation on unrealised UK capital gains in exchange for the payment of an entry charge - a one-off payment which has been set at 2% of the aggregate market value of qualifying properties at the time of conversion.
"One of the big advantages will also be bigger cash flows," Sir Robert said.
According to Sir Robert, most UK property groups are expected to convert to REIT. In anticipation of this, shares in the sector have soared.
Liberty International, one of the three biggest property group's in the UK, expects the conversion to take place with effect from 1 January 2007.
"In various forms," he said, "REITs are increasingly becoming the predominant listed property vehicle in many of the major jurisdictions around the world.
"The United States, Australia and Holland have long had their own form of REIT and latterly REIT structures have been adopted in both Asia (Japan, Korea, Singapore and Hong Kong) and in Europe (Belgium and France).

Legislation is also well advanced in Germany and italy for the creation of their own REIT model."
South Africa is also said to be moving towards adopting the REIT regime.
A REIT is a company or group that invests in property and enjoys a measure of protection from corporation tax in return for an obligation to distribute a significant amount of the REIT's cash flows to shareholders.
The group's UK tax exempt business under the new UK REIT regime is currently expected to amount to around 90% of its aggregate business.
The principle underlying the REIT regime is that, in return for profits of this business not being taxed, a dividend from this business will generally be taxed in the hands of shareholders as if it was rental income.
However, in the case of South African shareholders it will continue to be taxed as a foreign dividend. The Liberty International Group will remain liable for tax on its profits from other activities.
Overall, however, the amount of tax paid, whether by the company or shareholders, should reduce as a result of the conversion to REIT, according to CEO David Fischel.
For South African shareholders this should see the aggregate effective tax rate drop from 22% to 15% - or to even as little as 11% under a double taxation treaty claim.

I-Net Bridge
Publisher: I-Net Bridge
Source: I-Net Bridge

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