Share prices in London office property companies were boosted by an average of 10% after it was revealed that US private equity group, KKR took a 5.35% in Great Portland Estates.
Some of Britain’s biggest property companies were boosted to the tune of collectively £800m after speculation that takeovers could ensure.
Britain’s biggest property companies have had their net asset values smashed as they navigate a most torrid time through the Coronavirus pandemic. Predictions of more home working for office staff and a shift in retail to more online business for home deliveries had put the jitters up existing shareholders, who have been selling in recent months.
But some of the world’s biggest private equity groups smell value at these levels, based on their expectations that the office market will eventually recover as the pandemic recedes and office workers drift back.
Other investors include Brookfield the Canadian investment house, having quietly built a 9.2% stake in the FTSE100 listed British Land, and South African money is continuing to find a safer home in the UK with the country’s Lighthouse Capital increasing its stake in shopping centre owner Hammerson, from 17.1% to 19.1%.
Mike Pew, stock analyst at Jeffries told The Times newspaper:
“Deep discounts to net asset value are attracting stake building in REITs”
REIT status confers substantial tax benefits for investment companies. REITs are essentially companies or groups of companies that manage a portfolio of real estate to earn profits for shareholders, and their special tax status means that they pay no corporation tax on the profits of their rental business, but they need to comply with a number of conditions set out in tax law:
- they must pay out 90% of their property income to shareholders every year.
- dividends are treated as property income to the investor, and are taxed accordingly.
- dividends are subject to a withholding tax at basic rate income tax, except for certain classes of investors including charities, UK companies, and pension funds who can register to receive gross rather than net payments.
- shares in REITs can be held in ISAs and Child Trust Funds (CTFs), and the managers of these can receive gross distributions, making these highly tax efficient.
- REITs investments must be primarily in property, rather than in development or other non-property related activities.
- As REITs are all listed companies, investments in them are generally easily traded.