LONDON, United Kingdom (Reuters):
British property stocks led by Land Securities Plc and British Land Plc got off to a strong start in 2007, hitting record highs, as many converted into low-tax investment trusts that guarantee higher dividends.
By 0915 GMT, shares in Europe's largest listed property firm Land Securities were up 0.9 per cent to 2,343 pence with rival British Land up 1.2 per cent at 1,735 pence as they joined many property companies switching into a real estate investment trusts (REITs), which was introduced by Britain on Monday.
REITs are property-managing firms which pay little or no tax as long as most of their earnings are paid to shareholders as dividends.
Fuelled by expectations for the introduction of REIT status, gains in property company shares have outpaced Britain's red-hot commercial property market in recent years, which is booming on strong office demand mainly in London.
Britain's property sector jumped 44 per cent in 2006, beating the benchmark FTSE 100 by some 30 per cent.
Narrowing gap
While they still trade at a discount to their net asset value (NAV), the gap has narrowed as the REIT regime reduces discount factors of holding property via a corporate entity.
"This is an important time for United Kingdom real estate. The benefits of REITs are immediate in terms of their boost to investors in the quoted property sector and those companies joining the regime," British Land chief executive Stephen Hester said in a statement yesterday. "Until today, quoted property companies have had to operate at a considerable disadvantage to other property investment vehicles. REITs redress the balance and should make the sector more attractive to investors, old and new."
Property companies have to pay a one-off conversion charge to gain REIT status and Land Securities estimated that cost at around £300 million (US$589.6 million) on Tuesday.
REITs, which have been established for decades in Australia and the United States, started to catch on in Europe and Asia in recent years because they generally give higher yields than bonds, but are much less volatile than stocks.
Shares in other REITs such as Hammerson Plc and Great Portland Estates also rose 0.4 per cent and 1.6 per cent, respectively.
