Experts welcome Budgets changes to REITs

Real estate investment trusts (REITs) became a more viable tool for investors following yesterday's Budget.

However, experts warn questions remain about how useful the scheme will be in attracting additional cash into the hotel industry.

Chancellor Gordon Brown said in his speech that the amount an investment trust has to pay out to remain a tax efficient vehicle would fall from 95% to 90% of profits.

He also reduced the interest cover of REITs from 2.5% to 1.25%, meaning the loan-to-value rate able to be secured by investors has increased from under 30% to 50-60%.

Philip Camble, senior manager of travel, leisure and tourism advisory services at KPMG said these changes had made REITs more commercially viable.

But Camble added: "There is still a big question mark as to whether it can be applied to the hotel sector. The issue is the need to find operators under the lease to comply with the REITs regulations of having the Schedule A fixed rental income," he said.

Robert Field, partner at law firm Lawence Graham, said. "UK REITs look to be a far more likely prospect following the Chancellor's statement."

Brown also bought forward the legislation of REITs into the 2006 Finance Bill.

By Emily Manson

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