REITs which were launched on 1 January 2007 are set to change the face of the property investment market in the UK over the coming years.

The impact REITs have had on the American real estate market has grown on an exponential scale and the US quoted property sector is now worth over $355bn, equivalent to 2.2 per cent of the US stock market capitalisation.

A REIT is a company that owns and operates income producing real estate, which can be commercial or residential. At least 90 per cent of this income is distributed to shareholders by way of dividends and in return the company is exempt from corporation tax.

REITs are designed to securitise the income from rented property assets in a tax efficient way and to ensure that the return from investing in a property company is more aligned with direct property investment. This is done by removing the requirement for companies to pay corporation tax, thereby taking away “double taxation” at both the corporate level and the investor level.

The arrival of REITs in the UK makes commercial property investment more accessible, transparent and liquid given the ease in which to trade shares on the stock market.

It will greatly expand the choices available to UK private investors. Previously direct investment in commercial property has only been available to large institutional investors given the nature and expense attached to commercial property as an asset class.

So what does this mean for the leisure industry? As REITs become more established in the UK companies will create more sector specialised REITs much like what has happened over in the US.

Specialist Leisure REITs will provide expertise in that particular field appealing to private investors willing to invest money into that particular sector. The REIT sector can also help to improve capital allocation, liquidity and thereby, create value for both investors and occupiers.

The leisure market is still seen as a relatively young market in the property industry. As REITs develop they will give the private investor the exposure to invest into specific asset / sector classes and this can only have positive effects for the leisure market in general.

So in the future will we see specific cinema REITs, hotel REITs and leisure park REITs? The answer is: quite likely.

Toby Baines
Chair of Citygrove
LPF committee member