1 Hotel cover.indd - Nicola Cottam

Key Issues: Real Estate Investment Trusts: REITS and the Challenge for Hotels
Beyond that, how will investors and agencies rate a property company with a single unlisted tenant that no-one
has heard of, namely “Opco”? The answer to that may be to point them in the direction of the operating company
behind “Opco” but will that be sufficient?
And what about the new hotel specialist REITs funds everyone talks about? They will come but the regime remains
unfriendly for REIT start ups despite Government claims of relaxation in the December Pre-Budget Review: there
may still be a 6% start up tax cost for new hotel REITs unless the most artificial of structures is adopted. Initial
costs of listing, at least on the London Stock Exchange, may be prohibitive. Until the legislation and the sector have
bedded down it is hard to imagine high numbers of new entrants unless the sponsors have ready access to new
stock or even own existing portfolios and see extra value through an exit by REIT listing over the more normal
trade or financial disposal.
Even then, listing will usually require a significant retained stake, going forward, and this will not produce a full
exit at least initially. Care must also be taken that the retained stake is not so large as to breach the REIT close
company rule.
By the same token, we can envisage new REITs being seriously considered for those seeking an alternative to a
standard sale and leaseback financing structure.
Even more likely may be the sale of existing corporate portfolios, including hotels, to existing REITs so as to wash
out the inherent capital gains and increase exit values without the associated cost and retained interest requirement
we see in the creation of a new REIT.
So, we can see exciting times for both REITs and hotels ahead but must anticipate some reticence in the creation
of new or blind REIT funds as well as some nervousness over managed hotel structures.
March 2007 Hotel Report Guide to UK Hotels l © William Reed Publishing 38