The introduction of REITs and their impact on the leisure sector

Abstract

A REIT is a real estate investment vehicle that is designed to allow an investor to replicate the returns received through owning property directly. The REIT was introduced in the USA in 1960 and is now available in most of the key developed countries. It is not yet available in the UK but, in March 2004, the government issued a consultation paper opening public debate on the form that a UK REIT might take, if introduced. Disappointingly, this suggested that hotels should be excluded as an asset class because a REIT should only be permitted to invest in property types where the rental returns reflect the underlying property asset. Thankfully, the government was persuaded by the argument that hotels should not be excluded and this was reflected in the March 2005 consultation paper. The government confirmed its aim in the 2005 Budget to legislate for UK REITs in the next year's Finance Bill, although there are a number of key issues that still need to be resolved. This paper takes a look at those issues of most importance to the leisure sector as well as those that could delay or even derail the introduction of the UK REIT.