The Lemon Fool

Following up a post on HYP-P

viewtopic.php?f=15&t=23558

moorfield wrote:and further down the list, a lot of REITs it seems
Ferrexpo 11.5%
Genel Energy 10.8%
...

I suppose that shows up the rule which says that to maintain REIT status, most of the rental income has to be distributed by way of PIDs.

Some long established property companies like Land Securities which adopted REIT status perhaps for tax reasons have followed much of the rest of the UK Stock Market in cutting, cancelling or postponing dividends. They presumably have sufficient losses or expenses they can plausibly allocate against rental income

Alaric wrote:Following up a post on HYP-P

viewtopic.php?f=15&t=23558

moorfield wrote:and further down the list, a lot of REITs it seems
Ferrexpo 11.5%
Genel Energy 10.8%
...

I suppose that shows up the rule which says that to maintain REIT status, most of the rental income has to be distributed by way of PIDs.

Some long established property companies like Land Securities which adopted REIT status perhaps for tax reasons have followed much of the rest of the UK Stock Market in cutting, cancelling or postponing dividends. They presumably have sufficient losses or expenses they can plausibly allocate against rental income

No. That's not how it works.

There are 12 months to make dividends after the accounting period, so allows time for suspensions etc.

See viewtopic.php?f=15&t=23380#p307885 with respect to LAND for instance.

Expect to see a return to dividends regardless of how things pan out.

dealtn wrote:There are 12 months to make dividends after the accounting period, so allows time for suspensions etc.

Essentially then, they are front loading in anticipation that the outrun for the financial year as a whole will be worse than previous. So the PIDs are cut or postponed rather than cancelled entirely.

Alaric wrote:

dealtn wrote:There are 12 months to make dividends after the accounting period, so allows time for suspensions etc.

Essentially then, they are front loading in anticipation that the outrun for the financial year as a whole will be worse than previous. So the PIDs are cut or postponed rather than cancelled entirely.

OK so you need to be careful by what you mean by outturn.

The dividends paid to ensure qualifying as a REIT continues are different to profit. Secondly the "relevant profit" needs distributing within 12 months of the "relevant period".

I don't have time to look at the relevant accounts at present, but for LAND at least (from memory), for the annual period that has already ended they have not paid sufficient dividends to satisfy the REIT criteria, so they will need to make another dividend regardless of future events to maintain REIT status. Suspending dividends in the meantime might be prudent from a cash flow perspective, amongst other things to see how business works out, and rental income occurs, but that is distinctly different to the calculation of the minimum dividend payment that is legally required to ensure ongoing REIT status.

Unless it is thought such a company would prefer to lose REIT status, or that a change to the legal requirements will occur (both possible of course), it will be necessary to make another dividend distribution in the coming months, even if the business deteriorates further.