Are REIT’s A Viable Exit Strategy For UK Landlords?

Hi Tom,

I like the sound of this more and more.

Re: 8 I find your reply to this satisfactory, thank you.

As far as my understanding regarding sale valve and capital tax, HMRC will have a very good idea of values, I understand they will accept the price a purchaser is prepared to pay only if the property is made available to the open market. However the percentages you mentioned are in my opinion not likely to raise any issues or if they do, it should not be of much of a concern in the overall scheme.

Re:10, I was basing the shareholding percentage on each individuals particular property, the fact you don’t understand makes me think this was incorrect, if so, which makes the shared 60/40 shareholding I mentioned “not applicable.”

12, Am I now correct to think the shares you issue on each property purchase are shares in your REIT company as a whole. I am guessing and second guessing myself so do put me right.

As a landlord I get the potential of income from rent above loan and management costs and I get the potential capital gain from increase in property value. I can potentially benefit from the equity value without selling by borrowing against the increased value.

13, I see you mentioned you aim at a 5 – 8% return. Perhaps you could clarify exactly how a sale to your company works in relation to actual payment returns into a shareholders account and how often?

14, Kindly enlighten me as to what or how if any is the relation to the potential equity growth if any, and how often is any return received?

Regards kris

Ps Thank you Mark, you can call me Chris or Kris I answer to both, my spirt has taken a hiding since the first announcement of section 24 and I am getting old, nearly your age in fact! I am still fighting back though. I broke a smile to hear how its just too hot for you in your exile state in Malta during July and August, I must have slipped into a better mood community wise, and it’s being blistering hot here in Norwich today maybe you would like a postcard wish you were here to remind you of home?

Reply to the comment left by Chris Baker at 11/06/2018 - 18:41
Ah ! The irony of an exile escaping back to where he exiled himself from ! How English can u get ?

Reply to the comment left by Chris Baker at 11/06/2018 - 18:41
Hi Kris,

Thank you for your questions, I am enjoying our dialogue and I am glad you like the sound of what we are doing!

12. Yes, any shares issued will be shares in the whole company, so the landlord will have a % of our REIT and will recieve their % share of 90% of the profits.

13. We will look to distribute profits to shareholders quarterly. We understand that landlords will be used to monthly income, so want to make distributions as frequently as possible. I do not think we will be able to do this monthly due to the time to collect all the rents and work out the profits etc.

14. The share price of the company is linked to the Net Asset Value of the properties owned. We will have the properties valued at least once a year so if there is an uplift in property values, in theory, the share price should also tick up. It should be pointed out that we are focusing on poviding an income for shareholders rather than lots of share price growth. This will be an added bonus but very much relies on the market and is a little out of our hands. However, we have more control over the yield which is what we are focussing on.

All the best,

Tom

Hi Tom, thank you again for your reply, I don’t know if this is the right deal for me, whether is right now or in the future, but I am feeling very good about the prospect.

I gave a little time to the link to the HMRC you gave, there are several categories for different types of companies.

15, What type of business heading/category does your company come under in the HMRC REITs scheme?

As you say, HMRC do impose quite strict control on REIT companies, I do view this as a form of protection. I have disliked investing in shares per say as I could go to bed rich and wake-up broke.

If my initial grasp of the HMRC REIT rules is correct, in the event of REITs company losing REITs status, or if the company otherwise goes bankrupt, a REITs company such as yours, has a distinct advantage above normal share options, where the assets of a REITs company, (the properties) are then sold, and you say 100% of sale is returned to shareholders. So unless there is a massive drop in property prices, the returned value less admin and sales is most likely to be close to the initial amount of the share invested.

If this is correct it means there is a sizeable safe-guard, if a bank fails anyone with 1m savings would need a dozen different unlinked banks to get their money back in full at the 85k safe guard cover, a REITs scheme share has the advantage of dividends plus capital growth and potentially full inital investment return value. Put me right if I am wrong, otherwise this aspect and in particular your companies personal experience value is really very attractive to me.

Re: 13 As much as I would like more frequent dividend payments I can live with receiving on a quarterly basis, I think most Landlords have the ability to manage their finances, I can understand you would face some accounting issues with monthly dividend pay outs however my thoughts are that it could be done if needed.

Re: 14, Do I understand you correctly, that the added bonus of the theory of up-lift in property values, is not included in projected aim of a 5-8% return on share dividends?

My guess is any percentage rise or loss of the assets (properties held) is reflected only in the share value so,

16, Would the only way to realise the added bonus into cash, is for a shareholder to sell shares?
Kindly explain how the added bonus aspect works and or how it can translate to dividend or cash.

I very reluctantly put a property on the market to sell, I was grumpy that day to say the least, from a business aspect why would I sell an asset that generate 3 times its cost. When I first started letting many years ago my goal was to secure a long term self-supporting end of life plan, with enough finances to enjoy a moderate life style the freedom of time before the bucket gets kicked. After the advert went live, my thoughts changed to envision life with no ties to property or tenants or the mountain of stupid legislation and interference and over regulation from do-gooders jobsworth busy bodies. (whoops I went into one) the fact is the thoughts of having none of the above shyt that landlords now have to deal with was exhilarating and I then spent time on various scenario predictions of how soon I could exist, the resulting figures were within 2 years, that just made me what it Now, one of the aspects of when I could leave is down to loss of the potential gain in asset value, the REITs option potentially keeps angle in play. Tom, I am keen to see how you answers to re: 14 & 16.

Since your companies conversion to REITs in late 2017?

17, Are you able to give an indication (like a pie chart) of your companies’ current status percentage of various costs vs income?

18, Are you able to indicate any added bonus’s given?

I look forward to your reply.

Regards kris

Reply to the comment left by Chris Baker at 13/06/2018 - 16:32
Hi Kris,

15. We are a very simple REIT. We are not currently a Group REIT. Every property we currently own is held by the REIT in one structure.

You are 100% correct about the safe guards that REITs provide shareholders. At the end of the day shareholders will be investing in Bricks and Mortar.

Re 14. no any potential growth is not included in the 5-8% yield target. Capital growth is unreliable so we choose not to include it in our target yield calculations.

16. Yes, the only way to realise share price growth is to sell the shares. It would be possible for shareholders to retain the initial value of their holding and simply sell any uplift every year. Obviously, if the value of a property increases it is much harder for the landlord to extract this increase whilst retaining their original investment.

The reason we wanted to convert to a REIT was to provide landlords a way to maintain their income from property, but without all the hassle of being a landlord. It sounds like you are experiencing the issues that many landlords are facing!

17. To be perfectly honest this is tricky at the moment. Listing cost a fair amount of money so our figures for 17/18 are skewed by this. Our year end is 30th June so we will have better idea then of where we stand. So if you do not mind I would rather wait until all the figures are collated before giving exact details of costs v income. What I can say is that we are a profitable REIT from day 1.

18. By added bonuses do you mean share price growth? I cannot really gauge this at the moment as we are such a new REIT.

All the best,

Tom

Reply to the comment left by Tom Tennant - REIT Providor at 13/06/2018 - 18:52
Hi Tom

Surely the cost of establishing the REIT should have been accounted for as a capital cost, and would not affect your net profit figure?

Reply to the comment left by Mark Alexander at 13/06/2018 - 20:51
Hi Mark,
Yes, it is a one off cost in our accounts.
We will know exactly what our profits and costs for 17/18 including our first 6 months as a REIT in the coming months. I do not want to guess what they are now and get them wrong!
Our accounts for 16/17 are on our website and in our Listing Document.

All the best
Tom

What if I didn't want to leave the property sector? I have three rental properties that I own personally that I've been managing through my property business (like I've rented them to my business and my business basically retains all the profits, gets tenants, etc). Tenancy agreements with tenants are with my company as the landlord (because my business is a subletting business). Up till now I've been paying myself the bare minimum to cover my mortgages and insurances. But with the new law I'm guessing I have to do things differently now??

Do you have any long term plans to float the REIT on the stock market to raise cash to facilitate growth? and if not, is it within your control to sell your REIT to a large bank or similar institution?
I ask because as shareholders the value of the shares upon flotation could carry a premium possibly?

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