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REIT conversions - key considerations

2 Sep 2014

A successful REIT formation transaction can enable accelerated network investments, enhanced service offerings to customers and maximised shareholder value while reducing debt. Taxand USA provides an overview of the critical business tax issues that may accompany a REIT conversion.

A REIT is often described as a mutual fund for real estate and must maintain compliance with numerous organisational and operational requirements. Companies considering the REIT conversion process must weigh the current and recurring costs of the additional disclosures and/or corporate governance required to meet the REIT qualification requirements. Furthermore, key business risks such as tax law changes, capital market acceptance and operations/execution must be evaluated.

Each REIT conversion alternative has unique complexities, and all forms invoke a significant amount of business and tax considerations including:

  • Strategic concerns
  • Financial considerations
  • Regulatory and compliance issues
  • Taxable/tax-free formation structure
  • Distribution of earnings and profits
  • Built-in-gains tax
  • Transfer tax and property tax exposure
  • Taxable REIT subsidiaries
  • Tenany services issues
  • Penalty tax exposure

Discover more: REIT conversions -  key business and tax considerations

Your Taxand contact for further queries is:
McRae Thompson
T.+1 404 720 5224

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Taxand's Take

It is important to remember that the REIT conversion process is only one strategic alternative and every option should be considered before making a finite decision.

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