The Real Deal Miami

No REIT spinoffs for you!: New bill would restrict unloading real estate assets

The low-tax spinoffs have become increasingly popular among US companies

December 11, 2015 04:30PM

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Rep. Kevin Brady

Rep. Kevin Brady

From the New York website: House Republicans are proposing a bill that would prevent certain companies from spinning off their property holdings into real estate investment trusts.

The bill, which Rep. Kevin Brady (R., Texas) released on Monday and which could pass the house before it adjourns for the holidays, restricts non-REITs from spinning off into REITs, the Wall Street Journal reported.  It also requires spinoffs to wait a decade before they can change into REITs.

Activist investors have increasingly encouraged the low-tax spinoffs, and eight U.S. companies have announced REIT spinoffs in the past two years. The practice is not universally loved. Though McDonald’s shareholders hoped the fast food giant would spin off its properties — a move that would have cut its tax bill by $1 billion — the restaurant announced earlier this month that it would maintain control of its real estate assets.

The new rule would apply to deals that closed on or after Dec. 7, a potential boon for companies that have already spun off REITs and don’t necessarily want their competitors to follow suit, the newspaper reported.

The proposed rule is part of larger efforts by House Republicans to extend several expired tax breaks through 2016. Brady’s bill, while restricting REIT spinoffs, seeks to ease restrictions applied to foreign investment in REITs.

“I think it’s dangerous, and totally unwarranted, to deny tax-free status to a spinoff based purely on the ‘identity’ of the parties to the spinoff,” Robert Willens, a New York-based tax advisor, told the Journal. “I’m not a fan of this proposal and would hope that ‘cooler heads’ prevail here and the proposal never gets enacted.” [WSJ]Kathryn Brenzel