London & Stamford on course for Reit status

London & Stamford, the largest opportunity fund launched to profit from the downturn in the UK property market, will convert into the UK’s latest real estate investment trust in a move that could cost shareholders as much as £65m ($103m).

As part of the process of converting to Reit status, London & Stamford, one of the largest companies quoted on Aim, wants to bring its management in-house.

L&S is managed by LSI Management, a company headed by property veterans and L&S founders Raymond Mould and Patrick Vaughan. LSI Management will become the in-house managers of L&S, and will be awarded up to 46m new shares at net asset value, worth £55m, to break its existing contract. Of this £55m, £10m of the payment will be based on the fund’s performance.

The conversion fee to Reit status, which will involve moving to the main market, will cost an extra £11m.

Although the fees appear large, shareholders can hope for one of the largest dividends in the sector – as much as 7.5 per cent – once the company is fully invested, about 50 per cent above the sector average.

High dividends are a crucial selling point to investors in overseas Reit markets, although there are few high yielding options in the still young UK Reit market in spite of requirements to distribute the majority of income in return for lower tax charges.

The fee, which was set by its independent advisers, is based on the discounted cash flow of the business. The move to Reit status is expected to enhance earnings by about £12m a year, with the company receiving extra fees from a joint venture with a Middle Eastern investor.

London & Stamford said that a Reit listing would provide more liquidity for shareholders.