Government reviewing REIT dividend request

LONDON (Reuters) - The cash-poor community of real estate investment trusts (REITs) could be allowed to offer shareholders stocks instead of regular dividends under proposals currently being considered by government officials.

A spokeswoman for HM Revenues & Customs told Reuters on Wednesday it was evaluating a request from an un-named property company for permission to amend its dividend policy, which could enable REITs to substitute cash dividends for shares.

REITs are quoted property companies who enjoy a number of tax breaks in exchange for distributing the majority of their profits to shareholders in cash dividends.

If an alternative dividend policy is approved, it could enable commercial property companies -- which saw the value of their assets drop by almost 30 percent in 2008 -- to stockpile millions of pounds of emergency capital, reducing prospects of costly firesales or rights issues.

But some analysts feared the practice could repel income-chasing investors and leave REITs vulnerable to expensive one-off tax demands.

"It is already possible not to pay out a cash dividend -- this will not result in losing REIT status but it will result in a minor breach, and potentially a tax claim on the company," analysts at JPMorgan said in a note to clients.

"We believe the move is a small positive, showing HMRC is willing to think with the REIT sector, but this is only a minor improvement," the analysts said, adding the innovations would not be enough to plug financing gaps suffered by most companies.

(Reporting by Sinead Cruise; Editing by David Holmes)