Stimulus Package Unlikely to Include REITs; Real Estate Investment Trusts Seen Losing Tax Advantage under Bush Plan

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One group of companies that would be hurt by President Bush's economic-stimulus package is real estate investment trusts, which would lose their tax advantages unless they are included in the final legislation.

Many analysts expect that the more than 300 REITs nationwide will not be privy to tax breaks on dividends offered to most companies, because they already are exempt from normal income taxes.

REITs are companies that own and often manage real estate such as office buildings, malls and apartment complexes. They are required by law to distribute 90 percent of taxable income to shareholders in the form of dividends. As a trade-off, REITs do not pay corporate income tax.

Mr. Bush's proposal to eliminate a tax on dividends is an effort by the administration to eliminate "double taxation." Most companies already pay corporate income tax.

There is no wording in Mr. Bush's plan addressing REITs or any other specific stock. But analysts said final legislation is likely to include language excluding the sector from any tax breaks.

"The general thinking seems to be that REITs will be excluded," said Rich Moore, a real estate analyst with McDonald Investments in Cleveland.

This could be bad news for the valuation of REITs, analysts say, because investors may decide to move their money to other stocks that pay untaxed dividends.

Merrill Lynch analyst Steve Sakwa said in a research note that the value of REIT stocks could decline as much as 9 percent if a tax is eliminated for all dividends except those issued by REITs.

What's more, analysts said, some REITs might opt to change their structures, choosing to pay corporate income tax and free themselves of their dividend requirements. …