WASHINGTON, DC— President Bush’s proposed economic stimulus plan— particularly as it applies to cutting taxes on stock-investment dividends— is getting a mixed reception within lodging and REIT circles. As laid out, the plan would eliminate taxes investors pay on dividends, but because this cut is specifically geared to doing away with double taxation situations, this consumer-level tax break will not extend to hotel REITs since they already avoid corporate income taxes by returning 95% of their income to shareholders. In turn, since investors would still have to ante up on the returns they earn in this arena, such a scenario could negatively impact the allure REITs have overall as an investment vehicle. In fact, as reported in the f The Daily News in New York City, Merrill Lynch analyst Steve Sakwa said the President’s tax-cut proposal “should not be viewed as a positive for REITs.” Interestingly, Daily News Chairman/Co-Publisher Mort Zuckerman is also chairman of Boston Properties, one of the nation’s largest office REITs. As for the divergence of opinion emanating from various quarters of the industry, a spokesperson for the National Association of Real Estate Investment Trusts (NAREIT) contended: “We were not surprised to learn that REIT dividends do not qualify for an exemption under the President’s proposal, given past practice [REIT dividends have not been exempted from dividend tax relief since their creation in 1960 because the companies generally are not subject to a corporate tax]. “We understand the President’s rationale and are supportive of his aims. In our view, an economic revival is likely to benefit REITs and real estate stock investors. And because the proposal will put income-oriented equities in the spotlight, it is worth noting that few companies can— or will— approach the dividend power of REITs [offering up an average yield of 7.3% at the moment]. “Furthermore,” the NAREIT spokesperson said, “[REITs’] proven diversification benefits and impressive performance over three decades have earned real estate stocks a place in every investment portfolio. We don’t see that changing as Congress debates and shapes the plan in the months to come.” On the other hand, American Hotel & Lodging Association (AH&LA) Executive VP/Public Policy Jack Connors said, “Anything that can put more disposable income back in the pockets of taxpayers would be a welcomed move, [given that]a portion of that income could or should ultimately accrue to the hotel industry.” Connors— while noting whatever economic momentum the country is enjoying has been moved forward to a large extent by lowered interest rates and the President’s previous tax cuts— nonetheless admitted there could well be less than full support of this proposal forthcoming from the hotel industry, especially in light of the different capital markets and operational priorities embodied by various lodging companies.
