What is a UK REIT?
The UK launched its Real Estate Investment Trust regime in 2007, building on global recognition of the REIT “brand”. Designed by the UK Government as a tax-efficient structure to encourage investment into the UK real estate sector, it has continued to evolve, with a number of developments in recent years aimed at increasing the attractiveness of the regime to a wider pool of investors.
Today, the UK REIT is an important and popular structure utilised by numerous leading real estate companies. Several high-profile acquisitions in recent years have involved a UK REIT structured as a Jersey company.
- The companies law regime in Jersey is both flexible (notably the ease by which distributions can be made – a useful feature for UK REITs) and familiar (being similar to the equivalent UK law)
- Jersey is home to a wealth of UK real estate expertise, with globally recognised administrators, Big 4 accountancy firms and a range of world-class law firms
- Jersey offers an ideal regulatory environment with significant flexibility for the UK REIT, its investors and asset managers, including a range of light-touch fund regimes that offer EU and ‘rest of world’ market access without full AIFMD compliance costs
- Jersey’s regulator, the Jersey Financial Services Commission, is robust yet pragmatic and renowned for being approachable, accessible and responsive
- The International Stock Exchange (TISE), with its presence in Jersey, is a flexible, quick and cost-effective alternative to a full London Stock Exchange listing. In fact, TISE is currently home to around a third of all UK REITs
- Jersey offers close geographic proximity and easy travel to London, allowing advisors and investors to do business face to face for seamless service
Qualifying conditions to becoming a UK REIT
- Corporate structure: must be a company, but not necessarily registered or incorporated in the UK – so a Jersey company can be used
- UK Tax Residency: must be solely tax-resident in the UK. Unlike other jurisdictions, a Jersey company can be solely resident abroad. This is usually achieved by the company being centrally managed and controlled in the UK
- Listing requirement: the shares must be listed on the London Stock Exchange or other “recognised exchange”. The International Stock Exchange, which recently exempted REITs from the 25% “free float” requirement, offers an attractive and cost-effective solution to this requirement
- Closed-ended vehicle: must not be an open-ended investment company
- Diversity of ownership: must not be a ‘close’ company (broadly, not under the control of five or fewer investors), but enhancements to the regime allow for small club deals by diversely-held institutional investors
- Distributions: must distribute 90% of property income annually
- Activity: at least 75% of property income should be derived from property rental activity
- Single share class: must have only one class of ordinary share capital in issue
- Diversity of assets: must own at least three single rental properties (these can be commercial or residential) and not involve a property representing more than 40% of the total value of the property rental business
- Financing costs: must have a profit financing ratio where profits are at least 1.25 times the finance cost and must not be a party to a loan that carries excessive interest or interest dependent on the result of the company’s business, or that provides for repayment of an excessive amount