Since the UK Real Estate Investment Trust regime (the REIT regime) was liberalised in 2012, Real Estate Investment Trusts (REITs) have become an increasingly attractive wrapper for UK real estate. This guide summarises, in question-and-answer form, some of the key considerations for organisations considering launching a REIT or converting an existing real estate company into a REIT.
Guide to UK REITs
REITs (and members of REIT Groups) are not charged UK corporation tax on certain profits and gains derived from their property rental business. See question 4 on page 7 for further details. ion 4 for further details.
REITs are an attractive structure through which to hold property because they offer the following advantages.
Introduction
There is no conversion charge payable on the conversion of an existing real estate company or group into a REIT.
Tax efficient structure
No conversion charge
Permanent capital
REITs are closed-ended vehicles and, as such (and unlike in open-ended real estate funds), investors have no right to have their capital returned to them.
Access to capital markets
As publicly traded vehicles, REITs have the ability to access wider and deeper pools of capital than in the private markets alone.
Daily liquidity
As REITs are publicly traded vehicles, shareholders in REITs can buy and sell shares on a daily basis, with publicly available, transparent pricing.
Macfarlanes client Supermarket Income REIT (SUPR) is a real estate investment trust providing secure, inflation-protected, long income from grocery property in the UK.
Case study
In 2017, SUPR launched its IPO as a “blind pool” fund admitted to trading on the SFS, raising £100m. At the time, the SFS was the appropriate market for SUPR because it did not meet the diversification criteria for the Main Market. SUPR is externally managed, Atrato Capital being its investment adviser (and JTC acting as AIFM). SUPR acquires supermarket property with long, inflation linked leases (it targets a portfolio average of 15 years to expiry or first break) and aims to provide investors with a long-term and secure income stream which is expected grow with inflation. SUPR funds its acquisitions through shareholder equity and bank borrowings. It raises equity at times when it identifies appropriate assets, consistent with its returns profile and deploys the capital raised quickly.
SUPR typically buys assets located in highly populated residential areas, with strong transportation links. A key pillar of its investment strategy is to invest in omnichannel stores. These are larger supermarkets that provide normal in store shopping, but they also operate as last mile online grocery fulfilment centres for home delivery and click and collect. The REIT believes these stores not only benefit from conventional in store grocery sales but are also uniquely positioned to benefit from any increase in online grocery sales.
The majority of its stores are leased to the four largest UK supermarket operators by market share, which are currently Tesco, Sainsbury’s, Asda and Morrisons.
The Macfarlanes team has played a crucial role in the growth of SUPR, both in our many successful equity raises and also performing thorough due diligence on target assets. Their market leading expertise in the REIT space has been invaluable to us.
Rob Abraham
Managing Director, Atrato Group
Since IPO in 2017, the REIT has invested in 78 properties, 52 directly and the balance through a joint venture.
SUPR’s most recent pro forma net assets as at 30 June 2023 stood at £1.2bn and its market capitalisation is now in excess of £1bn.
In February 2022, it moved to the Main Market, having met the diversification criteria, and has recently joined the FTSE250.
Read more about UK REITs
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This content is intended to provide general information about some recent and anticipated developments which may be of interest. It is not intended to be comprehensive nor to provide any specific legal advice and should not be acted or relied upon as doing so. Professional advice appropriate to the specific situation should always be obtained. Macfarlanes LLP is a limited liability partnership registered in England with number OC334406. Its registered office and principal place of business are at 20 Cursitor Street, London EC4A 1LT. The firm is not authorised under the Financial Services and Markets Act 2000, but is able in certain circumstances to offer a limited range of investment services to clients because it is authorised and regulated by the Solicitors Regulation Authority. It can provide these investment services if they are an incidental part of the professional services it has been engaged to provide.
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UK REITs
Cross-holdings No more than 10%, in aggregate, of the value of the total assets of the REIT may be invested in other listed closed-ended investment funds. This restriction does not apply to investments in closed-ended investment funds which themselves have published investment policies to invest no more than 15% of their total assets in other listed closed-ended investment funds. What is a private REIT? A private REIT is a REIT that is not widely held or marketed. Private REITs have historically taken advantage of markets such as the International Stock Exchange, which do not require REITs to have a “free float” and which do not have disclosure standards as onerous as those on other markets. Going forward, depending on the intended investor base, private REITs alternatively may be able to rely on the 70% institutional investor ownership condition referred to in question 4 above. Those establishing a private REIT will, however, need to think carefully about how the REIT is held in the context of other REIT qualifying conditions (such as the requirement for the REIT not to be a close company). What regulatory permissions do a REIT/its promoters need to consider? The REIT will be an alternative investment fund (AIF) for the purposes of the UK rules on alternative investment fund managers (the AIFM Rules) and will, as a result, need to have an alternative investment fund manager (AIFM). The AIFM is responsible for the AIF’s portfolio management and risk management. The AIFM can be either external (i.e. a third party appointed by the REIT to be its AIFM) or internal (i.e. the REIT manages itself as its own AIFM). A UK AIFM (whether external or internal) must be authorised by the FCA under the AIFM Rules. Obtaining the requisite authorisation can take some time, so it can be preferable to appoint an existing authorised AIFM as the REIT’s external AIFM. See question 12 above for more on appointing an external AIFM.
the master fund’s investment policy are consistent with the REIT’s published investment policy and provide for spreading investment risk; and
Can the REIT be an overseas entity or have overseas subsidiaries? The principal company of a REIT Group can be an overseas entity (e.g. a Jersey or Guernsey company) as long as it is solely UK tax resident. A REIT Group is not prohibited from having overseas subsidiaries but the tax consequences of doing so should be considered carefully. Can a REIT hold overseas property or non-real estate assets? Yes. A REIT can also hold non-real estate assets, provided that investing in such assets is within the scope of the REIT’s published investment policy. Such assets will not be treated as forming part of the property rental business. Can a REIT be externally managed? Yes, a REIT can either be internally or externally managed. If a REIT is externally managed, a REIT will enter into a among other things, provides for a management fee, a performance fee (if any) and termination rights. There are two primary consequences of external management under the following Listing Rules. Independence The board of directors of the REIT must be able to act independently of its investment manager. Both the chairman of the board and a majority of the board (which may include the chairman) must be independent. The Listing Rules set out in detail who is not independent (which is broadly persons with a substantive connection to the investment manager). Related party transactions The investment manager and its group will be ‘related parties’ of the REIT, which means that, among other things, (subject to certain exceptions and unless the REIT is admitted to trading on AIM) transactions between the REIT group and the investment manager which exceed 5% in the class tests set out in the Annex to Chapter 10 of the Listing Rules (which broadly compare the size of the REIT group against the size of the transaction using various metrics) require shareholder approval. Depending on whether the REIT is listed (and on which market), VAT can be chargeable on the fee paid to an external adviser. However, with careful structuring it is possible to minimise any net VAT leakage to the REIT. Can a REIT be a “blind pool” fund? Yes, REITs can be (and frequently are) established as a blind-pool funds (i.e. with no real estate assets held or contracted). However, the “REIT” will not be able to formally become a REIT (and obtain the tax benefits of so doing) until it meets the REIT qualifying conditions (including the property assets minimum threshold condition described above). The REIT’s promoters will need to consider the effect on marketing that having no properties has. Investors may be more willing to invest if the REIT either has existing assets or has contracted to acquire properties – in effect to demonstrate a track record. If the REIT either already holds or has contracted to acquire properties, it will need to include a valuation report on those properties in the disclosure document (see question 19 below). If the REIT does not hold any properties and has not contracted to acquire any at the time of launch, its promoters are, in marketing the REIT, likely to need to demonstrate a “pipeline” of investments. Can a REIT invest substantially all of its assets in another fund? Yes but some restrictions apply. The REIT will first need to ensure that doing so does not make it lose REIT status (see question 4 above). The Listing Rules provide for two further restrictions. Master fund investment policy If the REIT principally invests its funds (directly or indirectly) in another company that invests in a portfolio of investments (a master fund), the REIT must ensure that:
To what market should a REIT’s shares be admitted? The UK market that offers the greatest liquidity (including because admission to it is a requirement for inclusion in the FTSE indices) is the London Stock Exchange’s Main Market. The rules of the Main Market are, however, more onerous than other markets. A comparison of the key eligibility requirements and the key ongoing obligations for each of the London Stock Exchange’s Main Market, AIM Market and Specialist Fund Segment is set out below.
What are the principal workstreams for admission to trading?
What are the principal contents requirements of a prospectus for a REIT? A prospectus for a REIT would typically include:
Eligibility: a REIT seeking admission to the Main Market would typically submit an eligibility letter to the Financial Conduct Authority (FCA) at the same time as submitting the prospectus for first review. The eligibility letter can be submitted earlier, but doing so is likely to delay the process. The AIM Market requires an early consultation with the AIM team and, as such, eligibility will be addressed at an early stage. Given the limited eligibility requirements for the Specialist Fund Segment, the eligibility process is more informal on that market.
Due diligence: if the REIT has an existing business, legal and financial due diligence will be carried out by the REIT’s lawyers and reporting accountants. Significant input will be needed from the REIT/its promoters to respond to document request lists and follow-up questions.
Accounts: if the REIT has financial history, it will need to prepare accounts for the last three years (or the period of its operations if shorter) in accordance with IFRS. Those accounts will need to be reported on by the REIT’s reporting accountants.
Working capital: in its disclosure document, the REIT will be required to state that it has sufficient working capital for the next twelve months. In order to support this statement, a REIT/its promoters will prepare a working capital model showing cashflow and expenditure projections (typically over a longer period than the 12 month period), including a base case and a downside case with sensitivities applied. The working capital model will be reviewed in detail by the REIT’s reporting accountants and its sponsor/nominated adviser.
Contractual arrangements: the REIT will need to enter into contractual arrangements with its service providers and advisers. If the REIT is externally managed, the management contract is the critical contract and will be scrutinised by the sponsor/nominated adviser and its lawyers. If the REIT is internally managed, it may wish to put employee incentives in place.
Valuation report: if the REIT has existing properties or has contracted to acquire properties, it will need to obtain a third party valuation report in respect of those properties. The valuation report is typically prepared in accordance with the RICS “red book”.
Governance: the REIT will need a board of directors (typically wholly non-executive if the REIT is externally managed). The length of the recruitment process for finding directors that have the requisite experience and skills and fit with the corporate governance requirements for a REIT should not be underestimated. Careful thought also needs to be given to the composition of, and terms of reference for, board committees. In addition, the directors will need time to familiarise themselves with the REIT’s operation and be informed of their responsibilities and liabilities as directors of the REIT.
Financial position and prospects procedures: it will be very important for the board of the REIT to have accurate and timely information on the REIT’s operations and finances so that decisions can be made on a timely basis as to whether any public announcements are required. A REIT will therefore prepare a detailed memorandum on financial position and prospects procedures (usually using a template provided by the reporting accountants), which will then be reviewed in detail by the REIT’s reporting accountants and its sponsor/nominated adviser.
A summary, which must follow a prescribed format and be a fair summary of the prospectus as a whole. Risk factors: which will be tailored to the particular operations of the REIT. A business description: this typically comprises (among other things) an introduction, the history of and background to the business, an overview of the business, including investment objective, investment policy, investment strategy, investment restrictions, valuation policy, and a comprehensive and meaningful portfolio analysis*. Details of the directors, management (including track record) and corporate governance. A property valuation report (see question 18 for more details).* Historical financial information and (if necessary e.g. because the REIT has contracted to acquire properties) pro forma financial information.* Capitalisation and indebtedness tables. An operating and financial review (OFR): being a narrative description of the REIT’s financial condition, operating results and capital resources in relation to the period covered by historical financial information.* Taxation summaries for the issuer and shareholders. Additional information: containing miscellaneous details required by the Prospectus Regulation Rules, such as material contracts, share capital history and director remuneration.
Marketing and fundraising: assuming that the REIT wishes to raise new money on admission and/or existing shareholders in the REIT want to sell shares on admission, the REIT/its promoters will typically conduct a “roadshow” for prospective investors using a marketing presentation, which is consistent with the contents of the disclosure document (and which will also be verified).
The disclosure document and verification.
Subject to certain exceptions summarised below, the principal company of a REIT Group is required to withhold income tax at 20% from its PIDs. Individual UK resident shareholders may, depending on their circumstances, either be liable to further tax on the PID at the applicable marginal rate or be entitled to claim repayment of some or all the tax withheld on the PID. Tax is not required to be withheld at source from a PID where the principal company of a REIT Group reasonably believes that:
Is a REIT required to withhold tax on payments of PIDs?
Property Income Distribution (PID)
A PID refers to distributions from the principal company of a REIT Group out of the tax-exempt profits of the REIT Group. UK tax resident shareholders will be taxed on PIDs as if those dividends were profits of a UK property business. An individual shareholder who is subject to income tax at the basic rate will be liable to pay income tax on the PIDs at a rate of 20%, higher rate taxpayers at a rate of 40% and additional rate taxpayers at a rate of 45%. If the REIT Group has other sources of profit, it may pay dividends out of those (non-property business) profits and they will be taxed as dividends in the normal way (i.e. at up to 39.35%) for UK tax resident individuals. Non-UK tax resident shareholders who receive a PID will generally be chargeable to UK income tax on the PID as profit of a UK property business and this tax will generally be collected by way of a 20% withholding tax (see further below).
Disposal of shares in a REIT
Taxable UK tax resident shareholders will generally be subject to tax in respect of any gain arising on the disposal of shares in the principal company of a REIT Group. Taxable non-UK shareholders will also generally be subject to UK tax on gains arising on the disposal of shares in the principal company of a REIT Group. In common with the approach to investors in offshore collective property funds, shareholders will be within this non-resident tax charge regardless of the size of their shareholding. These rules provide for a “rebasing” to April 2019, so that only gains accruing after that date are taxed.
What are the tax consequences for shareholders in the REIT?
What is the key tax consequence of being a REIT?
The main tax benefit of being within the REIT Regime is a UK tax exemption for the REIT Group on the profits of its property rental business and on the disposal of interests or rights in certain UK property rich vehicles (broadly, a vehicle is UK property rich if at least 75% of its gross asset value is derived from rights over or interests in UK real estate).
Who can be included in the REIT Group?
All members of a group of companies (including non-UK tax resident companies) can be members of a REIT Group. A REIT Group consists of the parent company (which must be a UK tax resident company) and companies in which (directly or indirectly) the parent company owns 75% of the ordinary share capital. The subsidiaries must also be “effective 51% subsidiaries” (broadly speaking, the parent is beneficially entitled to more than 50% of the company’s distributable profits and will be entitled to more than 50% of its assets on winding up).
Are there any other key tax consequences of being a REIT?
The principal company of a REIT Group will become subject to an additional tax charge if it pays a dividend to, or in respect of, a holder of excessive rights. A holder of excessive rights is, broadly, any shareholder with a 10% or greater holding which is a body corporate (or which is deemed to be a body corporate). However, a person that would otherwise be a holder of excessive rights is not treated as such where the principal company reasonably believes that the recipient falls within certain excluded categories such as a charity, the scheme administrator of a registered pension scheme or a UK resident company or a partnership to the extent its partners fall within the excluded categories. With effect from Royal Assent to the Finance Bill 2023–24 the excluded categories for this purpose are due to include a non-UK investor entitled to relief or exemption from UK withholding tax on PIDs under a double tax treaty for a reason other than the size of its shareholding. The additional tax charge is calculated by reference to the whole dividend paid to a holder of excessive rights, and not just by reference to the proportion that exceeds the 10% threshold. The tax charge will not be incurred if the principal company has taken reasonable steps to avoid paying dividends to such a shareholder. To demonstrate that it has taken such reasonable steps, a principal company typically includes in its articles of association provisions allowing it to identify holders of excessive rights, withhold dividends from them, disenfranchise them and, ultimately, arrange for their shares to be sold.
in certain circumstances, where the principal company ceases to fulfil the close company conditions.
the principal company ceases to be UK resident for tax purposes (or becomes dual-resident);
the principal company becomes an open-ended investment company; or
the conditions for REIT status relating to share capital or the entering into loans with non-commercial returns are not met;
REIT status is also lost automatically if:
HMRC has given members of the REIT Group two or more notices in relation to the obtaining of a tax advantage within a ten-year period.
the REIT Group has committed a certain number of breaches of the REIT conditions in a specified period; or
it regards a breach of the conditions relating to the REIT regime (including in relation to the UK property rental business), or an attempt to obtain a tax advantage, as sufficiently serious;
HMRC may require a REIT to exit the REIT regime if:
(E) Breach of REIT conditions
The principal company of a REIT Group must not be party to any loan in respect of which the lender is entitled to interest exceeding a reasonable commercial return on the consideration lent or where the interest depends to any extent on the results of any of its business or on the value of any of its assets. If the ratio of a REIT Group’s income profits (before capital allowances) in respect of its property rental business to the financing costs incurred in respect of its UK property rental business is less than 5:4 for an accounting period, then a tax charge will arise.
(D) Borrowing restrictions conditions
To the extent permitted by law, the principal company of a REIT Group must distribute to shareholders, on or before the filing date for its tax return for the relevant accounting period, at least 90% of the income profits of the UK property rental business of the REIT Group.
(C) Distribution condition
Other excluded classes: there are certain classes of income that are excluded from the REIT regime including (among others) income from the operation of a caravan site and rent in respect of the siting of pipelines for oil or gas, mobile phone masts or wind turbines.
Disposals within three years of substantial development: the tax benefits of the REIT regime will not apply to profits realised on a disposal of a property by a member of the REIT Group in the course of a trade. This includes circumstances where (i) the property has been developed since it was acquired by the company; (ii) the cost of development exceeds 30% of the fair value of the property (broadly determined in accordance with International Accounting Standards), and (iii) disposal takes place within three years of completion of the development.
Owner occupied property excluded: the letting of property that would fall to be treated as “owner-occupied” in accordance with generally accepted accounting practice (GAAP) does not generally qualify as a property rental business. “Owner-occupied” is defined for GAAP purposes as property held by the owner for use in the production or supply (by the owner or a member of its group, in relation to consolidated accounts) of goods or services or for administrative purposes.
Property rental business assets: at the beginning of each accounting period, the value of the assets in the property rental business must represent at least 75% of the total value of the assets of the REIT Group.
Property rental business income profits: the income profits arising from the property rental business must represent at least 75% of the REIT Group’s total income profits for each accounting period.
at least one property which is a commercial unit with a value of at least £20m.
at least three properties where no one property represents more than 40% of the total value of all properties involved in the property rental business; or
Property assets minimum threshold: throughout each accounting period, the property rental business of the REIT Group must involve:
(B) Property rental business conditions
Single class of ordinary shares: all the principal company’s shares must either be ordinary shares or non-voting restricted preference shares (broadly, fixed rate preference shares which are either not convertible or only convertible into shares in the principal company). Further, the principal company must only have one class of ordinary share in issue.
A close company is, broadly, a company under the control of five or fewer participators or of participators who are directors.
Not a close company: except in the first three years following entry into the REIT regime, the principal company must not be a close company other than by virtue of having a participator who is an institutional investor. After Royal Assent to the Finance Bill 2023-24 this condition is due to include indirect participation by an institutional investor through intermediate holding companies (and this will be treated as having always been the case).
(i) the shares forming the principal company’s ordinary share capital are admitted to trading on a recognised stock exchange; this allows the shares in a REIT to be admitted to a wide variety of markets. The most obvious markets in the UK are the Main Market, the Specialist Fund Segment and AIM (each a market of the London Stock Exchange). A technical listing on the International Stock Exchange is also possible if liquidity is not a concern; or (ii) at least 70% of the company’s ordinary share capital is owned directly or indirectly by one or more institutional investors. “Institutional investors” generally includes the trustee or manager of an authorised unit trust scheme (or overseas equivalent) or a pension scheme, an insurance company, a charity, a limited partnership which is a collective investment scheme, a registered social landlord, an open-ended investment company (or overseas equivalent), a person with sovereign immunity, a UK REIT and the non-UK equivalent of a UK REIT. For the purposes of this 70% ownership test, a limited partnership which is a collective investment scheme must also satisfy the “genuine diversity of ownership” (GDO) test to be treated as an institutional investor. From Royal Assent to the Finance Bill 2023-24 as currently drafted certain of the investors above will be required to satisfy either the GDO test or a modified version of the close company test in order to qualify as an institutional investor. In addition, a co-ownership authorised contractual scheme will be an institutional investor provided it meets the GDO condition or non-close condition. In broad terms, for the GDO test to be satisfied, the fund documentation of the fund arrangements must state the investors it is targeting, that it will be widely available and that it will be marketed in an appropriate manner to reach its target investors. Further, the terms and conditions of the arrangements should not be a deterrent to such investors, its manager must act in accordance with the statements in the fund documentation mentioned above, and any potential investor within one of the intended categories must be able to approach the manager to obtain information about the fund and invest in it.
Ownership condition: either
Not an OEIC: the principal company must not be an open-ended investment company.
Tax residence: the principal company must be resident in the UK and not resident anywhere else for tax purposes.
A number of conditions need to be met by a company, or group, to enter the REIT regime. These conditions must also be complied with on an on-going basis to retain REIT status and enjoy the full benefits of the REIT regime. Breaches of the conditions attract tax penalties and/or consequences (which differ according to the condition breached and the severity of the breach) such as removal from the REIT regime. The main conditions are summarised below: (A) Company conditions The conditions below must be satisfied in respect of the principal company of a REIT Group (or by a single company REIT).
What are the principal qualifying conditions?
A company becomes a REIT by giving notice in writing to HMRC (there is no prescribed form) of the future date on which the REIT intends to become a REIT. The notice must contain a statement that certain qualifying conditions are reasonably expected to be met in relation to the REIT in its first accounting period after becoming a REIT.
How does a company or group become a REIT?
What is a REIT?
A REIT is a company which has a special HMRC approved tax status. It is not a trust. A REIT Group is a group of companies where each member of the group has approved tax status. The ultimate parent of a REIT Group is known as the principal company.
What principal third party service providers and advisers does a REIT need in connection with admission? The UK market that offers the greatest liquidity (including because admission to it is a requirement for inclusion in the FTSE indices) is the London Stock Exchange’s Main Market. The rules of the Main Market are, however, more onerous than other markets. A comparison of the key eligibility requirements and the key ongoing obligations for each of the London Stock Exchange’s Main Market, AIM Market and Specialist Fund Segment is set out below.
What corporate governance standards apply to a REIT? REITS typically report against the Association of Investment Companies (AIC) Code of Corporate Governance (the AIC Code), as it is specifically tailored to closed-ended investment companies. Reporting against the AIC Code satisfies any requirement to report against the UK Corporate Governance Code. How long does it take to launch a REIT? The time taken to launch a REIT will depend on a number of factors, including the complexity of existing business and the offering but a REIT is typically capable of being launched within four to six months of starting work.
Investment manager/investment adviser: if the REIT is to be externally managed, it will need an investment manager to, among other things, perform the function of an Alternative Investment Fund Manager (AIFM) under the AIFM Rules. If the promoter of the REIT is not already authorised as an AIFM, it may take a significant amount of time to obtain an AIFM licence. In those circumstances, REITs often appoint an existing AIFM (there are a number of “out-of-the-box” AIFM providers in the market) as their AIFMs (whether temporarily or permanently), with the promoter acting as investment adviser. Administrator/company secretary: externally managed REITs will typically need an administrator and company secretary to perform certain accounting, administration and secretarial services. Sponsor/nominated adviser: a sponsor’s primary responsibility is to confirm to the FCA that a REIT has satisfied all of the requirements for listing. It will also provide advice on the listing rules and corporate finance advice including on timetable, structure and marketing. A nominated adviser performs a similar function in relation to the AIM Market. Broker: the role of the broker (there may be more than one) is to procure subscribers and/or purchasers for shares in the offering and to assist in the management of communications and information flow to and from shareholders. The broker may be the same entity as the sponsor/nominated adviser, although some REITs prefer the sponsor/nominated adviser to be independent. Lawyers: the REIT’s lawyers are typically responsible for, among other things, producing a legal due diligence report on the REIT, drafting the disclosure document (with input from others), advising on an appropriate structure for the REIT group (including from a tax perspective), drafting and negotiating all legal documentation and performing a verification exercise on the disclosure document and marketing presentation. Reporting accountants: the REIT’s reporting accountants are typically responsible for, among other things, producing a financial due diligence report on the REIT, reporting on the REIT’s historic financial information, reviewing the REIT’s working capital position and its financial position and prospects procedures. Debt providers: REITs typically employ some gearing and so it is usual for a REIT to have one or more debt facilities. See question 4 for restrictions on borrowing by REITs. Registrar: the registrar will maintain the share register of the REIT. Receiving agent: if the REIT raises money through an offer for subscription, the receiving agent manages receipt of subscription forms. Typically, the receiving agent operates in the same organisation as the registrar. Depository: to comply with the AIFM Rules, a depositary will need to be appointed to perform certain functions (e.g. cash flow monitoring and verification of the REIT’s ownership of its property assets), although a lighter-touch regime may apply to REITs that are overseas entities, such as Jersey or Guernsey companies. Valuer: the valuer produces the valuation report referred to in question 18 above. PR advisers: REITs typically appoint PR advisers to manage the process of public communications in connection with admission. Insurance broker and underwriter: a REIT will typically take out both directors and officers liability insurance and public offering of securities insurance.
A number of conditions need to be met by a company, or group, to enter the REIT regime. These conditions must also be complied with on an on-going basis to retain REIT status and enjoy the full benefits of the REIT regime. Breaches of the conditions attract tax penalties and/or consequences (which differ according to the condition breached and the severity of the breach), such as removal from the REIT regime. The main conditions are summarised below: (A) Company conditions The conditions below must be satisfied in respect of the principal company of a REIT Group (or by a single company REIT).
the person beneficially entitled to the PID falls within a category of investors entitled to gross payment (such as a company resident for tax purposes in the UK); or the PID is paid to the scheme administrator of a certain pension scheme, or the sub-scheme administrator or the account manager of a child trust fund or ISA and that the PID will be applied for the purposes of the relevant scheme or account.
18. What are the principal contents requirements of a prospectus for a REIT? A prospectus for a REIT would typically include:
1. What is a REIT?
A REIT is a company which has a special HMRC approved tax status. It is not a trust in the legal sense. A REIT Group is a group of companies where each member of the group has approved tax status. The ultimate parent of a REIT Group is known as the principal company.
REIT overview
Tax issues
Structuring and legal issues
Listing considerations
Other issues
2. How does a company or group become a REIT?
(i) the shares forming the principal company’s ordinary share capital are admitted to trading on a recognised stock exchange. This allows the shares in a REIT to be admitted to a wide variety of markets. The most obvious markets in the UK are the Main Market, the Specialist Fund Segment and AIM (each a market of the London Stock Exchange). A technical listing on the International Stock Exchange is also possible if liquidity is not a concern; or (ii) at least 70% of the company’s ordinary share capital is owned directly or indirectly by one or more institutional investors. “Institutional investors” generally includes the trustee or manager of an authorised unit trust (or overseas equivalent) or a pension scheme, an insurance company, a charity, a limited partnership which is a collective investment scheme, a registered social landlord, an open-ended investment company, a person with sovereign immunity, a UK REIT and the non-UK equivalent of a UK REIT. For the purposes of this 70% ownership test, a limited partnership which is a collective investment scheme must also satisfy the “genuine diversity of ownership test” (GDO) to be treated as an institutional investor. In broad terms, for the GDO to be satisfied, the fund documentation of the partnership must state its target investors, that it will be widely available and that it will be marketed in an appropriate manner to reach its target investors. Further, the terms and conditions of the partnership should not be a deterrent to such investors, its manager must act in accordance with the statements in the fund documentation mentioned above, and any potential investor within one of the intended categories must be able to approach the manager to obtain information about the partnership and invest in it.
Not a close company: except in the first three years following entry into the REIT regime, the principal company must not be a close company other than by virtue of having a participator who is an institutional investor.
At least three properties: throughout each accounting period, the property rental business of the REIT Group must involve at least three properties.
Concentration cap: throughout each accounting period, no one property may represent more than 40% of the total value of all properties involved in the property rental business.
Disposals within three years of substantial development: the tax benefits of the REIT regime will not apply to profits realised on a disposal of a property by a member of the REIT Group in the course of a trade. This includes circumstances where (i) the property has been developed since it was acquired by the company; (ii) the cost of development exceeds 30% of the fair value of the property (determined in accordance with International Accounting Standards) at the later of acquisition and entry into the REIT regime, and (iii) disposal takes place within three years of completion of the development.
The principal company of a REIT Group will become subject to an additional tax charge if it pays a dividend to, or in respect of, a holder of excessive rights. A holder of excessive rights is, broadly, any shareholder with a 10% or greater holding which is a body corporate (or which is deemed to be a body corporate). However, a person that would otherwise be a holder of excessive rights is not treated as such where the principal company reasonably believes that the recipient falls within certain excluded categories such as a charity, the scheme administrator of a registered pension scheme or a UK resident company. The additional tax charge is calculated by reference to the whole dividend paid to a holder of excessive rights, and not just by reference to the proportion that exceeds the 10% threshold. The tax charge will not be incurred if the principal company has taken reasonable steps to avoid paying dividends to such a shareholder. To demonstrate that it has taken such reasonable steps, a principal company typically includes in its articles of association provisions allowing it to identify holders of excessive rights, withhold dividends from them, disenfranchise them and, ultimately, arrange for their shares to be sold.
What is the key tax consequences of being a REIT?
the person beneficially entitled to the PID is a company resident for tax purposes in the UK; or
the PID is paid to the scheme administrator of a registered pension scheme, or the sub-scheme administrator of certain sub-schemes or the account manager of an ISA and that the PID will be applied for the purposes of the relevant scheme or account.
For non-UK tax resident shareholders, it is not possible to rely on a double tax treaty to pay PIDs free of withholding tax, but such shareholders may be able claim repayment of the tax withheld (depending on the terms of the relevant double tax treaty).
Investment trusts
the person beneficially entitled to the PID falls within a category of investors entitled to gross payment (such as a company resident for tax purposes in the UK); or
the PID is paid to the scheme administrator of a certain pension scheme, or the sub-scheme administrator or the account manager of a child trust fund or ISA and that the PID will be applied for the purposes of the relevant scheme or account.
Where the payment is to a partnership with eligible investors as partners the principal company may not be required to withhold tax at source on the payment of a PID to the partnership to the extent of such eligible investors’ share of the partnership profits. For non-UK tax resident shareholders, it is not possible to rely on a double tax treaty to pay PIDs free of withholding tax, but such shareholders may be able claim repayment of the tax withheld (depending on the terms of the relevant double tax treaty).
the master fund in fact invests and managers its investments in a way that is consistent with the REIT’s published investment policy and spreads investment risk.
*REITs can also be admitted to Chapter 6 (commercial company) but for simplicity, only Chapter 15 is considered in this guide.
The principal disclosure document for a REIT whose shares are to be admitted to either the Main Market or the Specialist Fund Segment is a prospectus. See question 19 below for details of the principal contents requirements for a prospectus. If the REIT’s shares are to be admitted to trading on the AIM Market, the principal disclosure document is an AIM admission document which, while broadly similar in terms of content to a prospectus, does not need to be vetted by the regulator prior to publication. A prospectus will be subject to the review of the FCA. A prospectus typically takes 6-8 weeks from first submission to clear comments from the FCA. There is no such review process for an AIM admission document but the nominated adviser will need to be satisfied that it contains the prescribed contents. Given the risk of liability for the REIT and its directors for false or misleading statements in the disclosure document, the disclosure document is typically subjected to a verification exercise which seeks to identify evidence supporting the truth of each statement made in the disclosure document. REITs also typically take out prospectus insurance with an insurance broker.
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3. What are the principal qualifying conditions?
(i) the shares forming the principal company’s ordinary share capital are admitted to trading on a recognised stock exchange; this allows the shares in a REIT to be admitted to a wide variety of markets. The most obvious markets in the UK are the Main Market, the Specialist Fund Segment and AIM (each a market of the London Stock Exchange). A technical listing on the International Stock Exchange is also possible if liquidity is not a concern; or (ii) at least 70% of the company’s ordinary share capital is owned directly or indirectly by one or more institutional investors. “Institutional investors” generally includes the trustee or manager of an authorised unit trust scheme (or overseas equivalent) or a pension scheme, an insurance company, a charity, a limited partnership which is a collective investment scheme, a registered social landlord, an open-ended investment company (or overseas equivalent), a person with sovereign immunity, a UK REIT and the non-UK equivalent of a UK REIT. For the purposes of this 70% ownership test, a limited partnership which is a collective investment scheme must also satisfy the “genuine diversity of ownership” (GDO) test to be treated as an institutional investor. Under the Finance Act 2024, certain of the investors above must satisfy either the GDO test or a modified version of the close company test in order to qualify as an institutional investor. In addition, a co-ownership authorised contractual scheme is an institutional investor, provided it meets the GDO condition or non-close condition. In broad terms, for the GDO test to be satisfied, the fund documentation of the fund arrangements must state the investors it is targeting, that it will be widely available and that it will be marketed in an appropriate manner to reach its target investors. Further, the terms and conditions of the arrangements should not be a deterrent to such investors, its manager must act in accordance with the statements in the fund documentation mentioned above, and any potential investor within one of the intended categories must be able to approach the manager to obtain information about the fund and invest in it.
Not a close company: except in the first three years following entry into the REIT regime, the principal company must not be a close company other than by virtue of having a participator who is an institutional investor. This includes indirect participation by an institutional investor through intermediate holding companies.
Owner-occupied property excluded: the letting of property that would fall to be treated as “owner-occupied” in accordance with generally accepted accounting practice (GAAP) does not generally qualify as a property rental business. “Owner-occupied” is defined for GAAP purposes as property held by the owner for use in the production or supply (by the owner or a member of its group, in relation to consolidated accounts) of goods or services or for administrative purposes.
Disposals within three years of substantial development: the tax benefits of the REIT regime will not apply to profits realised on a disposal of a property by a member of the REIT Group in the course of a trade. This includes circumstances where: (i) the property has been developed since it was acquired by the company; (ii) the cost of development exceeds 30% of the fair value of the property (broadly determined in accordance with International Accounting Standards); and (iii) disposal takes place within three years of completion of the development.
Other excluded classes: there are certain classes of income that are excluded from the REIT regime, including (among others) income from the operation of a caravan site and rent in respect of the siting of pipelines for oil or gas, mobile phone masts or wind turbines.
Ownership condition: either —
the principal company ceases to be UK-resident for tax purposes (or becomes dual-resident);
The principal company of a REIT Group will become subject to an additional tax charge if it pays a dividend to, or in respect of, a holder of excessive rights. A holder of excessive rights is, broadly, any shareholder with a 10% or greater holding which is a body corporate (or which is deemed to be a body corporate). However, a person that would otherwise be a holder of excessive rights is not treated as such where the principal company reasonably believes that the recipient falls within certain excluded categories, such as a charity, the scheme administrator of a registered pension scheme or a UK-resident company or a partnership to the extent its partners fall within the excluded categories. The excluded categories for this purpose include a non-UK investor entitled to relief or exemption from UK withholding tax on PIDs under a double-tax treaty for a reason other than the size of its shareholding. The additional tax charge is calculated by reference to the whole dividend paid to a holder of excessive rights, and not just by reference to the proportion that exceeds the 10% threshold. The tax charge will not be incurred if the principal company has taken reasonable steps to avoid paying dividends to such a shareholder. To demonstrate that it has taken such reasonable steps, a principal company typically includes provisions in its articles of association allowing it to identify holders of excessive rights, withhold dividends from them, disenfranchise them and, ultimately, arrange for their shares to be sold.
All members of a group of companies (including non-UK tax-resident companies) can be members of a REIT Group. A REIT Group consists of the parent company (which must be a UK tax-resident company) and companies in which (directly or indirectly) the parent company owns 75% of the ordinary share capital. The subsidiaries must also be “effective 51% subsidiaries” (broadly speaking, the parent is beneficially entitled to more than 50% of the company’s distributable profits and will be entitled to more than 50% of its assets on winding up).
4. What is the key tax consequence of being a REIT? The main tax benefit of being within the REIT Regime is a UK tax exemption for the REIT Group on the profits of its property rental business and on the disposal of interests or rights in certain UK property-rich vehicles (broadly, a vehicle is a property-rich if at least 75% of its gross asset value is derived from rights over or interests in UK real estate). 5. Are there any other key tax consequences of being a REIT? The principal company of a REIT Group will become subject to an additional tax charge if it pays a dividend to, or in respect of, a holder of excessive rights. A holder of excessive rights is, broadly, any shareholder with a 10% or greater holding which is a body corporate (or which is deemed to be a body corporate). However, a person that would otherwise be a holder of excessive rights is not treated as such where the principal company reasonably believes that the recipient falls within certain excluded categories, such as a charity, the scheme administrator of a registered pension scheme or a UK-resident company or a partnership to the extent its partners fall within the excluded categories. The excluded categories for this purpose include a non-UK investor entitled to relief or exemption from UK withholding tax on PIDs under a double-tax treaty for a reason other than the size of its shareholding. The additional tax charge is calculated by reference to the whole dividend paid to a holder of excessive rights, and not just by reference to the proportion that exceeds the 10% threshold. The tax charge will not be incurred if the principal company has taken reasonable steps to avoid paying dividends to such a shareholder. To demonstrate that it has taken such reasonable steps, a principal company typically includes provisions in its articles of association allowing it to identify holders of excessive rights, withhold dividends from them, disenfranchise them and, ultimately, arrange for their shares to be sold. 6. Who can be included in the REIT Group? All members of a group of companies (including non-UK tax-resident companies) can be members of a REIT Group. A REIT Group consists of the parent company (which must be a UK tax-resident company) and companies in which (directly or indirectly) the parent company owns 75% of the ordinary share capital. The subsidiaries must also be “effective 51% subsidiaries” (broadly speaking, the parent is beneficially entitled to more than 50% of the company’s distributable profits and will be entitled to more than 50% of its assets on winding up). 7. What are the tax consequences for shareholders in the REIT? Property Income Distribution (PID) A PID refers to distributions from the principal company of a REIT Group out of the tax-exempt profits of the REIT Group. UK tax-resident shareholders will be taxed on PIDs as if those dividends were profits of a UK property business. An individual shareholder who is subject to income tax at the basic rate will be liable to pay income tax on the PIDs at a rate of 20%, higher rate taxpayers at a rate of 40% and additional rate taxpayers at a rate of 45%. If the REIT Group has other sources of profit, it may pay dividends out of those (non-property business) profits and they will be taxed as dividends in the normal way (i.e. at up to 39.35%) for UK tax-resident individuals. Non-UK tax-resident shareholders who receive a PID will generally be chargeable to UK income tax on the PID as profit of a UK property business and this tax will generally be collected by way of a 20% withholding tax (see further below). Disposal of shares in a REIT Taxable UK tax-resident shareholders will generally be subject to tax in respect of any gain arising on the disposal of shares in the principal company of a REIT Group. Taxable non-UK shareholders will also generally be subject to UK tax on gains arising on the disposal of shares in the principal company of a REIT Group. In common with the approach to investors in offshore collective property funds, shareholders will be within this non-resident tax charge regardless of the size of their shareholding. These rules provide for a “rebasing” to April 2019, so that only gains accruing after that date are taxed. 8. Is a REIT required to withhold tax on payments of PIDs? Subject to certain exceptions summarised below, the principal company of a REIT Group is required to withhold income tax at 20% from its PIDs. Individual UK resident shareholders may, depending on their circumstances, either be liable to further tax on the PID at the applicable marginal rate or be entitled to claim repayment of some or all the tax withheld on the PID. Tax is not required to be withheld at source from a PID where the principal company of a REIT Group reasonably believes that:
The main tax benefit of being within the REIT Regime is a UK tax exemption for the REIT Group on the profits of its property rental business and on the disposal of interests or rights in certain UK property-rich vehicles (broadly, a vehicle is a property-rich if at least 75% of its gross asset value is derived from rights over or interests in UK real estate).
A PID refers to distributions from the principal company of a REIT Group out of the tax-exempt profits of the REIT Group. UK tax-resident shareholders will be taxed on PIDs as if those dividends were profits of a UK property business. An individual shareholder who is subject to income tax at the basic rate will be liable to pay income tax on the PIDs at a rate of 20%, higher rate taxpayers at a rate of 40% and additional rate taxpayers at a rate of 45%. If the REIT Group has other sources of profit, it may pay dividends out of those (non-property business) profits and they will be taxed as dividends in the normal way (i.e. at up to 39.35%) for UK tax-resident individuals. Non-UK tax-resident shareholders who receive a PID will generally be chargeable to UK income tax on the PID as profit of a UK property business and this tax will generally be collected by way of a 20% withholding tax (see further below).
Taxable UK tax-resident shareholders will generally be subject to tax in respect of any gain arising on the disposal of shares in the principal company of a REIT Group. Taxable non-UK shareholders will also generally be subject to UK tax on gains arising on the disposal of shares in the principal company of a REIT Group. In common with the approach to investors in offshore collective property funds, shareholders will be within this non-resident tax charge regardless of the size of their shareholding. These rules provide for a “rebasing” to April 2019, so that only gains accruing after that date are taxed.
Where the payment is to a partnership with eligible investors as partners the principal company may not be required to withhold tax at source on the payment of a PID to the partnership to the extent of such eligible investors’ share of the partnership profits. For non-UK tax-resident shareholders, it is not possible to rely on a double-tax treaty to pay PIDs free of withholding tax, but such shareholders may be able claim repayment of the tax withheld (depending on the terms of the relevant double-tax treaty).
9. Can a REIT be an overseas entity or have overseas subsidiaries? The principal company of a REIT Group can be an overseas entity (e.g. a Jersey or Guernsey company) as long as it is solely UK tax-resident. A REIT Group is not prohibited from having overseas subsidiaries but the tax consequences of doing so should be considered carefully. 10. Can a REIT hold overseas property or non-real estate assets? Yes. A REIT can also hold non-real estate assets, provided that investing in such assets is within the scope of the REIT’s published investment policy. Such assets will not be treated as forming part of the property rental business. 11. Can a REIT be externally managed? Yes, a REIT can either be internally or externally managed. If a REIT is externally managed, a REIT will enter into an investment management agreement which, among other things, provides for a management fee, a performance fee (if any) and termination rights. There are two primary consequences of external management under the following UK Listing Rules. Independence The board of directors of the REIT must be able to act independently of its investment manager. Both the chair of the board and a majority of the board (which may include the chair) must be independent. The UK Listing Rules set out in detail who is not independent (which is broadly persons with a substantive connection to the investment manager). Related party transactions The investment manager and its group will be ‘related parties’ of the REIT, which means that, among other things, (subject to certain exceptions and unless the REIT is admitted to trading on AIM) transactions between the REIT group and the investment manager which exceed 5% in the class tests (which broadly compare the size of the REIT group against the size of the transaction using various metrics) require shareholder approval. Depending on whether the REIT is listed (and on which market), VAT can be chargeable on the fee paid to an external adviser. However, with careful structuring it is possible to minimise any net VAT leakage to the REIT. 12. Can a REIT be a “blind pool” fund? Yes, REITs can be (and frequently are) established as a blind-pool funds (i.e. with no real estate assets held or contracted). However, the “REIT” will not be able to formally become a REIT (and obtain the tax benefits of so doing) until it meets the REIT qualifying conditions (including the property assets minimum threshold condition described above). The REIT’s promoters will need to consider the effect on marketing that having no properties has. Investors may be more willing to invest if the REIT either has existing assets or has contracted to acquire properties – in effect, to demonstrate a track record. If the REIT either already holds or has contracted to acquire properties, it will need to include a valuation report on those properties in the disclosure document (see question 18 below). If the REIT does not hold any properties and has not contracted to acquire any at the time of launch, its promoters are, in marketing the REIT, likely to need to demonstrate a “pipeline” of investments. 13. Can a REIT invest substantially all of its assets in another fund? Yes but some restrictions apply. The REIT will first need to ensure that doing so does not make it lose REIT status (see question 3 above). The UK Listing Rules provide for two further restrictions. Master fund investment policy If the REIT principally invests its funds (directly or indirectly) in another company that invests in a portfolio of investments (a master fund), the REIT must ensure that:
the master fund’s investment policies are consistent with the REIT’s published investment policy and provide for spreading investment risk; and
the master fund in fact invests and manages its investments in a way that is consistent with the REIT’s published investment policy and spreads investment risk.
Cross-holdings No more than 10%, in aggregate, of the value of the total assets of the REIT may be invested in other listed closed-ended investment funds. This restriction does not apply to investments in closed-ended investment funds which themselves have published investment policies to invest no more than 15% of their total assets in other listed closed-ended investment funds. 14. What is a private REIT? A private REIT is a REIT that is not widely held or marketed. Private REITs have historically taken advantage of markets such as the International Stock Exchange, which do not require REITs to have a “free float” and which do not have disclosure standards as onerous as those on other markets. Going forward, depending on the intended investor base, private REITs alternatively may be able to rely on the 70% institutional investor ownership condition referred to in question 3 above. Those establishing a private REIT will, however, need to think carefully about how the REIT is held in the context of other REIT qualifying conditions (such as the requirement for the REIT not to be a close company). 15. What regulatory permissions do a REIT/its promoters need to consider? The REIT will be an alternative investment fund (AIF) for the purposes of the UK rules on alternative investment fund managers (the AIFM Rules) and will, as a result, need to have an alternative investment fund manager (AIFM). The AIFM is responsible for the AIF’s portfolio management and risk management. The AIFM can be either external (i.e. a third party appointed by the REIT to be its AIFM) or internal (i.e. the REIT manages itself as its own AIFM). A UK AIFM (whether external or internal) must be authorised by the FCA under the AIFM Rules. Obtaining the requisite authorisation can take some time, so it can be preferable to appoint an existing authorised AIFM as the REIT’s external AIFM. See question 11 above for more on appointing an external AIFM.
16. To what market should a REIT’s shares be admitted? The UK market that offers the greatest liquidity (including because admission to it is a requirement for inclusion in the FTSE indices) is the London Stock Exchange’s Main Market. The rules of the Main Market are, however, more onerous than other markets. A comparison of the key eligibility requirements and the key ongoing obligations for each of the London Stock Exchange’s Main Market, AIM Market and Specialist Fund Segment is set out below.
17. What are the principal workstreams for admission to trading?
Working capital: in its disclosure document, the REIT will be required to state that it has sufficient working capital to meet its present requirements (i.e. for the next 12 months). In order to support this statement, a REIT/its promoters will prepare a working capital model showing cashflow and expenditure projections (typically over a longer period than the 12 month period), including a base case and a downside case with sensitivities applied. The working capital model will be reviewed in detail by the REIT’s reporting accountants and its sponsor/nominated adviser.
Valuation report: if the REIT has existing properties or has contracted to acquire properties, it will need to obtain a third-party valuation report in respect of those properties. The valuation report is typically prepared in accordance with the RICS “red book”.
The principal disclosure document for a REIT whose shares are to be admitted to either the Main Market or the Specialist Fund Segment is a prospectus. See question 18 below for details of the principal content requirements for a prospectus. If the REIT’s shares are to be admitted to trading on AIM, the principal disclosure document is an AIM admission document which, while broadly similar in terms of content to a prospectus, does not need to be vetted by the regulator prior to publication. A prospectus will be subject to the review of the FCA. A prospectus typically takes 6-8 weeks from first submission to clear comments from the FCA. There is no such review process for an AIM admission document but the nominated adviser will need to be satisfied that it contains the prescribed contents. Given the risk of liability for the REIT and its directors for false or misleading statements in the disclosure document, the disclosure document is typically subjected to a verification exercise which seeks to identify evidence supporting the truth of each statement made in the disclosure document. REITs also typically take out prospectus insurance with an insurance broker.
A summary: which must follow a prescribed format and be a fair summary of the prospectus as a whole. Risk factors: which will be tailored to the particular operations of the REIT. A business description: this typically comprises (among other things) an introduction, the history of and background to the business, an overview of the business, including investment objective, investment policy, investment strategy, investment restrictions, valuation policy, and a comprehensive and meaningful portfolio analysis*. Details of the directors, management (including track record) and corporate governance. A property valuation report (see question 17 for more details).* Historical financial information and (if necessary e.g. because the REIT has contracted to acquire properties) pro forma financial information.* Capitalisation and indebtedness tables. An operating and financial review (OFR): being a narrative description of the REIT’s financial condition, operating results and capital resources in relation to the period covered by historical financial information.* Taxation summaries for the issuer and shareholders. Additional information: containing miscellaneous details required by the Prospectus Regulation Rules, such as material contracts, share capital history and director remuneration.
* Not relevant for blind pool funds.
19. What principal third party service providers and advisers does a REIT need in connection with admission?
Investment manager/investment adviser: if the REIT is to be externally managed, it will need an investment manager to, among other things, perform the function of an Alternative Investment Fund Manager (AIFM) under the UK AIFM Rules. If the promoter of the REIT is not already authorised as an AIFM, it may take a significant amount of time to obtain an AIFM licence. In those circumstances, REITs often appoint an existing AIFM (there are a number of “out-of-the-box” AIFM providers in the market) as their AIFM (whether temporarily or permanently), with the promoter acting as investment adviser. Administrator/company secretary: externally managed REITs will typically need an administrator and company secretary to perform certain accounting, administration and secretarial services. Sponsor/nominated adviser: a sponsor’s primary responsibility is to confirm to the FCA that a REIT has satisfied all of the requirements for listing. It will also provide advice on the UK Listing Rules and corporate finance advice including on timetable, structure and marketing. A nominated adviser performs a similar function in relation to the AIM Market. Broker: the role of the broker (there may be more than one) is to procure subscribers and/or purchasers for shares in the offering and to assist in the management of communications and information flow to and from shareholders. The broker may be the same entity as the sponsor/nominated adviser, although some REITs prefer the sponsor/nominated adviser to be independent. Lawyers: the REIT’s lawyers are typically responsible for, among other things, producing a legal due diligence report on the REIT, drafting the disclosure document (with input from others), advising on an appropriate structure for the REIT group (including from a tax perspective), drafting and negotiating all legal documentation and performing a verification exercise on the disclosure document and marketing presentation. Reporting accountants: the REIT’s reporting accountants are typically responsible for, among other things, producing a financial due diligence report on the REIT, reporting on the REIT’s historic financial information, reviewing the REIT’s working capital position and its financial position and prospects procedures. Debt providers: REITs typically employ some gearing and so it is usual for a REIT to have one or more debt facilities. See question 3 for restrictions on borrowing by REITs. Registrar: the registrar will maintain the share register of the REIT. Receiving agent: if the REIT raises money through an offer for subscription, the receiving agent manages receipt of subscription forms. Typically, the receiving agent operates in the same organisation as the registrar. Depository: to comply with the AIFM Rules, a depositary will need to be appointed to perform certain functions (e.g. cash flow monitoring and verification of the REIT’s ownership of its property assets), although a lighter-touch regime may apply to REITs that are overseas entities, such as Jersey or Guernsey companies. Valuer: the valuer produces the valuation report referred to in question 17 above. PR advisers: REITs typically appoint PR advisers to manage the process of public communications in connection with admission. Insurance broker and underwriter: a REIT will typically take out both directors and officers liability insurance and public offering of securities insurance.
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