Jersey: a decade of the REIT stuff
Introduced in the UK on 1 January 2007, the Real Estate Investment Trust (REIT) is marking its tenth anniversary this year.
A decade on and, thanks to a number of enhancements over the years, the regime continues to prove attractive for investors wanting to target UK-focused property assets.
Of course, for many years the Jersey Property Unit Trust (JPUT), a unit trust that acts through a trustee, continues to be a popular choice for holding UK real estate assets, but using a Jersey company that qualifies as a REIT for UK purposes is an alternative that has real appeal.
In fact, the growth of the UK REIT has in recent years been driven in part by the ability of Jersey companies to convert or launch as REITs, built on Jersey’s specific expertise in enabling overseas investment into the UK property market– a market that is providing good value in light of Brexit-prompted currency fluctuations.
Essentially, a UK REIT is a listed property investment company that is focused on owning and managing commercial and/or residential property assets in the UK.
Under the regime, a company can gain the benefit of efficient tax treatment, with the REIT paying no corporation or capital gains on the profits made from its property investments. The regime also provides advantages in terms of increased liquidity.
There are certain criteria that a company must satisfy in order to become a REIT. These include being a company exclusively tax resident (though not necessarily incorporated) in the UK, having only one class of ordinary shares, being listed on a recognised stock exchange, not being an open-ended investment vehicle, distributing annually at least 90% of its rental profits, and having no shareholder with more than 10% of its shares.
The requirement for a REIT to have a certain proportion of shares held by the public also means that certain investor types classified as ‘public’ such as pension funds, institutional investors, and sovereign wealth funds, are really driving the continued interest in REITs. The trend is for investors such as these to club together to form their own or acquire asset focused ‘private’ REITs.
Jersey companies are very well suited to meeting these REIT criteria. A Jersey public company, for instance, can be used as the holding company for a REIT and, unlike other jurisdictions, a Jersey company can be solely tax resident outside of Jersey. In practice, it is common to see the majority of the directors of a Jersey incorporated REIT residing in the UK with board meetings being convened in the UK.
Further, Jersey companies are regularly used as closed-ended structures with only one class of ordinary shares, whilst Jersey’s protected and incorporated cell company vehicles may well be useful for ring-fencing REIT assets and liabilities.
The International Stock Exchange – formerly the Channel Islands Securities Exchange – provides a straightforward and efficient solution to satisfying the listing criteria. In particular, amendments to Chapter 7 of the CISE’s Listing Rules have made the listing of investment vehicles including REITs easier, whilst shares in a Jersey company can be settled in CREST directly.
Overall, the familiarity of Jersey’s company law to UK lawyers and asset managers, it’s flexibility (particularly in terms of distribution), it’s sophisticated regulatory environment, it’s broad range of specific real estate expertise, and it’s unrivalled experience in the institutional, pension and sovereign wealth fund space, means that Jersey is a very sensible choice for REIT structuring.
Ten years on since its initial launch, the REIT continues to offer investors an attractive structure in the UK real estate market. The team at Crestbridge has significant experience of working with key professionals to establish and support REIT structures and listing REITs through Jersey; and it is clear that doing so can offer investment managers and investors considerable cost savings, added flexibility and significant structural advantages over the lifetime of a REIT.
Real estate is at the core of our business. We currently administer structures holding over US$50bn of real estate in the UK, Europe and North America.
Crestbridge is a leading independent provider of company secretarial, administration, director, management company, accounting and reporting services to real estate entities and funds from its multi-jurisdictional locations. We place strong emphasis on the corporate governance of real estate holding structures by demonstrating substance, management and control whilst ensuring any commercial expectations are met.
Director, Head of Real Estate Services
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