UK Real Estate Investment Trust (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 home to more than 40% 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

• 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. A listing may not be required for REITs where institutional investors hold at least 70% of the ordinary share capital in the REIT
• 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. The definition of ‘overseas equivalent’ of a UK REIT for the purposes of determining whether an investor is an institutional investor for the non-close requirement is relaxed
• Distributions: must distribute 90% of property income annually
• Activity: at least 75% of property income should be derived from property rental activity. This test disregards non-rental profits arising because a REIT must comply with planning obligations. Items specified are excluded from the profits part of the test and all other parts of the test
• 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