Real Estate Investment Trusts

REITs at a glance

A Real Estate Investment Trust (REIT) can be either a single-company or group REIT that owns and manages property on behalf of shareholders. REITs may contain commercial and/or residential property but not owner-occupied buildings. REITs provide a way for investors to access the risks and rewards of holding property assets without having to buy the property directly.

In the UK, a company or group of companies can apply for UK REIT status, which provides exemption from corporation tax on profits and gains from their UK-qualified property rental businesses. In return, UK REITs are required to distribute at least 90% of their taxable income for each accounting period to investors, where the income is treated as property rental income rather than dividends. In this way, taxation of income from property moves from the corporate to the investor level.

What are the benefits of REITs?

UK REITs provide a range of important benefits to companies and investors. And because UK REITs are listed on the Main Market or AIM they also enjoy all the other benefits associated with London's equity markets.

Benefits for companies:

  • Tax efficient structure
  • Access to new investors/capital
  • Performance more closely aligned to net asset value (NAV)
  • Acquisition currency.

Benefits for investors:

  • Tax transparent
  • Potentially high-yield returns
  • Access to property for minimal outlay
  • Low/controlled gearing
  • Portfolio diversification (low correlation to equities and bonds)
  • Liquid asset
  • Strong corporate governance.

How to issue a REIT

The REIT regime, combined with the traditional strengths of London’s capital markets, has created opportunities for the growth of the property investment sector. The legislation setting out the rules for REITs in the United Kingdom came into effect in January 2007 and, in the following years, a number of larger listed property groups converted to UK REITs, as well as a number of start up UK REITs being created. REITs enable property companies to access equity markets and to give end investors performance related to the underlying property assets, without any tax leakage. UK REITs therefore provide investors with wider opportunities for accessing an important alternative asset class.


 

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