The International Stock Exchange – The home of UK Real Estate Investment Trusts (REITs)?

In order to become a REIT, a company must meet all of the qualifying conditions in the UK Corporation Tax Act 2010 (CTA 2010) and give notice to Her Majesty’s Revenue and Customs (HMRC) that it wishes to join the REIT regime.  The qualifying conditions of the CTA 2010 for REITs are, among others:

• the company must be tax resident solely in the UK;
• the company must not be an open-ended investment company;
• the company must not be a close company (as that term is defined in the CTA 2010, which broadly speaking means a company that is privately owned and controlled by five or fewer individual participators or by its directors), other than only by virtue of having an institutional investor as a participator;
• the company must only have one class of ordinary share capital in issue. The only other shares it may issue are non-voting restricted preference shares;

• the company’s ordinary shares must be both:

1. admitted to trading on a recognised stock exchange; and

2. listed or traded on a recognised stock exchange.

Additionally, a REIT must distribute at least 90% of the net income profits of its tax exempt property business on or before the filing date for its tax return for the accounting period in which the profits arise. The 90% distribution requirement can be satisfied by issuing stock dividends.

Under section 1005 of the Income Tax Act (2007), The International Stock Exchange (TISE or the Exchange) is a “recognised stock exchange” by HMRC.  The below summarises the key benefits of listing REITs on TISE, which have resulted in the Exchange reportedly becoming home to a third of all UK REITs, together with a brief explanation of the procedure required in order to progress a listing of REIT equities on the Exchange.

Advantages of Listing REITs on TISE

As noted above, the key advantage to listing REITs on any exchange are that the REIT regime provides for exemption from UK corporation tax on the income and capital gains of the REIT’s qualifying property rental business. Notable additional advantages to listing REITs on TISE may be summarised as follows:

• TISE has exempted REITs from the 25% “free float” requirement (which requires that 25% of the shares of the company be held in the hands of the public). This is especially attractive to those REITs that will have a small number of investors (including where the REIT is wholly owned by an institutional investor), where there is less of a need for liquidity;
• as noted above, TISE is a “recognised stock exchange”, recognised by, amongst others, HMRC, the German securities regulator, BaFin, and the Australian Securities Exchange;
• TISE is within the same time zone as the UK and the Channel Islands are English speaking;
• TISE listing fees are very competitive (current fees may be found on the TISE website). In addition, cost savings may arise as, under the Exchange’s listing rules (the Listing Rules), existing documentation may be utilised to form part of the application documentation;
• TISE is responsive and approachable, providing comments on the initial application documents within three business days and any subsequent responses within two business days of relevant documentation being submitted;
• international standards of issuer regulations;
• enhanced marketability and added value service; and
• a pragmatic and flexible approach to disclosure requirements.

Jurisdictions of REITs

While UK REITs must be tax resident in the UK, they can be incorporated in other jurisdictions. They would however, have to be centrally managed and controlled in the UK for such companies to be solely tax resident in the UK. This is usually achieved by the majority of the board of directors being UK residents and board meetings being held in the UK.

REITs listed on TISE include companies incorporated in jurisdictions other than the UK, including Jersey, Guernsey and the Isle of Man, which can each offer a number of advantages compared to using a UK incorporated company, including:

• the increased flexibility under the respective Company laws, in particular the ease by which distributions can be made (i.e. there is no requirement to consider the distributable profits and reserves of the company);
• no stamp duty is payable on the transfer of shares and no income tax will be payable by the company in Jersey, Guernsey and/or Isle of Man;
• the flexible regulatory position where the REIT is operating as a collective investment scheme; and
• company law in Jersey, Guernsey and the Isle of Man recognises protected and incorporated cell companies which may be useful for ring-fencing REIT assets and liabilities.

Process of Listing REITs on TISE

The first stage in the making of any application for admission to the Official List of TISE is the appointment of a listing sponsor. The applicant must have a listing sponsor at all times while making the application. Once listed, the listing sponsor facilitates compliance with the ongoing obligations outlined in chapter 4 of the Listing Rules, a copy of which can be found here. Appleby Securities (Channel Islands) Limited is a full listing member able to sponsor the listing of UK REITs.

The listing procedure consists of four steps, each can be summarised below:

1. Step 1: Satisfying Initial TISE Listing Conditions – before the draft application can be submitted to the Exchange, the listing sponsor will assist the issuer with the collation of certain details and documentation from the UK REIT in respect of the equities being listed and details of the structure of the UK REIT. The listing sponsor will then prepare the draft application documentation for the UK REIT’s review and consideration;
2. Step 2: Submission of Draft Application to TISE – the draft application for the listing of the REIT can then be submitted to the Exchange by the issuer’s listing sponsor, upon which (and subject to the settlement of the Exchange’s listing application fee) the Exchange will consider the application and revert within 3 business days with its initial comments letter.

The applicant must submit certain documents to TISE as required by the Listing Rules.  The documentation consists of a listing document, which can take the form of an existing published prospectus, offering memorandum, scheme particulars and the like, together with supporting documentation such as accounts, when necessary, and various standard application forms which TISE provides within its Listing Rules.

The disclosure requirements for the documentation that form the draft application to the Exchange are set out in chapter 2 of the Listing Rules. The listing sponsor will advise as to compliance with the Exchange’s requirements and where updated information is required, will assist with the drafting an update “wrapper” document that forms part of the listing application documents;

3. Step 3: Approval – following correspondence between the listing sponsor and the Exchange, once the Exchange are satisfied with the form of the application, the issuer and their listing sponsor submit the final application to TISE to be considered at a meeting of the Listing and Membership Committee; and
4. Step 4: Listing – if the Listing and Membership Committee approves the application, the listing documentation is then filed and the securities are admitted to the Official List. Upon completion of the listing, the issuer will be required to ensure compliance with the ongoing obligations outlined in chapter 4 of the Listing Rules.

Appleby Securities (Channel Islands) Limited

Appleby Securities (Channel Islands) Limited, is a full listing member of TISE, and can act as a listing agent or sponsor for all listing purposes. Appleby Securities (Channel Islands) Limited is able to provide high quality, cost-effective professional services in all aspects of structuring and documenting debt and equity issues, from initial inception to public offerings and listings.

We provide a professional and integrated service, coordinating the listing process and supporting the issuer through its application. We also act as our client’s ongoing agent and assist them in meeting the issuer’s continuing obligations as a listed issuer on the exchange.

Do get in touch with your usual Appleby contact should you wish to discuss.