Real Estate Investment Trusts (REITs) were introduced in the UK in 2007. Since then, most of the UK’s largest property companies have converted to REIT status, including big names such as British Land and Land Securities. Here we take a look at what REIT status means and why REITs could be of particular interest to income investors. We then take a closer look at two individual REITs, one specialist and one generalist. What is a REIT? A REIT is essentially a company devoted to property investment. This means that, unlike many other property investments, it can be easily traded on the stock exchange – exactly the same as any other share. This can make it an attractive way for retail investors to access property investments at reasonable prices. In order to qualify for REIT status, at least 75% of a company’s profits must come from property rental, and 75% of the company’s assets must be involved in the property rental business. REITs must also distribute 90% of their property rental income to investors. In exchange for operating within these relatively strict parameters, and to encourage investment in UK real estate, REITs do not pay any corporation or capital gains tax on their property investments. What are the advantages for income investors? Having to pay out 90% of rental income as dividends can make REITs an attractive option for investors looking for income. The special tax arrangements also mean that the dividends are only assessed for tax once, rather than twice as would otherwise be the case. Many REITs have long-term lease agreements with their tenants, which helps to make rental income relatively reliable, though of course there are no guarantees. Those who are able to impose regular rent reviews on occupiers should also enjoy steady, if usually unexceptional, income growth. These traits led us to include Tritax Big Box, a logistics-focused REIT discussed in detail later in this article, in our five higher yielding shares for a low interest rate environment. Evaluating REITs REIT returns to investors are made up of two components - dividends and changes in Net Asset Value (NAV). NAV represents the value of all the assets owned by the REIT. For example, if the assets owned by the REIT, less any debt, are worth £1m and there are two million shares in issue, the NAV per share is 50p. If the value of the properties increases, either through market movements or development activity, the REIT’s NAV will grow. If a REIT, or the sector in which it invests, is particularly popular, demand might push the share price to a premium over the NAV. The same process in reverse might push the REIT to a discount. However, as a general rule, REIT share prices will tend to move in line with the NAV. Since REITs are required to pay out 90% of their income to investors, it is hard for them to build up enough capital to reinvest in new properties from their own earnings. For companies looking to expand, that [...]
White & Case has hired tax partner Michael Wistow from Berwin Leighton Paisner (BLP) to co-head the US firm’s Europe and Middle East tax practice. Wistow is currently head of BLP’s tax department, where he provides tax advice across corporate, finance and real estate transactions such as acquisitions, securitisations, and restructurings. He joined BLP as head of tax in 2007 from Clifford Chance, where he had been a partner since 2000. At BLP he was also a member of the board and executive committee. The UK firm has appointed Elizabeth Bradley as the new managing partner of its tax practice. Bradley trained at the firm and was made up to partner in 2008. White & Case global head of tax Kim Boylan said: “Michael is a leading tax lawyer and his arrival is of clear strategic importance as we look to continue expanding our role advising clients on all aspects of corporate taxation, from both a transactional and a tax advisory and restructuring perspective.” London executive partner Oliver Brettle added: “We believe a larger tax team is appropriate and necessary here in London. The team will continue to focus on both high value, tax advice-driven mandates and supporting our transactional practices. Our tax lawyers will play a particularly strategic role in the ongoing development of our real estate, private equity, finance and infrastructure industry practices. I imagine Michael will be working especially closely with our real estate team.” White & Case has made several hires to its London office recently. It hired London head of disputes Mark Clarke and equity capital markets partner Jonathan Parry from Ashurst in May and April respectively. In June, the firm boosted its banking practice with the hire of Freshfields Bruckhaus Deringer London banking partner Jeffrey Rubinoff.
Wealthy individuals in the GCC will continue investing in global real estate this year with London, New York and Singapore the top preferred investment destinations. According to a report by estate consultancy Cluttons, 63 per cent of GCC-based high net worth individuals claim they are likely to invest in their most preferred real estate investment location during 2016. The third instalment of Cluttons’ 2016 Middle East Private Capital Survey, carried out in partnership with YouGov, shows that London, New York and Singapore are the destinations of choice (outside of the Middle East) for the region’s wealthy, with 54 per cent naming residential as their preferred asset class. Sixty per cent of those surveyed identified capital value growth as their main financial investment driver across all asset classes. Steven Morgan, senior partner at Cluttons, said: “For the Gulf states as a whole, the oil price collapse that began in mid-2014 has certainly put government budgets under pressure. This has also triggered a series of macro policy amendments, aimed at tackling the projected budget shortfalls. “However, from an investment perspective, sentiment remains positive amongst high net worth individuals who are targeting real estate in London, New York and Singapore in particular. These locations offer investors a variety of asset classes that command high capital value gains and high rental returns.” Cluttons’ latest report says that London has emerged as the favourite global property investment destination amongst respondents, with 11 per cent naming the British capital as their most preferred city for investment. In the first quarter of 2016, Middle East investors pumped $418 million into London’s commercial real estate, accounting for 7 per cent of total investment during that period. This adds to the $5 billion invested by Middle East commercial investors in the city throughout 2015. The report highlights that New York is the second most preferred city for investment, with 5 per cent of respondents identifying the American city, which has historically been a popular destination for both institutional and private investors from the GCC.