GIC Private, the Singaporean sovereign wealth fund, entered into a partnership with UK real estate investment trust (REIT) British Land when it acquired 50 percent of Broadgate from Blackstone for a reported £1.7 billion (€1.98 billion; $2.66 billion) at the beginning of 2014.
The investment was structured as a typical joint venture until last month when the pair created Broadgate REIT Limited, to act as the new holding company for the London office complex.
This structural change is only possible after amendments made to the UK’s REIT legislation came into force last year and the move to a REIT structure is an attractive one for a foreign investor such as GIC. This is because one of the benefits is that REITs are not taxed, rather tax is paid at the shareholder level where GIC as a sovereign wealth fund is exempt.
Though creating a ‘standalone’ REIT is not just a tax play, it also creates greater flexibility for both British Land and GIC if either firm looks to cash out on Broadgate.
“In your classic JV you have got your partner as the obvious purchaser at exit. Whereas with a REIT what you have created is actually something that is marketable publicly making it an easier process,” says Brenda Coleman, tax partner at law firm Ropes & Gray. “There will still be the JV structure contractually in place between these parties, there will still be provisions that no doubt require first options to the other JV partner, so they haven’t lost that contractual matrix. But, what they have got is, if the other partner doesn’t want to buy them out they have a much easier exit.”
The British Property Federation’s director of finance, Ion Fletcher, says the more these structures become the norm, the easier and more useful these propositions will be for investors and that the establishment of ‘standalone’ REITs is a trend that will continue.
It’s also possible to invest in foreign property using a UK REIT, so when people are looking at a European profile, the UK REIT is an attractive option to use.”