Green REIT, Ireland's first real estate investment trust (REIT) has raised over €300 million euros ($400 million) by placing shares with institutional investors. The latter are reported to include BlackRock and Threadneedle. On 18 July 2013 the REIT placed 300,000 shares on the Irish stock market at €1 per share in its initial public offering. On 22 July 2013 the share price was up 17% at €1.17 per share. The REIT aims to further increase the size of its fund by borrowing around one-third of its equity.
It has become increasingly clear that Dublin lacks suitable office space for the rising number of foreign companies that want to set up here and the REIT intends to exploit this demand. Indeed, the National Asset Management Agency expects to create a similar vehicle while the Irish Finance Minister, Michael Noonan, has predicted that several other REITs will also seeking listings this year.
Mr Noonan made changes in last December's Budget to encourage REITs as an investment vehicle. Subject to meeting certain criteria, a REIT will not be liable to either corporation/income tax on its property rental income or property profits, or capital gains tax on disposals of assets of its property rental business. A REIT must meet the following criteria:
- At least 75% of the aggregate income of the REIT must derive from property rental business – unlike the position in the UK, there is no balance of assets test.
- The property rental business must include at least three rental properties. No one property can represent more than 40% of the total market value of the properties involved in the property rental business. This is subject to a three-year grace period.
- While no borrowing threshold has been set down, a tax charge will arise to the extent that the sum of the property financing costs and rental income exceeds the rental income by a ratio in excess of 1.25:1.
- At least 85% of the property rental income (excluding capital gains) for each accounting period must be distributed to shareholders on or before the REIT’s normal filing date for the company’s tax return in respect of the relevant accounting period.
- Property income dividends paid by the REIT will be subject to Dividend Withholding Tax (currently 20%).
- It must be resident in the State.
- It must be a company incorporated under the Irish Companies Acts.
- Its shares must be listed on the main market of a recognised stock exchange of a member state of the EU. A three-year grace period applies to this requirement.
- It cannot be a ‘close company’ (within the meaning of the Taxes Consolidation Act 1997), unless controlled by “qualifying investors” such as life assurance companies, pension schemes and certain collective investment schemes. This is subject to a three-year grace period.
- A tax charge will arise if the REIT pays a dividend to shareholders with 10% or more of the share capital, distribution or voting rights in the REIT (other than “qualifying investors”), unless “reasonable steps” were put in place to prevent the making of the distribution to such person.
- Provision is made for the establishment of “group REITs”.
- A charge to tax will arise where an asset forming part of the property rental business is developed (at a cost exceeding 30% of the market value of the asset at the date of commencement of the development) and sold within a three-year period.
A REIT will be liable to pay stamp duty on assets which it acquires. A transfer of shares in a REIT will also be liable to stamp duty at a rate of 1%.