Investor Relations REIT Regime

A transparent REIT regime (as a French SIIC)

The name "REIT" stands for Real Estate Investment Trust. REITs are characterised by a specific fiscal regime applied across several countries to encourage potential shareholders to invest in real estate companies, benefiting from the resilience of the industry whilst enjoying the liquidity offered by the stock market.

Investors can invest their savings in various ways. Money can be left in a deposit account at the bank, money can be spent on shares in companies, and many people own real estate. It is easy to put money in deposit or buy a few shares, and take out the money again when cash is needed. For real estate it is not that easy: buying or selling real estate takes time, and involves usually large amounts of money.

To make real estate investments in big assets (an office building, or a shopping mall) accessible to a wider public, it makes sense to split the ownership in shares, and create a marketplace where these shares can be freely traded. That was the beginning of Real Estate Funds. The creation of these funds resulted in the situation that it was seen as an economic entity, generating profits for its shareholders. Compared to owning a single asset, taxed in the hands of its owner, this fund added a layer of taxes, for no other reason than that many owners had aggregated their interest. So tax at the fund level, and again tax at the shareholder level was in effect double taxation. In the 1960-ies, when real estate funds became popular in the USA, this double taxation phenomenon was quickly understood, and legislation put in place to regularize REITs, prevent double taxation by making them tax exempt, but under some specific rules. The most important rules are that REITs should pass on most of their earnings to their shareholders, can't get involved in non-real estate investment activities, and should be publicly traded without dominant shareholders.

Many countries followed the example of the USA, with the result that modern dedicated REIT regimes exist in Australia, France, The UK and several other countries. Interestingly, most countries introducing REIT regimes have experienced an increase in tax income related to real estate, as REITs add liquidity to the market, and force regular and substantial dividend payments to the domestic and foreign shareholders that are subject to withholding taxes.

Unibail-Rodamco enjoys the French REIT regime, called SIIC (Société d'Investissements Immobiliers Cotée), for its real estate operations in France since 2003. The SIIC regime requires payout of 95% of the recurring income, 60% of the realised capital gains and 100% of the dividends received from SIIC subsidiaries.