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Real Estate Horizons

Real Estate Horizons is a snapshot of key legal topics and market trends across the globe.

The year of the dedicated property stock exchange?

By Jonathan Baird and Sian Owles

An intriguing prospect for 2019 is the possibility of the first UK stock market listings of individual real estate assets. The listing of a single office block, shopping centre, or even a sports stadium could become a possibility.

IPSX Group announced at the beginning of the year that it has obtained UK Financial Conduct Authority authorization to launch a new regulated securities exchange solely focused on companies owning real estate assets. Other market participants are understood to be looking at similar proposals. The potential benefits to investors include the ability to make highly targeted decisions to obtain investment exposure to particular properties, businesses, and sectors.

But significant elements of the listing process and on-going obligations for the new exchanges will be similar to the requirements for existing stock exchange-listed property companies.

The securities traded on the new exchanges will be shares of closed-ended public limited companies that own the relevant properties.

In order to list, a company will have to prepare a prospectus which is reviewed and approved by the Financial Conduct Authority and which must include a RICS valuation and a description of the company’s material contracts, which may include key debt finance and tenancy agreements.

The company might also constitute an “alternative investment fund”, meaning that it, or an external manager appointed by the company, has to register or be authorized as an “alternative investment fund manager”.

Most significantly, a company listed on a property exchange must comply with the on- going disclosure obligations applicable to public companies. This includes prompt public disclosure of any material changes in the company’s circumstances, for instance regarding a key tenant or a rent review, irrespective of the impact that the disclosure may have on the company’s share price.

An advantage of a listed company over a private company is the ability to become a REIT for tax purposes. But a REIT must own three or more single rental properties. What counts as a single property is fairly flexible, but not all single-asset listed property companies will necessarily meet that test.

Apart from listing single property companies, most of what the new exchanges are intended to facilitate could probably be achieved by a listing on one of the UK’s existing regulated markets. Newcomers will need to differentiate themselves by providing investors with better exposure, pricing, and liquidity than the current options.

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