REIT regimes in Iberia: an opportunity

The introduction of Real Estate Investment Trusts (REITs) in Europe, in recent years, has transformed the property investment landscape. First...

The introduction of Real Estate Investment Trusts (REITs) in Europe, in recent years, has transformed the property investment landscape. First created in the US by an Act of Congress in the 1960s, the earliest European states to adopt similar legislation were the Netherlands in 1969, followed by Belgium and France in 2003. Germany, Italy and the UK confirmed the trend in 2007. Today, there are 13 countries in Europe, in which property companies can benefit from special tax regimes.

REITs offer transparency, liquidity, professional management, and high-income payouts to property investors, coupled with the benefits of portfolio diversification and historically strong risk-adjusted performances. The implementation of REIT legislation is seen as fundamental by experts for countries to maintain and attract foreign real estate investors, adding security and credibility to the sector as well as a long-term business vision.

Alexandre Fernandes (photo: Sonae Sierra)

The goal of these regimes is to avoid taxing a rental income stream at the corporate level and again at the shareholder level. Essentially, corporate tax exemption creates a level playing field between the direct segment and the indirect segment of the property market.

Looking further ahead, Portugal, Poland, Sweden, Luxembourg and Malta are also considering adopting REIT regimes, creating a more homogenous landscape across Europe. Observers say this may even pave the way for a pan-European REIT in the future, cementing further this long-term investment alternative.

REITs in the Iberian Peninsula

Portugal’s decision to introduce REITs in early 2019, officially announced by government minister Pedro Siza Vieira in September, has been in part driven by the recent successes of the Spanish REIT regime – the SOCIMIs.

In 2009, Spain introduced this investor-friendly vehicle, which has proved an effective way of broadening the country’s real estate investment market and capturing foreign capital.

In February 2017, Sonae Sierra and Bankinter launched and listed ORES SOCIMI on Spain’s Alternative Stock Market (MAB), with the objective of acquiring low-risk retail real estate assets, backed by long-term contracts and with growth potential, in the Spanish and Portuguese markets.

This listed real estate investment company was created by Bankinter and Sonae Sierra on a 50-50 basis in December 2016.

Case study: ORES SOCIMI

ORES SOCIMI entered the market after carrying out a capital increase of around €200m in the same month of its creation. This capital increase was mainly subscribed by clients of the Bankinter’s private banking segment, while Bankinter Group and Sonae Sierra hold minority stakes.

ORES SOCIMI was conceived as an investment vehicle for Bankinter’s private banking clients who demanded a real estate investment product, with low risk and good returns. In fact, this vehicle distributes, in accordance with the rules governing SOCIMIs, an average annual dividend of between 4% and 5%, obtained from the real estate assets’ rental income.

The SOCIMI’s ultimate objective is to invest nearly €400m and, to date, ORES has already acquired several properties in Spain and Portugal, representing over 95% of that investment volume.

The ORES SOCIMI invests in retail (not residential) real estate assets, with good locations and backed by long-term contracts, mainly in the principal cities of Spain and Portugal. About 65% of all assets are located in Spain, and the rest in Portugal.

The main investment focus is on hypermarkets and supermarkets, retail parks, retail high street, in addition to the so-called stand-alone units. In other words, single assets with long-term contracts and solvent tenants. Shopping centres will not be included in the portfolio.

Sonae Sierra is responsible for all the real estate services and of the company’s administrative management.

Overall, the vehicle’s objective is to generate strong risk-adjusted returns for the ORES SOCIMI clients, taking advantage of this tax-efficient legislation. af