REIT Conversions Are Back In Fashion As Property Becomes A Wartime Favourite

It takes bravery for a property company to launch itself as a REIT in today’s volatile stock market. But with equity markets making back gains after a difficult three weeks, clearly not enough to deter one Anglo-German business. 

Sirius Real Estate, fresh from the November 2021 acquisition of flex workspace provider BizSpace, is to convert its UK operation into a real estate investment trust from 1 April.

The firm has opted to move ahead when others have hesitated.

The move comes just weeks after promoters pulled back from the launch of a new co-living REIT formed from the remains of The Collective, the co-living operator that took a tumble last.

The board of GCP Co-Living REIT announced that it would pause the marketing of its £300M initial public offering in the wake of the Russian invasion of Ukraine. No new subscriptions will be taken and existing subscribers will get their money back until the board decides to lift the brake. The IPO was promoted by Gravis Capital.

The decision shows the different dynamics operating in property subsectors that showed very different degrees of resilience during the pandemic. Whilst neither flopped, co-living is enduring a slower renaissance than the flex workspace world.

The REIT transition allows Sirius to shrug off UK corporation tax on income or gains from its property rental business, and it will be required to pay 90% or more of its UK property rental business income to shareholders annually.

"The proposed conversion to a UK REIT is a natural progression following the company’s transformational acquisition of BizSpace in the UK last year, and provides greater comparability to other UK REITs for investment purposes,” Sirius chief executive Andrew Coombs said.

“Once sites are mature and net income and values have been optimised, the company may take the opportunity to refinance the sites to release capital for investment in new sites or consider the disposal of sites in order to recycle equity into assets which present greater opportunity,” a statement said.

Sirius also has a venture, Titanium, formed with clients represented by AXA IM Alts. The venture seeks to grow primarily through the acquisition of larger stabilised business park assets and portfolios of assets with strong tenant profiles and occupancy. 

There are 56 REITs listed on the London Stock Exchange including Hammerson, British Land and Derwent.

REITs plunged after the Ukrainian invasion, but all but one are now back at, or close to, their pre-invasion level.