UK REIT Horizon Scanner

Transcription

1 UK REIT Horizon Scanner

2 Key issues coming up for UK Main Market REITs in corporate, financial regulatory, planning, real estate, securities law and regulation and tax 1 in England (including EU law). Contents Financial regulatory... 1 Real estate, planning and construction... 2 Tax... 4 General corporate... 5 Capital markets... 8 Key contacts Urgency/ impact rating for REITs admitted to London Stock Exchange Main Market (including the Specialist Fund Segment 2 ) Red likely to have material impact limited impact or await developments Green minor or no direct impact Published as at: 15 December We have set out below the proposed tax changes that are likely to directly and materially impact REITs. We have not sought to cover changes of more general application, which may also impact REITs. 2 Although the Listing Rules do not apply to the SFS, it is common for SFS companies voluntarily to comply with certain key Listing Rules and to state an intention to comply with the Corporate Governance Code.

3 Financial regulatory Issue Status Key Timing Impact Insurance Distribution Directive (IDD) Affects: insurance/reinsurance brokers, insurers/reinsurers, managing general agents, professional firms, appointed representatives, ancillary insurance intermediaries Following a review of the Insurance Mediation Directive, the EU Commission began a process to revise it. The UK is required to comply with its replacement the IDD by 23 February The IDD introduces new rules on insurance distribution. In summary, it seeks to: improve regulation in the retail insurance market and create more opportunities for cross-border business establish the conditions necessary for fair competition between distributors of insurance products strengthen consumer protection, with particular regard to the distribution of insurance-based investment products. To the extent a REIT Manager is FCA regulated to conduct insurance mediation activity, it will need to review the conduct of its insurance mediation business to ensures it is compliant with changes resulting from the implementation of IDD. Applies 23 February 2018 See: FCA Policy Statement PS17/21 setting out near final rules 23 February 2018 Extension of Senior Managers and Certification Regime (SM&CR) Affects: all FCA regulated firms The FCA has published proposals to extend the SM&CR to almost all regulated firms. The new regime will essentially replace the Approved Persons Regime. The FCA propose to apply a standard set of requirements to core regime firms, extra requirements to enhanced regime firms (fewer than 1% of solo-regulated firms) and a reduced set of requirements to limited scope firms. Anticipated during 2018 The CP17/25 consultation closed on 3 November 2017, and the FCA will now consider all the feedback and intends to publish its finalised rules in a Policy Statement in 2018, following which the extended SM&CR will come into force. See: FCA CP17/25 Alternative Investment Fund Managers Directive (AIFMD) review The European Commission was required to start a review of the AIFMD by 22 July 2017 (Article 69, AIFMD), which may result in a proposal to amend AIFMD. Not yet finalised Red Affects: AIFs and AIFMs Also, Full-scope UK AIFMs relying on an AIFMD marketing passport to market to EEA professional investors may need to consider their arrangements in light of Brexit. AIFMD provides for a 2018 review by ESMA of the AIFMD passport, which could lead to the end of national private placement regimes (NPPRs) altogether (Articles 67 and 68 AIFMD). Therefore post-brexit a Full-scope UK AIFM could be in a position that it no longer has EEA marketing passport rights, nor can it access EEA investors via NPPRs. 1

4 Real estate, planning and construction Issue Status Key Timing Impact BREEAM review Affects: all parties to construction contracts The next set of BREEAM standards are due to be issued in 2018 which will affect the factors taken into account when buildings are assessed for a BREEAM rating, which in some cases may be a requirement of planning permission. Launch in early 2018 Green BREEAM UK New Construction 2018 Consultation Minimum energy efficiency level for rented property in England and Wales Affects: landlords of privately rented commercial or domestic property in England or Wales From April 2018, landlords of privately rented commercial or domestic property in England or Wales will not be able to grant a new tenancy unless their properties reach at least an Energy Performance Certificate (EPC) rating of E. The Energy Efficiency (Private Rented Property) (England and Wales) Regulations 2015, introduced a phased approach to compliance, but by 1 April 2023 every commercial property will need to meet the minimal level in order to continue to be let. Phased introduction from 1 April 2018 Red Non domestic landlord guidance The Private Rented Property minimum standard landlord guidance documents There is an exemptions framework to cover certain circumstances, which requires the landlord to note the property on a National PRS Exemptions Register. General Data Protection Regulation (GDPR) introduces a tough new regime for data collection and usage Affects: Property owners, managers and investors In this age of smart buildings and digital environments, the GDPR potentially has serious impact on how real estate is built, operated and mined for data. Property owners, managers and investors might have new responsibilities and liabilities, which can result in fines up to 4% of global group annual revenue. A further developing data protection law in the UK, aligned to the Brexit pathway, will go further to introduce new criminal offences where data handling in concerned. May 2018 Red 2

5 Issue Status Key Timing Impact Changes to the way leasing arrangements are reported in financial statements Affects: IFRS/FRS 101 reporting lessees The International Financial Reporting Standard 16 (IFRS 16) was introduced in January 2016 and comes into effect on 1 January 2019, at which point lessees will see significant changes to the way their leasing arrangements are reported in their financial statements. IFRS 16 will be compulsory for IFRS/FRS 101 reporting companies, so including the consolidated accounts of UK and other affected companies listed on the Main Market and AIM. It eliminates the distinction between operating leases and finance leases for accounting purposes, creating a unitary model where all tenancies see their present value capitalised as an asset and future rental payments recorded as a liability. 1 January 2019, although early take up is possible The government is consulting on the tax impact of these changes. IFRS 16 Leases Review of the implementation of the Housing Grants, Construction and Regeneration Act 1996 (the Construction Act ) Review of the use of retentions in the construction industry Affects: all parties to construction contracts and their funders The Department for Business, Energy and Industrial Strategy has published a consultation to review the implementation of the Construction Act, specifically the use of adjudication for construction disputes and the payment provisions Changes to Part 2 of the Housing Grants, Construction and Regeneration Act 1996 Separately, the Department for Business, Energy and Industrial Strategy has published a consultation to review the use of retentions in the construction industry. The review will consider alternatives to cash retentions being held by employers and contractors, such as project bank accounts, escrow accounts and bonds. The intention is reduce cashflow issues for construction supply chains and prevent large amounts of money being tied up. Not yet finalised Retention payments in the construction industry The closing date for the consultations is 19 January

6 Tax Issue and who s affected Status Key Timing Impact Changes to the personal portfolio bond rules to allow investment in REITs Affects: (among others) those wishing to invest in REITs through life insurance policies The Personal Portfolio Bonds (Amendment of Property Categories in Section 520 of the Income Tax (Trading and Other Income) Act 2005) Regulations 2017 update the categories of property that may be made available for selection by a life insurance policyholder without triggering the personal portfolio bond legislation (and the resulting annual tax charge). With effect from 1 January 2018, REITs will be included in the list of acceptable categories of property. This will allow policyholders to invest in REITs whilst still benefitting from a deferred tax charge, extending the pool of potential REIT investors. 1 January 2018 Red Introduction of capital gains tax for nonresidents investing in commercial property Affects: (among others) non-uk residents investing in REITs and non-uk resident entities forming part of a UK REIT group The Government published a consultation alongside Autumn Budget 2017 on proposals to apply capital gains tax to all forms of property investment by non-residents. This means that commercial property gains will, for the first time, in principle become subject to tax for non-resident investors. In addition, previously applied exclusions from tax on gains on residential property investments, including for widely-held vehicles, will be removed. These changes will affect non-residents investing in REITs and non-resident entities forming part of a UK REIT group. April 2019 Red See: Taylor Wessing briefing for further details 4

7 General corporate Issue and who s affected Status Key Timing Impact Corporate governance new legislation Draft secondary legislation expected in March Further detail as follows, according to who is affected. Will apply to reporting years commencing on or after June Affects: Main Market companies Quoted companies to report annually in their remuneration report, the ratio of CEO pay to the average pay of UK workforce, along with explanation of changes to that ratio from year to year and how the ratio relates to pay and conditions across the wider workforce. June 2018 (In principle includes Main Market REITs but detailed applicability yet to be clarified.) Affects: Companies with employees Companies of significant size (probably weekly average number of employees exceeding 1000 and probably UK-based employees to be confirmed) to explain how their directors comply with s172 CA June 2018 Green (We assume no applicability to externally managed REITs and internally managed REITs would not have that many employees.) Affects: Companies with employees Corporate governance reporting requirements widened to public and private companies with over 2,000 employees; exemption for premium listed companies or those required by the Disclosure and Transparency Rules to issue a corporate governance statement. June 2018 Green (We assume no applicability to externally managed REITs and internally managed REITs would not have that many employees.) Register of the beneficial owners of overseas entities that either own UK property, or that engage in UK government procurement Affects: Non-UK companies (and their investors) Proposal for register of beneficial owners of overseas entities that either own UK property, or that engage in UK government procurement (following similar test as that used for PSC register). (This could affect non-uk subsidiaries in REIT groups.) Call for evidence closed on 15 May Update awaited. Awaiting update Brexit related legislation Affects: TBC The UK will leave the European Union on 29 March The European Union (Withdrawal) Bill is currently making its way through Parliament. This proposed bill (as currently drafted) will repeal the European Communities Act 1972, incorporate all EU law into the UK statute books, and give ministers the power to adapt and remove laws that are no longer relevant. March

8 Issue and who s affected Status Key Timing Impact Energy and carbon reporting framework to replace CRC Scheme Affects: Quoted companies and possibly all large UK unlisted companies On 12 October 2017, BEIS published a consultation on its proposals for a simplified UK-wide energy and carbon reporting framework. As the CRC Energy Efficiency Scheme is to be abolished at the end of the compliance year, the new framework would be implemented in April The government proposes that, alongside the existing requirement for quoted companies to report their greenhouse gas emissions, the information to be required under the new framework should be reported through the annual report. The government asks whether that information should appear in the directors report, the strategic report or a new, bespoke report. A bespoke report would enable digital filing of the energy and carbon reporting information, which the government proposes to require, but would have the downside of being separate from all other information in a company s annual report. It is not currently mandatory, nor is it proposed to make it mandatory, to file a directors report or a strategic report digitally. April 2019 The government also proposes to extend the scope of the reporting framework to capture certain unquoted, as well as quoted, companies (and their corporate groups). The government seeks views on whether it should extend the new reporting requirements to include, for example, every large UK company formed and registered under the Companies Act Responses are required by 4 January See: BEIS Consultation Document 12 October 2017 Shareholder Rights Directive amendment Affects: Main Market companies The amending directive came into force on 9 June 2017 and EU member states will need to implement it by 10 June 2019, including: 1. Measures to encourage long-term shareholder engagement: June 2019 Identification. To ensure that companies are able to identify their shareholders and obtain information on shareholder identity from any intermediary which holds that information. Shareholder rights. Intermediaries to facilitate exercise of shareholders rights, including right to participate and vote in general meetings. E.g. shareholders voting in general meetings should have the possibility of checking after a meeting that a vote was validly recorded and counted by company. Intermediaries obliged to deliver to shareholders all information from a company that will enable shareholders to exercise their rights. Transparency. Institutional investors and asset managers to develop and publicly disclose shareholder engagement policy or explain why not. 2. Shareholder vote on director pay and pay policy. 3. Regulation of related party transactions (although less onerous than those in LR 11 for premium-listed companies the scope may in some respects be wider). 6

9 Issue and who s affected Status Key Timing Impact 5th Money Laundering Directive Affects: TBC European Commission proposal to amend the 4th Money Laundering Directive improving access to beneficial ownership information, amongst other things. Threshold for beneficial ownership or control lowered to 10% in respect of certain limited types of entities that present a specific risk of being used for money laundering and tax evasion. In an answer (dated 28 November 2017) to a written question, the UK government advised that it expects negotiations on MLD5 to conclude in late 2017 or early ? 7

10 Capital markets Issue and who s affected Status Key Timing Impact Non-Financial Reporting Directive Affects: Main Market companies with more than 500 employees (not small and medium sized) Implemented by Companies, Partnerships and Groups (Accounts and Non-Financial Reporting) Regulations Apply to financial years of companies commencing on or after 1 January Traded companies must now include a non-financial statement in the strategic report if more than 500 employees in the group subject to some exceptions (e.g. small or medium companies). 1 January 2017 (financial years) Green Statement must contain information on: environmental matters, employees, social matters, respect for human rights, anti-corruption and anti-bribery matters. Unlikely to apply to most/ any REITs given 500 employee threshold. The Companies, Partnerships and Groups (Accounts and Non-Financial Reporting) Regulations 2016 DTR 7.2.8AR: disclosure of diversity policy in corporate governance statements (part of Non-Financial Reporting Directive) Affects: Main Market companies (not small and medium sized) For financial years beginning on or after 1 January 2017, a listed company s corporate governance statements must include a description of diversity policy applied to directors (e.g. age, gender or educational and professional backgrounds, objectives of diversity policy, how policy implemented and results in reporting period). If the company has no diversity policy, the corporate governance statement must explain why. 1 January 2017 (financial years) Red DTR 7.2.8AR 8

11 Issue and who s affected Status Key Timing Impact Listed AGMs virtual and hybrid shareholder meetings Affects: Main Market companies and larger AIM companies On 16 November 2017 Institutional Shareholder Services published updates to its UK benchmark proxy voting policies for A new policy on virtual meetings has been added, stating that ISS will generally recommend voting for proposals allowing for hybrid shareholder meetings but against proposals allowing for the convening of virtual-only shareholder meetings. Other changes have been made. The new and amended policies will be applied to shareholder meetings taking place on or after 1 February See: ISS Policy Update 16 November 2017 Similarly, on 11 December 2017, the Investment Association published a position statement on the use of virtual-only annual general meetings. It says that its members will not support amendments to articles of association that would allow virtual-only AGMs, but would expect any proposed amendment to confirm the holding of a physical meeting alongside any electronic meeting element. The Investment Association s Institutional Voting Information Service (IVIS) will red-top any company that allows virtual-only AGMs after amending its articles. Investment Association 1 February 2018 FCA consultation minor changes to Listing Rules Affects: Main Market companies On 1 December 2017, the FCA published its nineteenth quarterly consultation paper (CP17/39). Proposals include: Amending Premium Listing Principle 6 in LR 7.2.1AR (communicating information to shareholders in such a way as to avoid the creation of a false market) by insertion of the words or continuation after creation. This is to ensure that the principle covers both the continuation and the creation of a false market. Clarifying that information on company s diversity policy (as required under DTR 7.2.8AR) must be included in the corporate governance statement in its directors report and that this statement can be set out in a separate report published with annual report or in a document published on company s website. Not yet finalised The FCA invites comments on these amendments by 1 February See: FCA Consultation Paper CP17/39 9

12 Issue and who s affected Status Key Timing Impact New EU Prospectus Regulation Affects existing and prospective Main Market and AIM companies (Repeals and replaces Prospectus Directive (2003/71/EC) and its implementing measures (including Prospectus Regulation (809/2004)) Prospectus Regulation 2017/1129 entered into force on 20 July 2017 and will apply from 21 July 2019 except that: 21 July 2018 and 21 July 2019 Some exceptions took effect on 20 July 2017 (including change to allow 20% tap issuances without a prospectus). Articles 1(3) (exemption for offers with a total consideration in the EU of less than EUR1 million calculated over a period of 12 months) and 3(2) (member state optional exemption) will apply from 21 July Changes form from 21 July 2019 include: The introduction of a universal registration document, a shelf registration mechanism for frequent issuers (Article 9). Issuers who regularly maintain an updated universal registration document will benefit from a five working day fast-track prospectus approval. Introduction of two new reduced disclosure regimes to the replace the current proportionate disclosure regimes, one for secondary issues (regulated market and SME growth market companies) and one for a EU Growth prospectus for companies not on a regulated market. See: Prospectus Regulation 2017/1129 See also Taylor Wessing briefing 10

13 Issue and who s affected Status Key Timing Impact UK Corporate Governance Code consultation on changes Affects: Main Market companies Following on from the BEIS Select Committee Inquiry and the BEIS green paper on corporate governance, the FRC is consulting on a revised Corporate Governance Code and Guidance on Board Effectiveness. The paper also includes an initial high-level consultation on the future direction of the UK Stewardship Code. A final version of the Corporate Governance Code is expected by early summer 2018, to apply to accounting periods beginning on or after 1 January Likely 1 January 2019 (financial years) Proposed changes to the Corporate Governance Code include: Board to establish a method for gathering the views of the workforce, which would normally be a director appointed from the workforce, a formal workforce advisory panel or a designated non-executive director. Board to explain in the annual report how it has engaged with the workforce and other stakeholders, and how their interests and the matters set out in section 172 of the Companies Act 2006 influenced the board s decision-making. Where more than 20% vote against a resolution, the company should find out why and report back, including on the impact the feedback has had on the decisions of the board. Removal of all exemptions from Code requirements for companies below the FTSE 350. Strengthening the provisions on non-executive independence. In particular, for the chair throughout tenure (not only on appointment). Chair will not be considered independent if he/she has served more than 9 years and will need to be counted when calculating independent non-executive director majority. This may accelerate succession planning for some companies (or require additional ineds to be appointed to create requisite independent majority). Broadening the requirements relating to diversity. Chair of the remuneration committee should have served on it for at least 12 months before appointment. Expansion of the remuneration committee s remit to include responsibility for oversight of company remuneration and workforce policies and practices. Extension of the vesting and holding period for shares granted or other forms of long-term incentives, in normal periods, from at least three years to at least five years. Remuneration schemes and policies should provide boards with discretion to override formulaic outcomes. The deadline for responses is 28 February See: FRC Press release 5 December 2017 (with links to consultation documents) 11

14 Issue and who s affected Status Key Timing Impact FCA discussion paper on the effectiveness of UK primary markets Affects: Main Market companies (and their sponsors) On 26 October 2017 the FCA published a policy statement setting out its response to its discussion paper entitled Review of the Effectiveness of Primary Markets: The UK Primary Markets Landscape (DP17/2). The FCA will consult further on aspects including the current split between standard and premium listing, in particular the scope to raise minimum requirements in the standard list where the requirements do not come from parts of EU Directives that are maximum harmonising. However it does not intend to do further work on an international segment at this time. Not yet finalised The FCA intends to further engage stakeholders on those topics and publish proposals for consultation where appropriate in due course. See: FCA DP 17/2 Capital Markets Union Commission proposals to reform European financial supervision regime Affects: Existing and prospective Main Market and AIM companies and their advisers On 20 September 2017, the European Commission published proposals to reform the EU s supervisory structure, including to extend ESMA s role and powers in respect of prospectuses and market abuse. This represents the first concrete step towards the creation of a single European capital markets supervisor. It is proposed that Prospectus Regulation be amended to task ESMA, rather than national competent authorities, with approving, among other things, prospectuses that are drawn up by property companies. Not yet finalised Also, ESMA would have greater role in coordinating market abuse investigations. See: European Union press release Institutional investment: European Commission consultation on duties regarding sustainability Affects: Asset managers and institutional investors institutional investors and asset managers regarding sustainability. The consultation closes on 22 January The Commission states that the responses will be used to assess whether and how the duties of institutional investors and asset managers on sustainability should be clarified. If the impact assessment demonstrates that action at EU level would produce greater benefits over costs compared with action only at Member State level, the Commission will propose legislative or non-legislative measures. Awaiting update The consultation is available here 12

15 Important note This document is intended to give a general overview of the matters covered as they affect REITs listed on the main market of the London Stock Exchange and by its nature cannot be exhaustive. The information in this document is not intended to be, and should not be used as, a substitute for taking legal advice for any specific situation. Law and regulation are subject to change after the date this document is published. Links to publications and websites are included for convenience and no responsibility is accepted for the contents or accuracy of those documents or websites. Key contacts William Belcher Partner, London Private Capital and Corporate Finance +44 (0) w.belcher@taylorwessing.com Alan Evans Partner, London Real Estate +44 (0) a.evans@taylorwessing.com Peter Jackson Partner, London Tax +44 (0) p.jackson@taylorwessing.com Jonathan Rogers Partner, London Financial Services Regulatory +44 (0) jonathan.rogers@taylorwessing.com 13