Below are the frequently asked questions plus answers.
What are the tax benefits of the REIT

The REIT is exempt from tax on property income and gains and shares in the REIT can be held in SIPP, SSAS and ISA wrappers offering the potential for completely tax free investment in residential property.

REIT dividends paid directly to UK resident investors will attract withholding tax at 20% but this is fully offsetable/reclaimable for UK tax purposes.

Non-UK investors will not suffer the 2% non-UK resident surcharge normally levied on non-UK residents purchasing residential property in England and, depending on jurisdiction, lower levels of withholding tax may apply on REIT dividends paid to non-UK resident investors.

Holding shares in the REIT can be useful for estate planning purposes as REIT shares are easily divisible.

Please also refer to the summary tax table by clicking here.

What are the pros and cons of investing via the REIT versus a personal portfolio

Sandstone can help with either route.

The main upside of personal ownership (whether held directly or through a limited company) is the ability to gear up to 75%, driving higher overall returns.

The main upsides of ownership via the REIT are:

  • Tax efficiency - see above
  • Owning residential property made very easy – the REIT takes full responsibility for the buying, borrowing, renovation, furnishing and day to day management of the properties
  • Immediate access to a pooled fund with a diversified portfolio of property assets – spread of risk and returns
  • Lower level of minimum investment improving accessibility – Euro 100,000 (~£85,000) minimum investment initially but no minimum investment post IPO
  • More liquid – REIT shares are divisible so facilitates part sale to other private buyers pre IPO; following IPO liquidity will be provided through share trading on the London Stock Exchange
How much can I invest?

At this stage, we are inviting larger investors to participate. The minimum investment is set by the regulations at Euro 100,000 (sterling equivalent ~£85,000). The REIT will eventually be open to investors of all sizes.

Can I invest as a limited company?

Yes. You can invest personally, as a limited company, or via your ISA, SIPP or SSAS.

Who can invest in the REIT right now, and how.

Individuals, companies and others can invest in the REIT at almost any point over the course of the next 12 months. The intention of the Board is to have monthly closings commencing in April 2022. Details of proposed closing dates will be confirmed in due course. Because of financial regulation we are limiting investors to those with a UK residential address and bank account, although Singapore is expected to be added to the list of qualifying jurisdictions in May 2022. You can register your interest by clickinghere.

Subject to satisfying local regulatory requirements, we expect to add other jurisdictions during the course of 2022, to include Hong Kong and wider Europe. Longer term, we plan to make the REIT available in China and the USA.

Can I invest in the REIT through my SIPP?

Following the IPO of the REIT, the shares in the REIT should be qualifying investments across a wide range of SIPP platforms and providers. Prior to IPO, it will depend on the specific investment requirements and restrictions of an individual’s SIPP provider.

Why is the REIT listed on TISE and not the LSE?

We are following the route of many new REITs, where we launch on The International Stock Exchange (TISE) and then move to the London Stock Exchange (LSE) as the REIT scales up to a level that would appeal on the LSE, anticipated to be in the region of £100m of gross assets - £60m equity and £40m debt.

When will the REIT go to an IPO and become more liquid.

Our aim is to IPO the REIT in 2023 subject to raising sufficient investor equity in this fund raising period, during which we are targeting a raise of £60m. If necessary we will have a Public Offer of the REIT shares as a precursor to the IPO and in order to support the equity raise.

How do I get my money out of the REIT?

By selling your shares to another investor. At the moment, whilst the REIT is listed on TISE, it is not publicly traded so you would need to find another private investor to buy your shares. We can help withthat. Once the REIT shares are traded publicly (post IPO) you will be able to buy and sell shares on the LSE as you would any other share.

In the event that you/we are unable to find a buyer for your shares and the REIT does not proceed to IPO, the Directors will hold a continuation vote on the third anniversary of listing on TISE (i.e. 24th September 2024) which, if not passed, will require the Directors to consider a winding up or reconstruction of the REIT which offers all shareholders the opportunity to realise their investment.

Why invest in the REIT now and not at IPO?

Shares in the REIT are currently being issued at NAV which means that the price you pay for a REIT share is calculated based on the value of the underlying assets and liabilities of the REIT. As the REIT grows, and in particular following IPO, shares may be issued at and/or trade at a premium to NAV to reflect the costs of growing the REIT and, driven by supply and demand for REIT shares, the price the market puts on what we consider will be a very compelling and unique investment strategy and proposition.

Are the setup costs charged to early investors?

No. It would be unfair to charge setup costs to a small number of investors so they are currently being underwritten by the Investment Manager. They may be recharged to the REIT as it scales up so as to minimise the impact on shareholders.

What is the price / value of REIT shares?

In accordance with the terms of the Listing Document, REIT shares will be issued at net asset value (NAV) during this Offer Period – currently £1.04 per share based on the 31st March 2022 NAV.

The NAV and therefore the share issue price will be updated from time to time at the discretion of the Board to reflect any movement in the value of the properties and other assets and liabilities of the REIT.

The intention of the REIT Board is to have the properties independently valued bi-annually. The properties were last valued on 31st March 2022.

How do my shares make money for me?

In accordance with the REIT rules, the REIT is required to pay out at least 90% of the net rent it receives as dividends (PIDs – Property Income Dividends) to its shareholders. The annual dividend yield based on the 31st March 2022 NAV is expected to grow to between 3.5% and 4% within the first 3 years, rising to around 5.5% to 6% longer term.

The NAV of the shares is expected to grow over time in line with the increase in value of the underlying property portfolio. Based on our modelling, the average annual total return on investment based on the 31st March 2022 NAV is expected to be in the region of 17% over the longer term.

When will I receive my first dividend?

Subject to there being sufficient distributable reserves, the Board will consider the payment of a dividend covering the period from inception of the REIT to 30th September 2022, payable within 4 to 6 weeks. It is intended that the REIT will pay dividends on a quarterly basis subject to the financial position of the REIT at the relevant quarter end and the financial outlook.

How sensitive is the REIT to a rise in interest rates?

If interest rates rise by 1%, there will be a reduction of ~0.5% in the modelled average annual total return on investment.

What will I be taxed?

Refer to the summary tax table here as a guide.

The Property Income Dividends (PIDs) paid by the REIT attract 20% Withholding Tax which is fully offsetable/reclaimable for UK tax purposes. Depending on how you invest, for example through a tax-free wrapper like a SIP, SASS or an ISA, this can reduce to zero. Non-UK resident investors may be able to reclaim some or all of the withholding tax depending on the terms of the Double Tax treaty between the UK and the particular investor jurisdiction. Exactly how and how much you will be taxed overall will depend on your individual circumstances. We can introduce you to a tax adviser who can help with this. Any capital gains on a sale of REIT shares will be taxable in the usual way in the hands of the investor.

What type of fund are you?

The REIT is an Alternative Investment Fund (AIF). Because the REIT manages the fund, it is also a form of Alternative Investment Fund Manager (AIFM), specifically a “small internally managed UK AIFM” (sometimes referred to as a “small registered UK AIFM”).

As a PLC and an AIF, the REIT has a Board of Directors who are responsible for a wide range of matters, not least risk and portfolio management and ensuring that shareholder interests are considered and protected at all times. One of the key roles of the Board will be to oversee the delivery of services by the Investment Manager and the Property Manager as these are critical to the delivery of the investment objective and strategy of the REIT.

Is the REIT based offshore?

No, the REIT is a Scottish Public Limited Company albeit with a listing on TISE (a requirement for obtaining and maintaining REIT status).

What fees does the REIT charge?

The Investment Manager charges the REIT a flat management fee of 1% + VAT based on the value of the REIT’s gross assets. The Property Manager charges a finder’s fee of 1% + VAT of the value of the property assets sourced for the REIT as well as other typical fees related to the renovation, development and ongoing day to day management of the properties.

How has the REIT performed since its launch last year?

Shares were originally issued at £1 per share (representing a discount to NAV of approximately 14%) to those investors who participated in the first close in November 2021. On 30th November 2021 the REIT acquired a further 4 properties which have now been fully renovated and are income producing. Taking in to account the acquisition costs of the properties added in November, the NAV per share at 31st March 2022 is approximately £1.04 – an increase of approximately 4% on the original share issue price of £1. It is anticipated that the property acquisition costs for the 4 properties acquired in November 2021 will be recouped over time as the value of the properties increases.

How much leverage does the REIT have currently and what is the target leverage?

Based on the 31st March 2022 property valuations the REIT has an LTV of approximately 30%. The target leverage is 30% - 40% with a maximum of 50%. We are currently in discussion with a number of banks about a portfolio level facility to replace the existing asset level facilities. We would expect the cost of debt to be lower doing it in this way.

Can I transfer my existing portfolio of properties to the REIT in exchange for shares?

In principle, yes, the REIT has been specifically designed to facilitate property for share swaps (“Stock Swaps”). There will be some additional steps required in order to do this but we are more than happy to help with the process. There may also be certain additional tax benefits related to Stock Swaps . If you are interested, please raise this with the Sandstone team.

Who sits on the REIT Board?

The Board is currently comprised of Peter Grant, founder of the Sandstone Group, as Chairman, Alan Roberts, a Fellow of the Royal Institution of Chartered Surveyors and former MD/CEO at JLL, and Lindsay Campbell, a Chartered Accountant with a broad range of experience in Finance and Managing Director roles.

The intention is that Peter will retire from the Board in due course when a suitable independent replacement can be foun.

How much equity did you raise during the last offer period?

The REIT was soft launched in September 2021 when Peter Grant contributed £1m of seed investment, part of which was satisfied by the transfer of 4 residential properties.

On 18th November 2021 the REIT raised a further £789,000 of equity which was used to buy a further 4 residential properties on 30th November 2021.

It had been the intention to have a second equity raise in December 2021 but the Board decided to take a ‘time out’ to focus on cementing the REIT’s operating platform prior to a follow on raise.

What progress have you made with the operating platform?

A number of steps have been taken in the last 4 months to strengthen the REIT’s operating platform and to support the REIT’s growth strategy and plan. One of the key steps was the appointment of Paolo Alonzi, former Real Estate COO at abrdn plc. Paolo comes with nearly 20 years of experience (at abrdn) in establishing and operating a broad range of real estate funds including 5 REIT strategies.

We have also recently appointed JTC to provide a range of services to the REIT including secretariat services, fund governance, fund administration and fund accounting. JTC are one of the leading names in REIT governance and administration.

How do you compare to other REITs?

The Sandstone Residential REIT is a unique offering providing investors with exposure to the growing and economically resilient student accommodation sub-sector of the residential market. Furthermore, unlike other student accommodation REITs which focus on Purpose Built Student Accommodation (PBSA), the Sandstone Residential REIT focuses on well located (typically close to city centres) traditional properties let to students in prime university cities. Traditional student properties have stood the test of time and offer high and stable returns. Even in the very unlikely event of a falloff in student demand, unlike PBSA, traditional properties can be easily re-purposed as family homes – since 1974, UK house prices have risen at an average of 7% per annum.

How will Sandstone manage demand from both Private Clients and the REIT?

The Sandstone Group is able to identify a pipeline of approximately £300 million of suitable residential properties per annum across the UK university cities in which it has operated, and as such has access to more than enough properties to meet demand from both Private Clients and the REIT. Properties will be matched to the REIT and to Sandstone’s Private Clients based on the investment objective and strategy of each and, where these overlap, properties will be allocated on a basis which is fair and reasonable to all parties. As the REIT scales up it may be necessary to put a formal deal allocation process in place.

Do all acquired properties have to be renovated? Will the REIT acquire properties that are already tenanted?

The Sandstone ‘model’ focusses on the full day one renovation of traditional properties in order to maximise rental yields, minimise maintenance costs and support strong increases in both capital and rental value over time. There will, however, be instances where the REIT acquires properties which are already tenanted and benefit from rental income from the 1st day of ownership. This is likely to be the case where a client transfers an existing privately held portfolio to the REIT in return for REIT shares. Should the property require an interiors upgrade, it will be scheduled for renovation at an appropriate future date such as at the next tenancy turnover.

How will you ensure the REIT is sufficiently diversified across locations and asset type?

Diversity will increase as the fund scales. In the initial phase the Investment Manager will ensure that, where achievable, we establish a diverse portfolio across the UK cities while maintaining a key focus on asset quality.

How quickly will the REIT be able to deploy funds following a capital raise?

Sandstone have a strong track record of deploying capital on behalf of private clients, with buyers in each of the cities where Sandstone operates. This operating model ensures rapid deployment of funds on behalf of the REIT while maintaining a focus on asset quality, all under the direction of the Investment Manager.

Will the REIT trade properties to realise gains, or take on development risk?

The REIT will not make speculative acquisitions or take on any development risk. The investment model is based on a long term holding period for all acquisitions. There may, however, be instances where the REIT will look to dispose of selected properties in order to recycle funds into higher performing assets in order to meet the investment objectives of the REIT.

What is the current investor profile of the REIT? How do you expect this to change over time?

The REIT’s initial investor base includes a number of clients who have already grown privately held portfolios with Sandstone. It is anticipated that the investor base will continue to be supported by Sandstone’s current private clients, with the scale and profile of the investor base developing as the fund progresses to IPO and beyond.

Are there any disadvantages to a publicly traded REIT?

Investors should consider the REIT to be a long term investment. Once the REIT becomes publicly traded, investors should be aware of the potential for daily price volatility driven by broader equity market sentiment. REIT stocks typically track the value of their underlying property investments closely and may even trade at a premium to NAV driven by supply and demand for REIT shares, the price the market puts on what we consider will be a very compelling and unique investment strategy and proposition.

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