U.S. REITs and U.K. PRIIPs Regulation
The UK implementation of the European Union’s (EU) Packaged Retail and Insurance-based Investment Products regulation (“PRIIP”), which became effective earlier this year and was the subject of Nareit’s Feb. 16, 2018 Alert, continues to cause confusion regarding the status of U.S. exchange-listed equity REITs. We are aware that some prominent U.K. investment platforms continue to prohibit investors from trading U.S. stock-exchange listed equity REITs, absent a demonstration that the U.S.-based REIT is not a PRIIP.
The PRIIP regulation, which is aimed at E.U. retail investors, requires that “manufacturers” of PRIIPs—which include alternative investment funds (AIFs) under the E.U. AIFM Directive, shares/units in investment companies, derivatives, structured deposits and securities issued by certain special purpose vehicles (SPVs) —make “available” to investors a standardized “key information document” (KID). Importantly for U.S. listed equity REITs, the PRIIPs regulation explicitly states that “assets that are held directly by the retail investor, such as corporate shares or sovereign bonds,” are not PRIIPs. For this reason, Nareit, following consultation with U.K.-based legal counsel, continues to believe that most internally managed, U.S. stock-exchange listed equity REITs are not PRIIPs.
Nevertheless, as documented by the Financial Times in February, some U.K. investment platforms and asset managers are not currently willing to presume that U.S. equity REITs are not PRIIPs, absent an affirmative showing by each U.S. REIT that it has analyzed whether it is subject to the U.K. PRIIP regime and concluded that it is not. This is largely because REITs in several E.U. member states, including the U.K., may be structured as either operating corporations, e.g., British Land Company PLC, which are exempt from PRIIP regulation, or, as alternative investment funds, which most likely would be regarded as a PRIIP and required to file a KID, e.g., Regional REIT Limited.
The U.K. implementation of the PRIIP regime requires each U.S. equity REIT to decide whether the possible exclusion of their stocks from platforms reaching retail investors in the E.U. warrants an examination of whether they believe their company a PRIIP. If it makes this determination, Nareit encourages each REIT to communicate its conclusion to the E.U. platforms in an appropriate manner and consider including a discussion of the issue and its conclusion in either its SEC filings, an attachment furnished to the SEC, or the investor relations section of its website. Additionally, Goodwin LLP has prepared a valuable memorandum regarding PRIIPs and its application of the U.K. PRIIPs regulation to US REITs, which includes a useful roadmap for engaging with U.K. platforms regarding the status of U.S. REIT under PRIIPs. We are happy to provide a list of relevant U.K. platforms.