REIT Proposal

Schroder Real Estate Investment Trust Limited                 

                                                                               

                                 REIT Proposal                                 

Schroder Real Estate Investment Trust Limited (the "Company") has today
published a circular (the "Circular") to shareholders setting out proposals to
become resident in the United Kingdom for tax purposes, to apply for entry to
the REIT Regime, to adopt New Articles and setting out a Notice of
Extraordinary General Meeting.

1. Introduction

The Company was launched in July 2004 as an Authorised Closed-ended investment
scheme. The Company's investment objective is to provide Shareholders with an
attractive level of income together with the potential for income and capital
growth through investing predominantly in UK commercial property.

Both the Company and its property owning subsidiary companies are currently
non-UK resident for UK tax purposes and are therefore not subject to UK tax on
capital gains. The property owning subsidiary companies are, however, subject
to UK income tax at the current rate of 20 per cent. on their taxable UK
property income.

In calculating the income tax liability of the property owning companies,
certain allowances and expenses can be deducted, including interest payments on
intra-group loans. For the Company's principal property owning company, SREIT
Property Limited ("SREIT PL"), the level of interest which is permitted to be
treated as deductible is determined in accordance with an Advanced Thin
Capitalisation Agreement (an "ATCA") entered into with HMRC. SREIT PL entered
into this agreement following the conclusion of an HMRC enquiry to secure
certainty on intra-group interest deductibility for a five year period with the
ATCA terms also adopted for all other inter- group loans within the group. That
agreement with HMRC expired on 31 March 2015. Based on advice received from the
Company's tax advisors and in light of changes in commercial lending practice,
it is likely that the amount of UK income tax payable going forward would be
higher, which would reduce net income and Shareholder returns.

Since 1 January 2007 there has been legislation in place in the United Kingdom
to enable qualifying companies (and groups) to apply for Real Estate Investment
Trust (REIT) status. A company (or group) carrying on Qualifying Property
Rental Business may give notice to become a REIT, subject to meeting a number
of initial and on-going conditions.

The main tax advantage of the REIT Regime is that the profits (i.e. income and
gains) of a REIT's Qualifying Property Rental Business are exempt from UK
income tax and corporation tax. In very broad terms, what the regime seeks to
achieve is to replicate as far as possible the tax treatment that would apply
if the shareholders held UK property directly, by moving the taxation point
from the companies holding properties (within the REIT Group) to the
shareholders. This is administered by the application of withholding tax on
distributions made by the principal company of the REIT Group.

Although the principal rationale for the Proposals is to improve Shareholder
returns relative to the position as if the Proposals were not adopted, there
may also be a longer term benefit from converting to a REIT in terms of
improved liquidity as a result of being able to access a wider potential
investor base.

In order to facilitate the Group qualifying as a REIT, certain changes are
required to the Articles. These changes take account of the REIT Regime,
specifically the rules regarding the payment of dividends to Excessive
Shareholders and the requirement that the Company (as principal member of a
REIT Group) be solely UK resident for tax purposes.

If approved by Shareholders, the New Articles will only take effect when the
Board notifies HMRC of its intention to become a REIT, which it would expect to
do during May 2015. The Extraordinary General Meeting will be held at Trafalgar
Court, Les Banques, St. Peter Port, Guernsey GY1 3QL at 10.00 a.m. on 28 April
2015.

2. Background to conversion to REIT status

A REIT is a company that either itself owns and operates a property rental
portfolio, which can be commercial, residential or any other type of
commercially let property, or comprises a group of companies which carries out
these activities. Under the REIT Regime, at least 90 per cent. of the net
rental income arising in the Qualifying Property Rental Business for each
accounting period must be distributed to shareholders and in return, provided
certain conditions are met, the REIT Group is exempt from UK corporation tax
and income tax on income and gains relating to its Qualifying Property Rental
Business (i.e. broadly the property rental business of UK resident members of
the REIT Group and the property rental business in the UK of non-UK resident
members of the REIT Group).

REITs are intended to enable the income from rented property assets to be
generated in a tax efficient manner and to ensure that the net return for
shareholders from investing in property are broadly consistent with returns
from direct property investment.

A group of companies which elects for REIT status is permitted to carry on both
tax-exempt property rental activities and other, taxable activities, subject to
certain restrictions which are set out in more detail in Part II of the
Circular that is shortly to be submitted to the National Storage Mechanism and
available for inspection at www.hemscott.com/nsm.do.

The Board believes that the Company and, where relevant, the Group should
currently satisfy the relevant conditions to be eligible for REIT status (save
for the condition in relation to tax residency which is considered in more
detail below in the sub paragraph headed "Board composition and tax residency
of the Company") and the Board expects the Group to continue doing so in the
future.

Prior to 17 July 2012, companies and groups entering the REIT Regime were
required to pay a one off charge equal to 2 per cent. of the value of their
property assets. This conversion charge has been removed and if the Company
were now to convert to a REIT, the conversion charge would not apply.

3. Benefits of conversion to a REIT

The income tax charge borne by the Group for the period ended 31 March 2014 was
£153,000. For the year ended 31 March 2015, it is estimated that the income tax
charge borne by the Group will increase to £198,000.

As noted above, the income tax payable by the Group to date has been computed
with reference to the ATCA agreed between SREIT PL and HMRC which determines
the maximum amount of interest which is deductible on intra-group loans for
SREIT PL. The ATCA expired on 31 March 2015 and the Board has sought advice
from its tax advisors as to the likelihood of agreeing a new ATCA on the same
or similar terms. The level of deductible interest permitted by HMRC under an
ATCA is assessed with reference to current commercial lending practice and,
based on current practice, the Company's tax advisors estimate that UK income
tax payable is likely to increase to between £1,450,000 and £1,700,000 per
annum.

By converting to a REIT, the Group will no longer be subject to UK income tax
on the rental income from its Qualifying Property Rental Business, provided
that it meets certain conditions. This should effectively reduce the overall
burden of UK taxation for most Shareholders in respect of the Qualifying
Property Rental Business. The removal of this tax burden in relation to the
Group's Qualifying Property Rental Business should increase net income and the
overall profitability of the Group.

As noted above, an ancillary benefit of the globally recognised "REIT brand" is
the ability to access a wider investor base, which may for example improve
liquidity and demand for the Company's Ordinary Shares.

4. Other implications of conversion to a REIT

General

It is not currently proposed that any changes will be made to the Company's
investment objective and policy as a consequence of conversion to a REIT.

Electing for REIT status will not change the legal status of the Company, its
country of incorporation or its share capital. The Company would continue to be
an Authorised Closed- ended investment scheme in Guernsey (as long as it
remains incorporated and administered in Guernsey and complies with the POI Law
and the Rules (being the rules under which the Company was established in
Guernsey)).

The Company's register of members will continue to be maintained in Guernsey.

Board composition and tax residency of the Company

As mentioned above, in order to be eligible for REIT status, the Company (as
the principal member of the Group) must be UK tax resident and not tax resident
in any other jurisdiction. To become tax resident in the United Kingdom the
Company would move its central management and control from Guernsey to the
United Kingdom. This means that, once the Company has entered the REIT Regime,
future Board and Shareholder meetings (including the annual general meeting)
will be held in the United Kingdom.

Reflecting this move in central management and control, it is proposed that
Alison Ozanne will retire from the Board on the date that the Company enters
the REIT Regime, being replaced by Stephen Bligh. Stephen Bligh is a fellow of
the Institute of Chartered Accountants in England & Wales. He is Chairman of
the Audit and Risk Committee for the Department of Business, Innovation and
Skills and was an audit partner for 34 years with KPMG, specialising in the
audit of FTSE 350 companies in property, construction, transport and
professional firms.

Whilst it is proposed that the Company will become UK tax resident, it is not
intended that the tax residency of the property owning subsidiaries which are
currently non-UK resident will change.

Dividend policy and PIDs

Following conversion to REIT status, the Company intends to maintain the same
level of quarterly dividend payments as it currently makes. Based on the
current level of dividends, this would exceed the 90 per cent. distribution
condition under the REIT Regime, described below. The quarterly dividend of the
Company for the period from 1 January 2015 to 31 March 2015, which is expected
to be paid in May 2015, will be made in the normal way and will be paid free of
any withholding tax.

A dividend paid by the Company relating to profits or gains of the Qualifying
Property Rental Business of the members of the Group (other than gains arising
to non-UK resident members of the Group) is referred to as a "PID" or a
"Property Income Distribution". Other normal dividends paid by the Company
(including dividends relating to the Residual Business) are referred to as
"Non-PID Dividends".

As a principal company of a REIT Group, the Company will be required (to the
extent permitted by law) to distribute to Shareholders (by way of cash or stock
dividend), on or before the filing date for the principal company's tax return
for the accounting period in question, at least 90 per cent. of the Group's
property rental business profits as calculated for tax purposes (broadly,
calculated using normal UK corporation tax rules) for the UK resident members
of the REIT Group in respect of their Qualifying Property Rental Business and
of the non-UK resident members of the REIT Group insofar as they are derived
from their UK Qualifying Property Rental Business arising in each accounting
period (the "90 per cent. distribution condition").Failure to meet this
requirement will result in a tax charge levied on the Company and calculated by
reference to the extent of the failure.

Within the REIT Regime, distributions made by the Company may, in the hands of
the Shareholders, comprise PIDs, Non-PID Dividends or a combination of the two.
Under the REIT Regime, both PIDs and Non-PID Dividends are capable of being
satisfied by stock dividends (in lieu of cash dividends). Where the Company
distributes amounts over and above the minimum 90 per cent. distribution
condition (as it is expected will be the case), the categorisation of these
distributions as PIDs or Non-PID Dividends for UK tax purposes will depend on
the source of the relevant profits (as attributed under specific rules set out
in the tax legislation) and on any relevant designation made by the Company.

As noted above, following conversion to REIT status, the Company intends to
maintain the same level of quarterly dividend payments as it currently makes.
Looking forward, the precise proportion of recurring property rental income
that the Group distributes may vary between years. Ordinarily, the Board would
expect to distribute a high proportion (including the mandatory PID element) of
recurring net property rental earnings, on the basis of adjusted earnings per
share as reported under IFRS. A proportion of trading profits and other
residual income (if any) may also be distributed, to the extent the Board
regards those earnings as sustainable. Capital gains arising on the disposal of
investment properties will, ordinarily, be retained and reinvested within the
business to support future growth.

PIDs will be paid subject to deduction of basic rate income tax (currently 20
per cent.) unless the Company is satisfied that the relevant Shareholder
qualifies for gross payment (which will depend on the particular circumstances
and status of the Shareholder). For that purpose, the Company will require such
Shareholders to submit a valid claim form (copies of which will be available on
request from the Company's Registrars, Computershare Investor Services
(Guernsey) Limited). Non-PID Dividends will not be subject to UK withholding
tax.

The comments in this announcement relating to the tax treatment of Shareholders
are provided for general guidance only. Shareholders who are in any doubt
concerning the taxation implications of any matters reflected here should
consult their professional advisers.

The Excessive Shareholder rule

Within the REIT Regime, a tax charge may be levied on the Company if it makes a
distribution to an Excessive Shareholder unless the Company has taken
reasonable steps to avoid such a distribution being paid. Shareholders should
note that this restriction only applies to Shareholders that are bodies
corporate or are deemed to be bodies corporate for these purposes. The tax
charge should not generally arise in respect of Shareholders which are nominees
holding Ordinary Shares (and the relevant dividends) on behalf of other persons
who are not themselves Excessive Shareholders.

Under the REIT Regime an Excessive Shareholder is referred to as a "holder of
excessive rights" which, broadly, means a company or other relevant entity
treated as a body corporate which either directly or indirectly (i) is
beneficially entitled to 10 per cent. or more of the Company's dividends or
other distributions; (ii) is beneficially entitled to 10 per cent. or more of
the Company's share capital; or (iii) controls 10 per cent. or more of the
voting rights in the Company.

The background to the charge recognises that in certain circumstances such
Shareholders resident in jurisdictions with favourable double tax agreements
with the UK can reclaim all or part of the UK income tax withheld on a
distribution (e.g. on PIDs). The charge seeks to collect from the Company an
amount of UK corporation tax equivalent to the basic rate income tax liability
on the dividend irrespective of the tax treatment of the Shareholder.

Although the Board is not currently aware (based on the information available
to it) of any Shareholders who would constitute Excessive Shareholders, the
Board considers it appropriate that the Company should put in place the
mechanisms in accordance with the guidance issued by HMRC by which the Company
can avoid the imposition of such a tax charge in circumstances where an
Excessive Shareholding arises following its entry into the REIT Regime. The
proposed changes to the Articles will give the Board the powers it needs to
demonstrate to HMRC that such "reasonable steps" have been taken. These powers
include, where necessary, the power to withhold payment of dividends to persons
that the Company considers to be Excessive Shareholders.

The New Articles

The New Articles contain amendments to the existing Articles to facilitate the
Company qualifying as a REIT as well as certain other minor amendments. The
adoption of the New Articles is conditional upon the approval of Shareholders
at the Extraordinary General Meeting and, if approved by Shareholders, the New
Articles will take effect only when the Board notifies HMRC of its intention to
become a REIT, which it expects to do during May 2015.

A copy of the existing Articles and the New Articles marked to show the
proposed changes will be available during normal business hours (Saturdays,
Sundays and public holidays excepted) at the registered office of the Company
and at the offices of Stephenson Harwood LLP, 1 Finsbury Circus, London EC2M
7SH up to and including close of business on 28 April 2015 and at the venue of
the Extraordinary General Meeting for at least 15 minutes prior to the start of
the meeting and up until the close of the meeting.

5. Expected timetable for entry into the REIT Regime

This legislation provides that a company satisfying the conditions for REIT
status may elect for the REIT Regime to apply with effect from a date that must
be specified in the written notice given to HMRC. Subject to the passing of the
Resolution at the Extraordinary General Meeting to be held on 28 April 2015,
the Board intends to give written notice to HMRC for the Company to become the
principal company of a REIT Group during May 2015. A new accounting period for
tax purposes will begin on the date of entry into the REIT Regime.

6. Extraordinary General Meeting

The Proposals are conditional on the approval by Shareholders of the Resolution
to be proposed at the Extraordinary General Meeting of the Company which has
been convened for 10.00 a.m. on 28 April 2015. At this Extraordinary General
Meeting, Shareholders will be asked to consider and, if thought fit, approve
the adoption of the New Articles. This resolution will be proposed as a special
resolution which requires a majority of at least 75 per cent. of members
entitled to vote and present in person or by proxy to vote in favour in order
for it to be passed.

All Shareholders are entitled to attend and vote at the Extraordinary General
Meeting. In accordance with the Articles, all Shareholders entitled to vote and
present in person or by proxy at the Extraordinary General Meeting shall upon a
show of hands have one vote and upon a poll shall have one vote in respect of
each Ordinary Share held. In order to ensure that a quorum is present at the
Extraordinary General Meeting, it is necessary for two or more Shareholders
holding 5 per cent. or more of the voting rights applicable at such meeting to
be present in person or by proxy.

7. Guernsey Regulatory Notification

The Commission has been notified of the Proposals pursuant to Part 5 of the
Rules.

8. Recommendation

The Board considers that the Proposals are in the best interests of the Company
and its Shareholders as a whole. Accordingly the Board unanimously recommends
that Shareholders vote in favour of the Resolution to be proposed at the
Extraordinary General Meeting. The Directors intend to vote in favour of the
Resolution in respect of their holdings of Ordinary Shares amounting to 304,880
Ordinary Shares in aggregate (representing approximately 0.06 per cent. of the
issued share capital of the Company as at 30 March 2015).

Capitalised terms used but not defined in this announcement will have the same
meaning as set out in the Circular to Shareholders dated 31 March 2015.

A copy of the Circular will shortly be submitted to the National Storage
Mechanism and will be available for inspection at www.hemscott.com/nsm.do.

The Circular will also be available shortly on the Company's website at
www.srei.co.uk.

                                    -ENDS-                                     

 

For further information:

Schroder Real Estate Investment Management Limited       020 7658 6000              
Duncan Owen / Nick Montgomery                                               
                                                                            
J.P. Morgan Cazenove:                                    020 7742 4000              
William Simmonds                                                            
                                                                            
Numis Securities:                                        020 7260 1000              
David Benda                                                                 
                                                                            
Northern Trust:                                          01481 745529               
David Sauvarin                                                              
                                                                            
FTI Consulting:                                          020 3727 1000              
Dido Laurimore / Ellie Sweeney