15th June 2022
Jack Ward, Supervisor, and Jake Pearlman, Director, have written an article on IPSX and how it delivers new and attractive opportunities for both real estate owners and investors.
What is IPSX?
The International Properties Security Exchange (IPSX) is the world’s first regulated stock exchange that is wholly dedicated to commercial real estate assets. haysmacintyre is proud to have acted as reporting accountants to one of the first companies to have been listed on IPSX.
IPSX intends to transform real estate investment, facilitating direct investment in commercial property via a public market, and providing flexibility and liquidity for both real estate owners and investors. Historically, real estate investment has been based on investing in listed property companies with multiple assets where the investor is forced to invest indirectly in the entire portfolio rather than specific asset or assets.
IPSX received Financial Conduct Authority (FCA) approval in 2019, becoming the first recognised investment exchange market to open in the UK in almost ten years.
IPSX operate two markets: IPSX Prime and IPSX Wholesale. IPSX Prime is included in the Financial Services Register as a regulated market, whilst IPSX Wholesale is included in the Data Reporting Services Providers (DRSP), Multilateral Trading Facility (MTF), Organised Trading Facilities (OTF) and Source Index (SI) Register. IPSX is regulated by the FCA which provides protection for investors.
IPSX Prime is the principal market for Initial Public Offering (IPO) of shares in a company owning single (or a small group of similar) commercial property assets, offering a source of capital in a regulated market.
IPSX Wholesale is focused on providing real estate owners with an onshore market to accommodate a variety of corporate structures in a flexible regulatory environment. In addition to stabilised assets, IPSX Wholesale allows real estate owners intending to develop, redevelop or repurpose access to funding, provided that within five years the asset is expected to become stabilised and income-generating.
For IPSX Prime and Wholesale, assets must generally have a minimum market value of £50 million with the maximum loan-to-value of IPSX Prime being 40%, compared to 80% for IPSX Wholesale.
Opportunities of IPSX
The IPSX Prime market allows retail, individual or non-professional investors to purchase shares in single market assets, thus allowing these investors to access a previously restricted commercial real estate market. Real estate has historically been an investment option limited to large investors acquiring whole properties, with restricted access to smaller investors.
On the other hand, IPSX Wholesale restricts investment to professional investors. Existing companies listed on IPSX Wholesale have shareholders ranging from domestic institutions to high-net-worth individuals and international funds.
For asset owners and developers, an IPSX listing offers an alternative to a sale process. On offering, a proportion of the shares are listed, and the remaining are retained by the existing owner. For IPSX Prime, 25% of shares must be ‘free-float’ (i.e. in public hands) but for IPSX Wholesale less than a 10% free-float is possible, subject to meeting certain criteria. This creates an immediate financing option for the asset owner, whilst maintaining significant control of the asset. Further to this, IPSX allows industrial owner-occupiers to list a portion of their asset rather than doing a sale-and-leaseback, avoiding them taking on long-term debt. Moreover, the owner-occupier maintains exposure to any future appreciation in the property value that they have retained.
For asset owners, IPSX companies are expected to qualify as Real Estate Investment Trusts (REITs) and benefit from the advantageous tax regime afforded to having REIT status. REITs mimic direct investment in UK property, and therefore avoid taxes that can otherwise occur when investing in a corporate structure.
- Benefits of the REIT status include:
- Exemption from Corporation Tax, on both gains on sales of investment properties and shares in property investment companies
- Attracting international capital with there being significant investment pools designated for investment in REITs
- Lower transaction costs and less stamp duty on purchase of shares compared to stamp duty land tax on a property purchase
There are however significant factors and requirements to consider before deciding whether REIT status is appropriate for a company, such as the requirement for a REIT to distribute 90% or more of its tax-exempt income profits as well as the costs of complying with REIT status.
haysmacintyre are specialist service providers to the International Properties Security Exchange and are actively involved in the IPSX community. We work as the reporting accountant during IPOs to IPSX and audit entities listed on the IPSX market.