The Belgian government has demonstrated its commitment to making the Belgian real estate market more attractive by further developing the regulatory and tax framework applicable to Belgian REITs and introducing a new real estate vehicle, the GVBF/FIIS.
In this newsflash NautaDutilh shares with you certain key elements of the REIT reform.
Key Points of the Belgian REIT reform
- Reform of Belgian REIT legislation by the Act of 22 Octobre 2017 and the Royal Decree of 23 April 2018.
- Key Points:
- Increased ability for REITs (GVV/SIR) to enter into partnerships;
- Investment possible in new asset classes;
- Social REITs: a new type of (non-profit) REIT, subject to light(er) regulation.
1. Enhanced Ability to Create Partnerships
- Under the old rules, it was difficult for REITs to enter into partnerships due to protective measures that discouraged potential partners.
- The new rules provide for greater flexibility.
Old Rules
New Rules
Minimum stake in
other companies
- REIT had to have a minimum stake of 50% and exercise control
- All subsidiaries had to have the same statuts (institutional REIT or ordinary company)
- Minimum stake now 25% + 1 share
- However, total fair market value of minority stakes cannot exceed
50% (FMV) of the REIT’s total assets - Subsidiaries can be a mix of institutional REITs and ordinary companies
Deadlock
In the event of deadlock with a partner, JV agreement needed to enable the REIT to buy out the partner
Buy-out right is no longer
mandatory
Institutional REIT
- Listed REIT had to hold a minimum 50% stake
- Co-shareholders in an institutional REIT had to be institutional
investors - I-REIT had to have its own organisation
- Stake of listed REIT can be as
low as 25% - Retail investors can now also be shareholders in an institutional
REIT (minimum investment of
EUR 100,000) - I-REIT can now rely on the organisation of the listed REIT
Partnerships
between REITs
Difficult for two REITs to enter
into a partnership (given the prohibition on two REITs jointly controlling the JV)
Prohibition has been lifted: two REITs can now exercise joint
control over a subsidiary
Exit value
- Sale of asset to JV partner had to
be at least at fair market value
- Sale can be below fair market value, if price determination mechanism agreed upfront
2. New Assets Classes for REIT Investments
- A REIT can only invest in asset classes provided for by the REIT legislation
- Until 2018 reform: real estate only
- Since the 2018 reform: new asset classes to encourage infrastructure investment
- Energy infrastructure:
- Eligible assets: assets related to the production, storage or distribution of energy or water, water purification, waste disposal facilities
- PPPs
- Extended possibility to take part in infrastructure/building-related PPPs
- Examples: wind farms, tunnels, parking garages, roads, bridges, etc
- DBM + F, DBFM, DBFMO contracts (D&F only is not possible); concessions and other types of PPPs
- Not mandatory to have a right in rem
- Long term projects: services (for which REIT implication is expected) with a term of at least 5 years
- During initial phase of the project (up to 2 years after construction phase or longer, depending on PPP requirements), stake of the REIT can even be lower than 25%
- Possible for REITs to grant loans and sureties in relation to such PPPs
- Greater leverage possibilities for these new asset classes
- Leverage can exceed 65% at SPV level; such leverage is not taken into account to determine the maximum threshold of 65% leverage on a consolidated basis
- Conditions: investment at SPV level, no exclusive control of the SPV, exposure of listed REIT must be limited (equity investment and debt funding commitment)
- Prohibition on the provision of mortgages/sureties with a value in excess of 75% of the relevant asset does not apply
- Conditions: investment at SPV level (unlisted REIT level), exposure of listed REIT must be limited (equity investment and debt funding commitment)
3. Social REIT: A New Type of (Non-profit) REIT
- Social REIT: stimulate (public) investment in real estate infrastructure intended for the elderly, disabled people
- Same tax status as a REIT, but lighter regulation
- Should seek a limited profit or no profit
- REIT to take the form of a cooperative company with a social purpose (à finalité sociale / met sociaal oogmerk)
- Dividend: max. 6% of nominal value of shares
- Winding-up: liquidation proceeds allocated to non-profit project (no distribution to shareholders)
- Light regulation:
- Listing not mandatory
- Liquidy provided by variable capital (cooperative company); social REIT must set up a liquidity reserve in that respect; redemption at par value (no bonus for exiting shareholder – return only through dividends)
- Can opt for Belgian GAAP (IFRS not required)
- Restrictions
- Narrow definition of real estate as an asset class
- No subsidiaries
- Leverage: max. 33% (instead of 65%)
- Retail shareholders: max. investment of EUR 20,000/investor (alternatively, investment of at least EUR 100,000)
