The amended legal framework for regulated real estate investment companies: what you need to know
New legislation amending the Law of 12 May 2014 relating to regulated real estate investment companies (hereafter “RREIC”) has been published in the Belgian State Gazette. This legislative reform brings about a number of changes to the existing regime for public and institutional RREICs. In addition, the new legislation introduces an additional category of RREICs that is exclusively focused on the social sector.
1st innovation: amendments relating to the public (PRREIC) and institutional (IRREIC) regulated real estate investment companies
Generally speaking, the first set of changes aims to provide an incentive to the use of the PRREIC and IRREIC by eliminating a number of legal constraints that in the past haven proven to be hindrances.
- Expansion of activities. The scope of the authorised activities of the regulated real estate investment companies will be extended to include the infrastructure sector. Going forward, a RREIC will also be able to participate in DBFM-contracts, concessions and other forms of PPP, energy, networks and utilities.
- Easement of monitoring requirement. The requirement that an PRREIC must have joint or exclusive control over an IRREIC or real estate company has been removed and is replaced by the requirement of a minimum (direct or indirect) equity participation of more than 25%. This measure is aimed at facilitating the cooperation between PRREICs and other market players. At the same time, the new legislation stipulates that the value of such non-controlled companies may not exceed 50% of the consolidated assets of the relevant shareholding PRREIC.
- Participation of natural persons in IRREICs. Going forward, natural persons will also be able to hold securities issued by a IRREIC. The minimum subscription amount (in case of a capital increase) or the minimum price of the consideration (in case of an acquisition) for such investments will be set by Royal Decree.
- Calculation of maximum debt ratio. Where existing legislation so far provided for a maximum debt ratio of 65 %, the expansion of activities to the infrastructure sector demands increased flexibility on this point. Under certain circumstances, it will be possible to disregard external financing relating to infrastructure projects when calculating the debt ratio.
2nd innovation: introduction of the social RREIC
- The so-called “social RREIC” has been created in response to an increasing demand from stakeholders in the non-profit sector to gain better access to the favourable tax regime available to other types of specialised real estate companies. Projects can include, inter alia, investment in real estate related to disability care, senior housing, childcare, youth care and educational services. The social objective of the investments is ensured through a number of specific legal safeguards, some of which are explained in further detail below.
- Authorised activities. With regard to the authorised activities, a social RREIC may, in principle, only own real estate with a social purpose (including disability care, senior housing, child and youth care, education, psychiatric care and rehabilitation centres). Furthermore, a social RREIC can act as a lessee and can also hold option rights relating to these assets. The possession of other assets, such as securities, is not allowed. On this particular point the legal rules are more stringent than for other regulated real estate investment companies.
- Corporate form. The social RREIC needs to be incorporated under the form of a cooperative limited liability company with social purpose (CVBA met sociaal oogmerk/SCRL à finalité sociale). Unlike the public RREIC, membership rights in a social RREIC cannot be admitted to trading on a regulated market.
- Maximum allowed debt ratio. The maximum debt ratio will be determined by Royal Decree, but cannot exceed 33% of the assets of the social RREIC.
- Protection of retail investors. In the absence of a liquid market for investments in social RREICs, a Royal Decree may limit the offering of shares in a social RREIC towards retail investors. Moreover, shares that represent the fixed part of the corporate equity cannot be offered to retail investors. Retail investors will always be able to exit, in principle against receipt of the nominal value of their shares.
- Mandatory liquidity reserve. In line with the exit option for retail investors, the new legislation provides for the compulsory build-up of a liquidity reserve through a holdback on the RREIC’s profit. This amounts to an annual one-fifth of the positive net result until the reserve fund has reached one-fifth of the variable part of the equity.
- Dividend distribution. As is the case with the regular RREIC, the social RREIC also maintains an annual minimal profit distribution of 80 % of distributable profit. However, this distribution shall remain subject to the maximum annual return of 6%, as stipulated by the Belgian Company Code in respect of companies with a social purpose.
- Favourable tax regime. Last but not least, the social RREIC shall enjoy a favourable tax regime similar to that of the regular RREIC. This entails that no corporation tax will be due on operating income and capital gains (with the exception of the sum of rejected expenses and received extraordinary and gratuitous benefits).
Most provisions of the new legislation enter into effect with immediate effect, whereas some provisions apply with retroactive effect (as from 16 July 2014).