Since the first draft the Alternative Investment Fund Managers Directive (AIFMD) there has been a lack of clarity about the regulatory status of Real Estate Investment Trusts (REITs). Discussions revolve around the question of whether or not the AIFMD applies to REITs.
As yet, no common position on a European level (for example, by the European Securities and Markets Authority (ESMA)) has been taken on this. Dutch legislation does not contain provisions which expressly include or exclude the applicability of AIFMD to REITs established in the Netherlands (Dutch REITs, or DREITs), and nor has the Dutch regulator published a view on the matter. Consequently, there is some uncertainty in the Netherlands with regard to the regulatory status of DREITs, and whether or not they fall within the scope of the AIFMD.
This article discusses the current regulatory status of DREITs under the AIFMD, as implemented in Dutch laws and regulations.
Dutch REITs and their regulatory status under the AIFMD
Historically the term DREIT referred to a property vehicle with a special “flow-through” tax status. Nowadays, the term is used to describe listed property companies more generally, including those that do not have a special tax status. DREITs are involved in a range of activities related to the construction, refurbishment, investment, operation and management of real estate.
Companies which (amongst others) are considered to be DREITs are Corio N.V., Eurocommercial Properties N.V., Wereldhave N.V., Unibail Rodamco, NSI N.V. and VastNed Retail N.V. These six companies are members of the Association for Dutch Stock Listed REITs (Vereniging ter behartiging van de gezamenlijke belangen van beursgenoteerde fiscale vastgoedbeleggingsinstellingen, which we will call “the Association”).
Following input from the European Public Real Estate Association (EPRA) to ESMA’s Consultation Paper, “Guidelines on Key Concepts of the AIFMD”, the Association has published its view on the applicability of the AIFMD to DREITs.
First, the Association clarifies what it considers to be a DREIT. According to the Association, DREITs and similar property companies are no different from ordinary companies. The key characteristics of DREITs are:
- they are listed on a stock exchange;
- there is no obligation to buy back shares from shareholders (that is, they are not “open-end”);
- they implement a corporate strategy, not a defined investment policy;
- they are actively involved in the day-to-day management of property, including construction, acquisition, refurbishment, operation and property management; and
- they have various stakeholders, such as shareholders, tenants and employees and not only, or primarily, investors.
Taking the above characteristics of DREITs into account, the Association concludes:
“The activities of DREITs, their active and day-to-day management of their assets/properties, their governance structure, the absence of a defined investment policy, and the fact that they do not only act in the interest of their shareholders but have to take into consideration also the interests of other stakeholders such as tenants and employees …, are well founded arguments that the AIFMD is not applicable to them.”
Importantly, none of the six DREITs mentioned earlier have applied for authorization under the AIFMD, as implemented in the Netherlands.
The Association is of the view that there are well-founded arguments that DREITs, which exhibit certain characteristics, do not fall within the scope of the AIFMD. Notably, none of the DREITs which are members of the Association have applied for authorization under the Directive, and thus appear to consider that they are not alternative investment funds under the AIFMD. Rather, they seem to view themselves as “ordinary companies”, that is, companies with a general commercial purpose within the meaning of ESMA’s guidelines on key concepts of the AIFMD. Further, it appears that the Dutch regulator implicitly (ie it has not expressed a public view) agrees with them on this.
It is important to note that whether or not a company qualifies as a DREIT and thus whether or not it is not subject to the AIFMD must be carefully assessed on a case by case basis.