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:

  1. Increased ability for REITs (GVV/SIR) to enter into partnerships;
  2. Investment possible in new asset classes;
  3. 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.

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 (unlisted REIT level), 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)