The long-awaited modifications of the BE-REIT legislation have been published. These modifications, but also the announced tax reform, encourage investments in infrastructure but also facilitate the investments in joint venture by BE-REIT. They are described below.
- Extension of the authorised activities to infrastructure
- Investments in joint venture and in institutional BE-REIT facilitated
- New Social BE-REIT
- Infrastructure and the tax reform
Extension of the authorised activities to infrastructure
The list of authorised activities of a BE-REIT is enlarged to include the participation to “public-private partnerships”. Important to note: the BE-REIT can conclude this type of contracts directly or in joint venture in a project company.
The infrastructure activity
The BE-REIT’s activities include the execution, as the case maybe indirectly and/or in a joint venture, with a public partner, of DBF agreements, DB(F)M agreements, DBF(M)O agreements, or agreements for the concession of public works.
These agreements must relate to buildings or infrastructures for which:
- the BE-REIT is liable for their putting at disposal and maintaining or operating, for a public entity or the citizen as final user; and
- the BE-REIT can assume, in whole or in part, the financing risk, the availability risk, the demand risk or the operation risk, and the construction risk.
The BE-REIT should also be allowed to take care, in the long term, of the development, establishment, management and operation, as the case maybe in joint venture and through sub-contracting, of:
- installations and warehouses for the production, transport, distribution or stocking of energy in the broad sense;
- installations for the transport, distribution, stocking and purification of water; and
- incinerators and waste installations.
The project company
The infrastructure activity can also be operated by a project company, in which the BE-REIT shall participate. The BE-REIT is allowed to take initially a participation of less than 25% in the share capital of the project company concerned, provided that this percentage is increased within two years (or a longer period of time if required by the public partner) after the construction phase, in order to comply with the below requirements for investing in joint venture. The project company can also opt for the status of institutional BE-REIT and benefit from its tax regime.
Risk diversification requirement, and leverage limits
The risk diversification requirement and limit of 20% of the BE-REIT’s assets does not apply when the tenant, user or beneficiary of aforementioned infrastructure is an EEA Member State.
It is also specified that the restriction for the BE-REIT to grant loans or vest securities for third parties does not apply in the framework of the infrastructure activities described below in view of a bid bond or similar mechanism. Subject to a series of conditions, the limit according to which a mortgage or other guarantee cannot exceed 75% of the relevant asset’s value is also not applicable and the indebtedness related to those infrastructure projects is also not subject to the leverage limit and not taken into account to determine the leverage limit of a BE-REIT.
Investments in joint venture and in institutional BE-REIT facilitated
The main conditions to invest in joint venture and to opt for the status of institutional BE-REIT have been eased.
- The BE-REITs are not obliged anymore to exercise an exclusive or joint control on their subsidiary (now renamed: perimeter company). The minimum participation required is now of 25% (plus 1 share) in the capital of the perimeter company, which can also opt for the status of institutional BE-REIT. For the BE-REIT, those participations (in absence of exclusive or joint control) cannot exceed 50% of its consolidated assets. The obligation for a BE-REIT to convert all or none of its subsidiaries into institutional BE-REIT is also abolished.
- Exit clauses (e.g. put and call options) provided in joint venture agreement are authorised and such sales are not subject anymore to the evaluation and limitations applicable to a sale of investment by a BE-REIT.
- Those perimeter companies can opt for the status of institutional BE-REIT, the condition of being exclusively or jointly control by a BE-REIT being abolished.
The capital of the institutional BE-REIT is also open to retail investors, but their minimum investment value must still be determined by a Royal Decree.
New Social BE-REIT
A new type of non-stock listed BE-REIT is created to finance and promote investments in “care”, subject to their accreditation by the competent authority, and defined as infrastructures dedicated to
- the housing or care of disabled persons;
- the housing or care of elderly persons;
- the care or help of youth persons;
- the collective welcoming and care of children under the age of 3;
- the teaching and accommodation of students;
- the operation of a psychiatric institution;
- the operation of a revalidation centre.
Social BE-REITs are incorporated as cooperative companies with a social purpose, having a minimum fixed capital of 1,200,000 EUR. The variable capital can be subscribed by retail investors, in a proportion to be determined by Royal Decree. Due to their corporate form, they guarantee a dividend of maximum 6% (after deduction of the withholding tax) per year, but the exit is only structured as a buy-back of shares at nominal value. The Social BE-REIT must build-up a liquidity reserve to execute these buy-back orders, which can themselves be limited.
The Social BE-REIT is only allowed to invest in “real estate assets” as defined by the Civil Code and in leasing. Its indebtedness level cannot exceed 33% of its asset value.
Infrastructure and the tax reform
Three major items of the tax reform are of importance for the infrastructure sector:
- the decrease of the corporate income tax rate and of the exit tax rate; note that the parliamentary works especially refer to the promotion of the infrastructure sector to justify the decrease of the exit tax rate;
- the carve-out of PPP projects from the new interest deductibility limitation; and
- the exclusion of “general” accruals for risks and charges from the tax exemption of accruals, an effective contractual obligation being required. This later only applies to project companies that are not (institutional) BE-REITs and shall require an accurate drafting of DB(F)M agreements.