Netherlands: Belgian REITs Can Apply For A New Status To Avoid The Application Of AIFMD

On 22 April 2014, the Belgian legislature adopted a new act on regulated real estate companies (sociétés immobilières réglementées/gereglementeerde vastgoedvennootschappen) (the "Act").

The Act provides for a new status for Belgian REITs (sicafis/vastgoedbevaks), which may now choose to operate as a regulated real estate company (société immobilière réglementée/gereglementeerde vastgoedvennootschap) ("SIR/GVV") in order to remain outside the scope of AIFMD whilst maintaining the benefit of the existing tax regime for sicafis/vastgoedbevaks.

1.  Reason for the new SIR/GVV status

The introduction of the new status was prompted by the implementation into national law of Directive 2011/61/EU on Alternative Investment Fund Managers ("AIFMD"), which shall be effective as from 22 July 2014.

Until now, Belgian REITs have been required to be structured as closed-end investment companies subject to the Belgian fund rules; they will thus be considered de jure as Alternative Investment Funds ("AIF") subject to AIFMD and the obligations imposed by the directive's implementing legislation. This will adversely affect the business model of Belgian REITs.

However, a Belgian REIT does not per se have the features of an AIF and hence should not necessarily be considered one. Indeed, subject to a case-by-case analysis, a Belgian REIT should be treated as an ordinary (real estate) company differing from an AIF if it:

• has a general commercial (or industrial) purpose which consists of making buildings available to users (as opposed to an AIF, which invests capital raised from investors for the purpose of generating a pooled return for those investors );
• pursues a business strategy focusing on the creation of long-term value (unlike an AIF, which has a  defined investment policy governing how pooled capital is to be managed in order to generate a pooled return for the investors from whom it has been raised); and
• does not operate for the exclusive benefit of its shareholders but rather in accordance with its corporate interest which requires to take other stakeholders into account (tenants, etc.) (unlike an AIF, which is managed in the sole interest of investors).

The SIR status is born in this context as a way for Belgian REITs which do not present the characteristics of an AIF, to opt for a new regulatory status which is largely inspired from the existing REIT's status but falling outside the scope of AIFMD.

By means of this new status, the Belgian legislature hopes to ensure a level playing field between Belgian listed real estate investment companies and REITs based in other EU countries. Indeed, in neighbouring countries, similar vehicles are not necessarily organised as mutual funds companies falling under the AIFMD, which means they can operate in a less restrictive environment.

2.  Optional nature of the new SIR/GVV status

The new status is optional for Belgian real estate investment companies which meet the requirements of the Act and are prepared to fulfil the concomitant obligations.

Thus, Belgian real estate investment companies may now opt to:

(i) register as a regulated real estate company (sociétés immobilières réglementées/gereglementeerde vastgoedvennootschappen) (and benefit from the same tax rules as REITs (sicafis/vastgoedbevaks); (ii) register as a REIT (sicafi/vastgoedbevak) (and thus also register as an AIF governed by the AIFMD Law), or (iii) operate as a unregulated real estate investment company (subject to the ordinary tax rules).

If a real estate investment company raises capital from investors for the purpose of investment in accordance with a defined investment policy and with a view to generating a pooled return for those investors, the company must apply for an authorisation to operate as an AIF.

In order to be eligible for the new status (société immobilière réglementée/gereglementeerde vastgoedvennootschap), a real estate investment company must fulfil the requirements of the Act, including being incorporated for an unlimited duration and having a business which is not structured as a fund but rather entails the management of income-producing real property. In that respect, in order to be eligible for the new status, the real estate investment company must pursue a business strategy for the purpose of holding its properties on a long-term basis with active management by the investment company itself (no delegation to a third party other than a related company).¹

As it is currently the case for REITs, the Act distinguishes between two types of regulated real estate companies:

• a public SIR/GVV whose shares are admitted to trading on a regulated market and which may raise capital from the public; and
• an institutional SIR/GVV which is -under the exclusive or joint control of a public SIR/GVV and which may raise capital solely from eligible investors acting on their own behalf and whose securities may only be acquired by such investors.

3.  Consequences of the act for existing REITs

The rules applicable to SIR/GVV are very similar to those applicable to existing REITs (prior to the entry into force of the AIMFD Act).

As such, there will be limited consequences for existing REITs which opt for the new SIR/GVV status. Indeed, they will continue to hold the same property portfolios and will be subject to the same tax rules.

However, existing REITs must act quickly if they wish to opt for the new status, as the application must be filed with the FSMA within 4 months following the entry into force of the Act. In order to obtain a SIR/GVV license, the REIT's general meeting of shareholders shall be required to approve the relevant changes to the company's articles of association.

It should be noted that the Belgian legislature deemed it necessary to provide for an exit right for minority shareholders which vote against adoption of the new status during the shareholders' meeting. Pursuant to this exit right, each shareholder that votes against the new status can request the buy back by the REIT of up to €100,000 of its shares. This buy back must occur in accordance with the mandatory provisions of the Company Code on share buy-backs; the Act provides that the buy-back shall be effected at a price at least equal to the higher of (a) the closing price on the day preceding the date of the convening notice of the shareholders' general meeting, or (b) the average closing price over the thirty-day period immediately preceding the general meeting of shareholders. The exit right must be exercised immediately after the vote by the general meeting of shareholders. 
 

Footnote

1 This means that the company should have direct relations with clients and operational teams representing a substantial part of its staff.  The fact that a regulated real estate company is responsible for performing its own activities obviously does not prevent the company from working with external suppliers or subcontracting the performance of certain work, provided the suppliers or subcontractors act under the responsibility and coordination of the regulated real estate company. 

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.