Regulated Real Estate Company
A regulated real estate company (RREC) as a public real estate company with a separate REIT status is subject to strict legislation with a view to the protection of its shareholders and financiers. The status provides both financiers and private investors with the opportunity of gaining access in a balanced, cost-effective and fiscally transparent manner to a diversified property portfolio.
Principles
The regulated real estate companies (RREC) status is stipulated in the Act of 12 May 2014 regarding regulated real estate companies (the RREC Act) and in the Royal Decree of 13 July 2014 concerning regulated real estate companies (the RREC Royal Decree) in order to encourage public investments in real estate. The concept is very similar to that of the Real Estate Investment Trusts (REIT-USA), the Fiscal Investment Institutions (FBI-Netherlands), the Sociétés d’Investissement Immobilier Côtées (SIIC - France) and the REIT in the United Kingdom and Germany.
It is the legislator’s intention that RREC guarantee optimum transparency with regard to investment properties and ensure the pay-out of maximum cash flow, while the investor enjoys a wide range of benefits.
The RREC is monitored by the Financial Services and Markets Authority (FSMA) and is subject to specific regulations, the most notable provisions of which are as follows:
- adopting the form of a limited liability company or a partnership limited by shares with a minimum capital of € 1.200.000.
- company with fixed capital and fixed number of shares
- mandatorily listed with an obligatory distribution of at least 30% of the shares to the public at large
- the public RREC’s sole objective is (a) either directly, or by means of a company in which it possesses a stake pursuant to the provisions of the RREC act and the decrees and regulations made for the execution of the same, to make real estate available to users; and (b) where appropriate and within the bounds of Article 7 (b) of the RREC act, to possess real estate as mentioned in article 2, 5°, vi to x of the RREC act; the RREC thus has no statutorily anchored investment policy, but develops a strategy in which its activities are able to extend across the entire value chain of the real estate sector
- limited ability to take out mortgages
- a debt ratio limited to 65% of total assets; if the debt ratio exceeds 50%, a financial plan must be drawn up in accordance with the provisions of article 24 of the RREC Royal Decree. In case of a dispensation authorised by the FSMA based on article 30, §3 and §4 of the RREC Act, the consolidated debt ratio of the public RREC pursuant to the provisions of article 30, §3 and §4 of the RREC Act may not exceed 33%.
- the annual financial interest costs arising from the debt burden may in no case exceed the threshold of 80% of the operating result before the result on the portfolio increased with the financial income of the company
- strict rules with regard to conflicts of interest
- an entry of the portfolio at market value without the possibility of depreciation
- a quarterly estimate of the real estate assets by independent experts, who are subjected to a three-year rotation system
- a spread of the risks: investing up to 20% of the assets in real estate that forms one single property entity, with certain exceptions
- an RREC may not engage in “development activities” unless this is only on an occasional basis; this means that an RREC cannot act as a property developer with the intention of erecting buildings in order to sell them afterwards and collect a development profit
- the ability to establish subsidiaries which may take the form of an “institutional RREC”, which must be under the exclusive or joint control of the public RREC, this in order to fulfil specific projects with a third party, being 1) professional clients such as credit institutions, investment firms and undertakings for collective investment, or 2) legal entities which may be considered as IAKB by sending a simple request to the FSMA without additional conditions having to be fulfilled
- at least three independent directors in the sense of article 526b of the Belgian Companies Code sit on the board of directors
- the fixed fees of directors and the actual managers may not depend on the operations and transactions carried out by the public RREC or its subsidiaries: this therefore prohibits them being granted a fee based on the turnover. This rule also applies to the variable fee. If the variable remuneration is determined according to the result, only the consolidated EPRA earnings may be used as a basis for this.
These rules aim to limit the risk to shareholders.
Act and KB
The regulated real estate companies RREC status is stipulated in the act of 12 May 2014 (the RREC-Act) and in the Royal Decree of 13 July 2014 (the RREC Royal Decree) in order to encourage public investments in real estate.