General information concerning

the closed-end property

investment company

A closed-end property investment company (property investment company with a fixed capital) is:

• a collective institution for direct or indirect investments in property;
• created by the Royal Decree of 10 April 1995;
• established in the form of a public limited company or a limited company with share capital;
• listed on the stock market and at least 30% of the shares must be offered on the market;
• limited in its activities to property investments; excluded from (direct or indirect) acts as a building promoter.

Closed-end property investment companies are under the supervision of the Banking, Finance and Insurance Commission (CBFA) and must comply with very strict rules regarding conflicts of interest. In addition to Article 523 (conflicts of interests for directors) and Article 524 (conflicts of interests of affiliated companies) of the Company Code which apply to all (listed) companies, there is also a special procedure for functional conflicts of interest for closed-end property investment companies (on the basis of Article 24 of the Royal Decree of 10 April 1995). In addition, WDP has imposed strict rules on conflicts of interest in its Corporate Governance Charter, in accordance with the Belgian Corporate Governance Code.

For more information concerning each of these procedures, please refer to page 31 and page 41 of the ‘strategy’ section.

Special regulations

Property held
Each building or property complex may represent a maximum of 20% of the total assets to limit the risk per property. In some cases (if the company shows that such a deviation* is in the interests of the shareholders or if the company shows that such a deviation is justified considering the special characteristics of the investment and in particular the nature and scope thereof, and always on condition that the total debt burden of the closed-end property investment company does not exceed 33% of the assets at the time the loan is taken out) a deviation may be permitted by the CBFA. This deviation must be justified in the prospectus or in the next periodic report following the acquisition of the property concerned. Such a deviation has not as yet been granted to WDP in view of the spread of its portfolio.

Accounting
European legislation stipulates that closed-end property investment companies, like all other listed companies, must draw up their annual financial statements according to the international reference IAS/IFRS. As investment property constitutes the greatest part of the assets of a closed-end property investment company, the cepics are required to measure these at the fair value of their buildings in accordance with the application of IAS 40.

Valuation
The properties are valued every quarter by an independent expert who re-estimates their fair value; they are then included in the balance sheet according to this expert valuation. The buildings are not subject to depreciation.

Result

The company must pay out an amount as compensation of the capital that corresponds to at least the positive difference between the following amounts:

• at least 80% of the amount equal to the sum of the adjusted result and the net added values on the realisation of properties that are not exempt from payout;
• the net decrease over the course of the financial year in the company’s debt burden.

Naturally this obligation is only applicable if the net result is positive.

Debts and securities
The level of debt is limited to 65% of the total assets. A closed-end property investment company may only grant a mortgage or other securities or pledges with a view to financing a property. These mortgages, securities or pledges may cover a maximum of 40% of the total value of the properties of the company and may not exceed 75% of the value of the property to which the mortgage, security or pledge relates.

Tax system
The closed-end property investment company is (pursuant to its status) not subject to corporation tax (except on disallowed expenses and abnormal or gratuitous benefits). The withholding tax on dividends is limited to 15% and is 0% for a closed-end property investment company in which more than 60% of the property portfolio comprises residential property. This withholding tax releases private individuals from their liability to pay tax on such dividends. Companies that request recognition as a closed-end property investment company or merge with a closed-end property investment company are subject to a special tax (exit tax) of 16,995% (16,5% increased by the crisis contribution of 3%): the exit tax is the tax percentage that the companies have to pay to leave the common law structure. Although the company continues to exist in the same way as regards company law, that transition is treated fictitiously from a tax standpoint as an allocation of the company capital by the old company to the closed-end property investment company. In the case of an allocation of the company capital a company must treat the positive difference between distributions in cash, stock or in any other form and the revalued value of the paid-up capital (i.e. the added value present in the company) as a dividend. However, since no cash amounts or other assets are distributed in the switch to the status of closed-end property investment company, the law defines the meaning of the term ‘amount distributed’. The Income Tax Code stipulates that the amount distributed is equal to the actual value of the company capital on the date on which this transaction takes place (art. 210, § 2 W.I.B. 1992). The difference between the actual value of the company capital and the revalued value of the paid-up capital is equated with a distributed dividend. Reserves already taxed may be deducted from that difference. The remainder then generally forms the taxable base subject to the rate of 16,995%. The closed-end property investment company is an investment instrument comparable to the Dutch FBIs (Fiscale Beleggingsinstellingen), French SIICs (Sociétés d’Investissements Immobiliers Cotées) and REITs (Real Estate Investment Trusts) in various countries, including the United States.

*     See article 43 of the Royal Decree of 10 April 1995.

Back to top ↑