Questions & Answers: Key Requirements for a Real Estate Investment Trust in India.

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Main regulatory requirements

Source of income

What are the basic income source requirements for a REIT?

In accordance with the REIT Regulations, at least 80% of the value of the REIT’s assets must be invested in, among other things, in completed and rental or income-generating buildings. In addition, the remaining maximum 20% of the value of the REIT’s assets must be invested, among other things, in buildings under construction or completed but not generating rent. Provided that such property is held by the REIT for at least three years after its completion, listed or unlisted debt of companies or legal persons in the real estate sector, mortgage-backed securities, shares of listed and unlisted companies listed companies that derive at least 75 percent of their operating income from real estate, government securities and money market instruments.

A REIT should not invest in vacant land or agricultural land or mortgages other than mortgage-backed securities. However, this restriction does not apply to any contiguous land and extension of an existing project being implemented in phases.

Asset mix

What are the basic asset mix requirements for a REIT?

The REIT Rules prescribe that the value of REIT assets (meaning real estate assets and any other assets held by a REIT, whether wholly owned or leased, either directly or through a holding company or an SPV) must be at least Rs 5 billion, with (1) at least 80 per cent) of the value of the assets of the REIT invested, among in completed and rental and/or income-generating properties; and (2) a maximum of the remaining 20% ​​of the value of the REIT’s assets invested in, among other things, in assets other than the assets mentioned in (2) above.

Distributions

What are the basic distribution requirements for a REIT?

In accordance with the REIT Rules, at least 90% of the net distributable cash flow of the SPV must be distributed to the REIT or the holding company in proportion to its interest in the SPV. In addition, 100% of the cash flows received by the holding company from the underlying SPVs must be distributed to the REIT. However, if the cash flows are generated by the holding company itself, then at least 90% of such net distributable cash flow must be distributed by the holding company to the REIT.

At least 90% of a REIT’s distributable net cash flow must be distributed to unitholders. These distributions must be made at least once every six months. If distributions are not made within 15 days of declaration, the Manager is liable to pay interest to Unitholders at the rate of 15% per annum until the date of such distribution.

Consequences of non-compliance

What happens if a REIT does not meet basic regulatory requirements? Is help available if a company does not meet any of these requirements?

Pursuant to REIT regulations, a REIT or parties to the REIT or any other person involved in the business of the REIT who breaches any of the provisions of the Securities and Exchange Board of India (SEBI) Act 1992 or FPI regulations, notices, guidelines, circulars or instructions issued by SEBI may be responsible for one or more actions specified therein, including any action prescribed under the Securities and Exchange Board of India Regulations 2008 ( intermediates). These can, among other things, include the delisting of the REIT’s Units and the delivery of the registration certificate obtained by the REIT. However, pursuant to the REIT Rules, SEBI is permitted to grant REITs additional time to comply with the REIT Rules instead of immediately delisting the units and canceling or revoking their registration.

Compliance Best Practices

What best practices should be considered to ensure compliance with key REIT regulatory requirements in your jurisdiction?

Representatives of the Promoter, Manager and Trustee shall be subject to regular and periodic training to familiarize them with the various provisions of the REIT Regulations and the circulars, notifications, guidelines or instructions issued by SEBI to the with respect to REITs. This training and awareness can ensure greater compliance and effective management of REITs.

Public REITs – regulatory treatment

Are the requirements imposed on publicly traded REITs that raise capital different from those imposed on private REITs or non-REIT public companies?

The REIT Regulations define the procedure and the conditions to be respected by a REIT to raise capital. The REIT Regulations set out various conditions for the issue and listing of REIT units pursuant to an initial public offering, including minimum asset value, minimum number of unitholders and minimum unit size. the offer. The REIT Regulations require that the initial offering of REITs be made by way of a public offering and mandate the listing of REIT units. The REIT Regulations currently only deal with listed REITs and the concept of “private REITs” has not been recognized therein.

Provisions relating to the raising of capital by public companies other than real estate investment companies have been provided for, among other things, under the Companies Act 2013 SEBI (Issue of Capital and Disclosure Requirements) Regulations 2018 and the SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2018 (as applicable). A non-REIT public company is not required to list its shares on a recognized stock exchange. Also, a non-REIT public company is not required to meet a minimum offering size to raise capital. The conditions or requirements applicable to capital raisings by public companies other than REITs are different from the conditions or requirements prescribed for REITs.

Public REITs – ongoing requirements

What are the ongoing securities and disclosure requirements for publicly traded REITs?

The REIT Regulations prescribe the general obligations, disclosure and reporting requirements that must be met by a REIT. An annual meeting of Unitholders of the REIT must be held at least once a year and any information required to be disclosed in relation to any question or matter requiring the approval of Unitholders may be dealt with at such meeting. Information to be disclosed may include the latest annual accounts and performance of the REIT, the appointment of any registered appraiser and the latest valuation reports of the assets of the REIT.

The REIT Regulations prescribe various disclosures to be provided by a REIT, including the following:

  • disclosure of the activities of the REIT through the presentation of an annual report to all unitholders of the REIT;
  • disclosure of the activities of the REIT by delivering a semi-annual report to all unitholders of the REIT;
  • disclosure of any information affecting the operation or performance of the REIT, including sensitive information about prices on designated exchanges; and
  • disclosures regarding matters set forth in the Listing Agreements to Designated Exchanges and to Unitholders.

Public REITs – listing rules

Do stock exchanges in your jurisdiction have special rules that do not apply to unlisted or private REITs?

The REIT Regulations currently only deal with listed REITs and the concept of “unlisted REITs” or “private REITs” has not been recognized therein. Therefore, there are no special rules that do not apply to unlisted or private REITs.

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