Aditya Shah

Comparative between Draft and Final REIT Regulations:

Real estate investment trusts (REITs) is one of the most important vehicle for making collective investment in commercial real estate. Emanating from USA in 1960s as a tax transparent collective investment vehicle, REITs have subsequently made their debut almost in every country that matters, and have done remarkably well.

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In India, REITs have been talked about for several years now. In the year 2013, a draft regulatory framework[1] was put on public domain by SEBI, and it seemed that this time, there was a serious move to usher REITs in India. On 10th August, 2014 SEBI at its Meeting[2] has approved the framework for registration and regulation on REIT and subsequent to that issued SEBI issued final Regulations on 26th September, 2014[3]. A comparative of the final regulations vis-à-vis the draft regulations are mentioned hereunder:

Regulation
Pertaining
Draft regulation on REITs
Final Regulations on REITs
Observation
2b
Definition of Associate
Any entity or person under common control with the said person.
Draft regulation provided for considering person/ entity under common control as associate, which has been done away with in final regulation.
2b
Definition of Associate
Any company or LLP or body corporate in which the person or its director(s) or partner(s) hold(s), either individually or collectively, more than fifteen percent of its paid-up equity share capital or partnership interest, as the case may be.
Associate under the final regulation included any company, LLP or Body corporate in which a person or its director or partner either individually or collectively hold more than 15% which was not proposed in the draft regulation.
2e
Bonus issue
Bonus issue means additional units allotted to the unit holders as on the record date fixed for the said purpose, without any cost to the unit holder.
Definition of Bonus Issue was not provided in the draft regulation.
2i
Definition of Change in control
Change in control in relation to a company or a body corporate, if shares are listed change in control as defined under Regulation 2(1)(e) of SEBI (SAST) Regulation 2011.
Change in control in case of a company or body corporate means changes in control of the company or body corporate where control is defined as provided under Section 2(27) of Companies Act, 2013.
In the draft regulation change in control in case of listed companies was as defined under SEBI SAST Regulation, 2011, under final regulation the changes in control with respect to a company or body corporate has been referred to as change in control, where control shall mean as defined under Companies Act, 2013.
2i
Definition of Change in Control
In case of non listed entity change in control was referred as change in controlling interest or change in legal form.
In case of other than companies change in control referrers as change in controlling interest only.
Draft regulation provided for change in control for non listed entity includes change in legal form as well whereas under the final regulation changes in legal form per se would not necessarily constitute change in control.
2j
Definition of Credit Rating Agency
Credit Rating agency means credit rating agency registered with SEBI.
Draft regulation did not provide for definition of Credit Rating Agency.
2l
Definition of Designated Stock Exchange
Designated stock exchange means a recognised stock exchange in which units of a REIT are listed or proposed to be listed and which is chosen by the REIT as a designated stock exchange for the purpose of a particular issue of the units.
Designated stock exchange was not defined under draft regulation.
2n
Definition of Follow on offer
Follow-on-offer means offer of units of REIT to the public for subscription subsequent to Initial Offer.
Follow-on-offer means offer of units of a listed REIT to the public for subscription and includes an offer for sale of REIT units by an existing unit holder to the public.
Draft regulation did not provide for offer of sale of unit by existing unit holder.
2q
Definition of Governing Board
Governing board in case of an LLP shall mean a group of members assigned by the LLP to act in a manner similar to the Board of directors as in case of a company.
LLP were not included for any purpose under the draft regulation, however under final regulation the concept of LLP was introduced and thus governing board of LLP would be akin to Board of Director under the Company .
2s
Definition of Inspecting Officer
Inspecting officer means any one or more person appointed by the Board to exercise powers conferred under Chapter VII of the regulations.Z
Inspecting officer was not defined under the Draft Regulation.
2u
Definition of Listed REITS
Listed REIT means a REIT whose units are listed on a recognized stock exchange.
Listed REITS was not defined under Draft Regulation.
2v
Definition of LLP
LLP means a limited liability partnership as defined under the Limited Liability Partnership Act, 2008.
LLP was not defined under Draft regulation.
2w
Definition of Manager
Manager means a company which manages assets and investments of the REIT.
Manager means a company or LLP or body corporate incorporated in India which manages assets and investments of the REIT and undertakes operational activities of the REIT.
Manager under the draft regulation can be a company which manages assets and investment of the REITS, Manager under final regulation has to be     company, LLP and body corporate incorporated in India.
2y
Definition of Net Worth
Net worth in relation to a company or a body corporate shall have the meaning assigned to it under sub-section (57) of section 2 of the Companies Act, 2013.
Net worth was not defined under the Draft Regulations.
2za
Occupancy certificate
Occupancy certificate means a completion certificate, or such other certificate, as the case may be, issued by the competent authority permitting occupation of any property under any law for the time being in force.
Definition of Occupancy certificate was not defined under the Act.
2zb
Definition of Offer Document
Offer document means any document or documents by which initial offer is made to the public.
Offer document means any document described or issued as an offer document including any notice, circular, advertisement or other document inviting offers from the public for the subscription or purchase of units of the REIT and includes initial offer document, follow-on offer document and any other document as may be specified by the Board.
Offer document under the draft regulation was defined as to mean any document whereby initial offer was made to public whereas under the final regulation it referred to a wide range of document which can be constituted as offer document.
2zc
Definition of Parties to the REITS
Parties to the REIT shall include the sponsor, re-designated sponsor, manager, trustee and the principal valuer.
Parties to the REIT shall include the sponsor(s), re-designated sponsor(s), manager, and trustee.
Principle valuer was a party to the REIT under Draft regulation where as under final regulation Valuer was not considered as party to the REITS.
2zd
Definition of Preferential Issue
Preferential issue means an issue of units by a listed REIT to any select person or group of persons on a private placement basis and does not include an offer of units made through a public issue, rights issue, bonus issue, qualified institutions placement or any other issue as may be specified by the Board.
Preferential issue was not defined under the draft Regulation.
2ze
Definition of Public
Public for the purposes of offer and listing of units means any person other than related party of the REIT or any other person as may be specified by the Board:However in case any related party to the REIT is a qualified institutional buyer, such person shall be included under the term ‘public’.
Public was not defined under the draft regulation, final regulation provides the definition of public only for the purpose of offer and listing of unit of REIT.
2zf
Definition of Public Issue
Public Issue means an initial offer or follow-on offer or any other issue made to the public as may be specified by the Board.
Public issue was not defined under the draft regulation.
2zg
Definition of Qualified Institutional Buyer
Qualified Institutional Buyer shall have the meaning assigned to it under clause (zd) of sub-regulation (1) of regulation 2 of the SEBI (Issue Of Capital And Disclosure Requirements) Regulations, 2009.
QIB was not defined under the draft regulation whereas the same is defined under the final regulation.
2zh
Definition of Qualified Institutional Placement
Qualified Institutions Placement means allotment of units by a listed REIT to qualified institutional buyers on private placement basis in terms of these regulations.
QIP was not defined under the draft regulation whereas the same is defined under the final regulation.
2zi
Definition of Real Estate
Real Estate or property means land and any permanently attached improvements to it, whether leasehold or freehold and includes buildings, sheds, garages, fences, fittings, fixtures, warehouses, carparks, etc. and any other assets incidental to the ownership of real estate and does not include mortgage and Transferable Development Rights.
Real estate or property means land and any permanently attached improvements to it, whether leasehold or freehold and includes buildings, sheds, garages, fences, fittings, fixtures, warehouses, car parks, etc. and any other assets incidental to the ownership of real estate but does not include mortgage:
Provided that any asset falling under the purview of ‘infrastructure’ as defined vide Notification of Ministry of Finance dated October 07, 2013 including any amendments or additions made thereof shall not be considered as ‘real estate’ or ‘property’ for the purpose of these regulations.
In definition of Real Estate, draft regulation specifically excluded Transferable Development Right but whereas in final regulation exclusion of TDR’s has not been specifically given and specific exemption has been carved out for assets mentioned under Notification by Ministry of Finance dated 7th Oct, 2013.
2zp
Definition of Rent Generating Property
Rent generating property means property which has been leased or rented out in accordance with an agreement entered into for the purpose.
Rent generating property was not defined under the draft regulation, however the same was provided under explanation to the relevant clause under the draft.
2zq
Definition of Right Issue
Rights issue means an offer of units by a listed REIT to the unit holders of the REIT as on the record date fixed for the said purpose.
Right Issue was not defined under the draft regulation however the same has been defined under the final regulation.
2zs
Definition of Special Purpose Vehicle
Special Purpose Vehicle means any body corporate in which the REIT holds or proposes to hold controlling interest.
Special purpose vehicle or “SPV” means any company or LLP, –
(i) in which the REIT holds or proposes to hold controlling interest and not less than fifty per cent. of the equity share capital or interest;
(ii) which holds not less than eighty per cent. of its assets directly in properties and does not invest in other special purpose vehicles; and
(iii) which is not engaged in any activity other than holding and developing property and any other activity incidental to such holding or development.
SPV as defined under the draft regulation was restricted to holding of controlling interest in any body corporate; whereas SPV under the final regulation is extended so as to mean company or LLP.
2zu
Definition of Transferable Development Right
Transferable Development Rights” or “TDR” shall mean development rights issued by the competent authority under relevant laws in lieu of the area relinquished or surrendered by the owner or developer or by way of declared incentives by the government or authority.
TDR was not defined under the draft regulation where as the same is defined under the final regulation
2zw
Definition of Under Construction Property
Under-construction property means a property of which construction is not complete and occupancy certificate has not been received
Under Construction property was not defined under the draft Regulation , however the same was named as developmental property under the draft regulation.
2zz
Definition of Valuer
Principal Valuer means any person who is a “registered valuer” under Section 247 of the Companies Act, 2013 and assigned as such and who has been appointed by the manager to undertake valuation of the real estate assets.
Valuer means any person who is a “registered valuer” under section 247 of the Companies Act, 2013 and who has been appointed by the manager to undertakevaluation of the REIT assets:
Provided that till such date on which section 247 of the Companies Act, 2013 comes into force, valuer shall mean an independent merchant banker registered with the Board or an independent chartered accountant in practice having a minimum
experience of ten years;
2zza
Definition of Value of REIT
“Value of the REIT” means value of the REIT as assessed by the valuer excluding any debt/liabilities thereof.
Value of the REIT means value of the REIT as certified by the auditor based on the value of REIT assets held directly or through the SPV excluding any debt or liabilities thereof.
Value of REIT under the draft regulation refereed to value as certified by valuer, whereas value or REITS as defined under the final regulation shall mean value as certified by the auditor.
3
Registration of REIT
An application for grant of certificate of registration under sub-regulation (1) shall be made in Form A as specified in the Schedule I to these regulations
An application for grant of certificate of registration as REIT shall be made, by thesponsor in Form A as specified in the Schedule I
Application for registration under the draft was not necessarily required to be made by sponsor.
4(d)
Eligibility Criteria – for Sponsor
Under Regulation 4:-
4-(d) The sponsor(s) was required to have a net worth of atleast rupees 20 crore on a consolidated basis;
4-(e) The sponsor(s) was required to have not less than 5 years experience in the real estate industry on an individual basis.
Eligibility Criteria for Sponsor :-(i) there are not more than three sponsors each holding or proposing to hold minimum five per cent. of the total number of units of the REIT on post-initial offer basis;
(ii) the sponsor(s), on a collective basis, have a net worth of not less than one
hundred crore rupees:
However each sponsor shall have a net worth of minimum twenty crore rupees; and
(iii) the sponsor or its associate(s) is required to have not less than five years experience in development of real estate or fund management in the real estate industry:
Where the sponsor is a developer, he must have completed at least 2 Projects.
Final Regulation Restrict number of sponsor upto three only, and requires each sponsor to hold minimum 5% of total number of REITS on post initial offer basis. Each sponsor will be require to have networth of not less than Rs. 20 Crore and an experience not less than 5Years with aggregate net worth of all the sponsor together of not less than Rs. 100 Crore.
4(e)
Eligibility Criteria- for Manager
Under Regulation 4(f) following are the eligible criteria for Manager:-
(i) net worth of not less than Rs. 5 crore; and
(ii) not less than 5 years experience in fund management/ advisory services/ property management in the real estate industry or in development of real estate; and
(iii) not less than 2 key personnel in its Investment Committee who each have not less than 5 years experience in fund management/ advisory services/property management in the real estate industry or in development of real estate;
Eligibility Criteria for Manager:-
(i) the manager has a net worth of not less than ten crore rupees if the manager is a body corporate or a company or net tangible assets of value not less than ten crore rupees in case the manager is a LLP;
(ii) the manager or its associate has not less than five years experience in fund management or advisory services or property management in the real estate industry or in development of real estate;
(iii) the manager has not less than two key personnel who each have not less than five years experience in fund management or advisory services or property management in the real estate industry or in development of real estate;
(iv) the manager has not less than half, of its directors in the case of a company or of members of the governing Board in case of an LLP, as independent and not directors or members of the governing Board of another REIT; and
(v) the manager has entered into an investment management agreement with the trustee which provides for the responsibilities of the manager in accordance
with regulation 10.
Eligibility criteria for Manager has been enlarged.
4(f)
Eligibility Criteria –for Trustee
Eligibility Criteria for Trustee under Regulation 4(h):-
The trustee is required to be registered with SEBI under SEBI(Debenture Trustees) Regulations, 1993, must not be an associate of the sponsor/ manager/ principal valuer and not less than 50% of its directors are independent and are not related parties to the REIT.
Eligibility Criteria for Trustee:-
(i) the trustee is registered with the Board under SEBI(Debenture Trustees)
Regulations, 1993 and is not an associate of the sponsor(s) or manager; and
(ii) the trustee has such wherewithal with respect to infrastructure, personnel, etc. to the satisfaction of the Board and in accordance with circulars or guidelines as may be specified by the Board.
9
Rights and Responsibility of Trustee
Under the draft regulation 9(2) the Trustee shall ensure that the real estate assets of the REIT have proper legal and marketable titles and that all the material contracts including rental/ lease agreements entered into on behalf of REITs are legal, valid, binding and enforceable by and on behalf of the REIT.
Draft regulation required the trustee to ensure that the REIT have proper legal and marketable title, and contract of REIT are binding and enforceable. Under the final regulation trustees have been discharged from such responsibility, now such responsibility vests with Manager .
9(15)
Rights and Responsibility of Trustee
Trustee shall not invest in the unit of REIT
Trustee and its associates in units of REITS
The final regulation debars trustee and their associate from investment in the REIT.
10(1)
Rights and Responsibility of Manager
The manager shall identify and recommend investment opportunity for investment by REIT.
The manager shall make investment decision including any further investment or divestment of Assets.
In Draft regulation the manager shall identify and recommend investment opportunity where as under the final regulation investment decision has to be taken by Manager himself.
10 (2)
Rights and Responsibility of Manager
The manager of REIT shall ensure that real estate assets of REIT or SPV have proper legal and Marketable title and all material contract are legal, valid, binding and enforceable by and on behalf of REIT or SPV
Draft regulation required the trustee to ensure that the REIT has proper legal and marketable title, and contract of REIT are binding and enforceable. Under the final regulation responsibility has been casted upon manager   to ensure that REIT has proper legal and marketable title and contract of REIT.
10(6)
Rights and Responsibility of Manager
Appointment of Auditor by the manager for a period of 3 Years , such auditor can be reappointed for another period of three year by approval at annual meeting. Auditor cannot be consecutively appointed for a period of more than 6 Year.
Appointment of Auditor by the manager can be for period of not more than consecutive 5 Year, in case of auditor firm can be reappointed for another period of not more than consecutive 5 years subject to approval at annual meeting .
Term period of an auditor appointment has been extended to a period of 5 Years and the re appointment is possible only in case of auditor firm for another term which cannot be more than another term of 5 year.
10
Rights and Responsibility of Manager
Requirement of Investor Management Committee of not less than 5 Member which takes final decision on recommendation of Manager.
No such committee required
The recommendation of manager under the draft regulation was required to be approved by Investment Committee which has been done away under final regulation.
10 (18)
Rights and Responsibility of Manager
Quarterly report on activity of REIT to be submitted to trustee
Quarterly Report on the activity of the REIT to be submitted to the trustee within 30 days of end of Quarter (in case of valuation report within 15 days from receipt of valuation report from valuer)
Manager was required to submit activity of the REIT to the Trustee, however the time limes was not provided under the draft regulation.
10(25)
Rights and Responsibility of Manager
Manager shall place before BOD a report on performance every six months
Manager shall place before Board Of Director in case of company or governing board in case of LLP on performance every three months.
Manager was required to report activity or performance of REIT before the board of director on half yearly basis, whereas the same will now be required to be place on quarterly basis.
10(27)
Rights and Responsibility of Manager
Manager shall ensure convening meeting of unit holder in accordance with Regulation 22 and maintain records in accordance with Regulation 26.
Trustee was required to convene the meeting of unit holder however under the final regulation manager shall ensure convening the meeting of unit holder.
11(2)
Rights and Responsibility of Sponsor
Sponsor shall transfer or undertake to transfer its entire shareholding or interest in SPV or entire ownership of real estate assets to the REIT prior to allotment of unit of the REIT to applicant. Except to the extend any mandatory holding required or interest in SPV by sponsor under any Act/ Regulation/ Circular/ Guidelines/ Government or Regulatory Authority .
Sponsor under the final regulation will be required to transfer its holding in SPV or property to the REIT prior to allotment of unit to the applicant, except to that extend where mandatory holding under any law is required to be held by the concerned sponsor.
11(3)(c)
Rights and Responsibility of Sponsor
Sponsor individually will be required to hold 5% of outstanding units of listed REIT at ALL time
Under Draft regulation Sponsor individually was not mandatorily required to hold units of REIT at all point in time, however sponsors collectively were required to hold certain chunk of total unit at all point in time. Final regulation provides that sponsors jointly as well as severally would be required to hold units of REIT at all point in time.
11(4)
Rights and Responsibility of Sponsor
If Sponsor, after three years of lock-in period intends to sell its holding units due to which its holding falls below 15% of total outstanding unit of REIT, such sponsor shall take approval of the unit holder.
If sponsor, after three years of lock in period intends to sell its holding units due to which its holding falls below 15% of total outstanding unit of REIT or any individual sponsor holding falls below 5% the sponsor or proposed designated sponsor shall obtain approval from unit holder or provide an exit opportunity in accordance with guidelines as may be specified.
The sponsors were required to hold 25% of Total unit of REIT for a lock in period of 3years and 15% of total unit of REIT at all point in time, however the minimum requirement of 15% can be done away with only with approval of unit holders, however under the final regulation such requirement of 15% and individual restriction of 5% can be done away with either by the approval of unit holder or with providing an exit opportunity to existing unit holder.
12
Rights and Responsibility of Valuer
The valuer shall not invest in unit of REITS.
The valuer or its employee, involved in valuation of assets shall not invest in unit of REITS or sell if already invested till such time the person is designated as valuer and six months after ceasing to be the valuer.
Draft Regulation debars valuer from investing in the unit of REITS whereas final regulation debars valuer as well as any of its employees involved in valuation for dealing in REITS upto 6 months from ceasing of being valuer.
13
Rights and Responsibility of Auditor
Auditor shall conduct audit of accounts of REITS on the basis of accounting and auditing standard as may be applicable.
Auditor shall audit accounts of REITS on the basis of accounting and auditing standards as may be specified by the Board.
Auditors under the draft regulation were required to audit accounts of REIT on the basis of standars as may be applicable where as under the final regulation the accounts are required to be audited on the basis of standards as specified by the board.
14(2)
Initial Offer of REITS / FPO and allotment of unit
Initial offer by the REIT –the value of assets of REIT is not less than Rs.1000 Crore, the size of offer shall be not less than 25% of value of REIT .
Initial Offer by REIT- the value of assets of REIT in not less than Rs.500 Crore, the size of the offer shall not be less than 25% of value of REIT subject to minimum offer size of Rs. 250 Crore.
Draft regulations require minimum assets of worth Rs. 1000 Crore whereas final regulation minimum valuation shall be Rs. 500 Crore, however offer size under the final regulation shall be minimum Rs. 250 Crore.
14(2)
Initial Offer of REITS / FPO and allotment of unit
The minimum assets requirement of Rs. 500 Crore or Rs. 250 Crore as the case maybe can be complied with after the IPO subject to binding agreement with relevant parties that such requirement shall be fulfilled prior to allotment of units of REITS, a declaration to Designated Stock Exchange (DSE) and SEBI to be made   and adequate disclosure in this regards in the offer document .
14 (4)
Initial Offer of REITS / FPO and allotment of unit
REIT through manager file draft offer document (for IPO or FPO) with Designated Stock Exchange (DSE) not less than 30 days before filing offer document (for IPO/FPO) with DSE.
REIT through manager file draft offer document with DSE and the Board not less than 21 working days before filing final offer document with DSE.
Draft regulation required REIT to file draft offer document to DSE whereas such draft offer document would be required to be filed with DSE as well as with SEBI under final regulation.
14(6)
Initial Offer of REITS / FPO and allotment of unit
A copy of the draft and initial offer/follow-on offer document shall be filed with the Board for its records along with a Due Diligence Certificate signed by the Trustee.
A copy of the draft and initial offer document /follow on offer document shall be accompanies with due diligence certificate signed by the Lead Merchant Banker and Manager.
Draft regulation provided that due diligence to be carried out by the trustee whereas under final regulation responsibility of Due diligence has been cast upon Manager as well as Merchant Banker.
14(7)
Initial Offer of REITS / FPO and allotment of unit
The Board may require REIT to carry out certain modification in draft offer document, the trustee shall ensure that such modification are suitably addressed prior to filling the final offer document with DSE
The Board may require certain modification and may communicate its comment to lead merchant banker, the lead merchant banker shall ensure that such modifications are suitably addressed prior to filling the offer document to DSE
Under Draft Regulations Trustee shall ensure that in case if any modification has been recommended by the SEBI, such modification has to be suitably addressed, in final regulation lead merchant banker has to suitably address such modification recommended by SEBI.
14(15)
Initial Offer of REITS / FPO and allotment of unit
IPO to be kept open for 45days, FPO to be kept open for 30 days
IPO and FPO to be kept open for 30 days
14(17)
Initial Offer of REITS / FPO and allotment of unit
REIT to allot unit within 10 working days from the closure of issue
REIT to allot unit within 12 days from the closure of issue
14(20)
Initial Offer of REITS / FPO and allotment of unit
Application money to be refunded if Minimum number of subscriber not including related party is less than 20 in number
Application money to be refunded if minimum number of subscriber forming part of public is less than 200 in number
14(21)
Initial Offer of REITS / FPO and allotment of unit
If REIT fails to allot or list the units within 15 days from the closure of issue then it shall pay interest to the unit holder @ 15% p.a.
If the manager fails to allot or list or refund the money within the specified time then the manager shall pay interest to the unit holder @ 15% p.a.
For failure of allotment of units/ listing of unit/ refund of Money under final regulation Manager has to refund money to the applicant under final regulation, under draft regulation the responsibility was cast upon the REIT itself.
14(22)
Initial Offer of REITS / FPO and allotment of unit
Unit may be offered for sale by the existing unit holder, to public if such unit has been held by existing unit holder for a period of atleast 1 year prior to filing draft offer document with Board and subject to such other circular / guidelines as may be specified by the Board
Offer for sale of unit has been provided under the final regulation whereas this was not prescribed under Draft Regulations.
14(23)
Initial Offer of REITS / FPO and allotment of unit
If REIT fails to undertake its IPO within 18 months from the date of registration with SEBI it shall surrender its certificate of registration to the Board
If REIT fails to undertake its IPO within 3years from the date of registration with SEBI it shall surrender its certificate of registration with SEBI; Provided that Board may extend period by another One year
16(1)
Listing and trading of units
Mandatory Listing of unit of REIT unit within 15 days of closure of offer
Mandatory Listing of unit of REIT within 12 working days of closure of offer
16(7)
Listing and trading units
Minimum public float for REIT unit shall be 25% at all times failing which action may be taken as may be specified by the Board
Minimum public float for the unit shall be 25% of the total number of outstanding unit and number of unit holder forming part of public shall not be less than 200 at all time failing which action can be take by SEBI and DSE including delisting.
In case of breach of this trustee may provide six months to the manager to rectify the same failing which the managar shall apply for delisting
Draft regulation provided minimum public float of 25% of the total number of outstanding units, however under the final regulation the total number of public float is 25% and minimum number of unit holder shall be 200 of at all time.
16(8)
Listing and trading units
Any person other than the sponsor holding units of REIT prior to IPO shall hold the unit for a period of One Year from the date of listing subject to circular/guidelines as may be specified by the Board
Final Regulations provides for lock in period of one year for those unit holders, holding units of REIT prior to listing.
16(5)
Listing and trading units
REIT unit shall be redeemed only by way of buy back or at the time of delisting
17(1)
Delisting
In the event triggering De-Listing, Trustee shall apply for Delisting to Board and DSE.
In an event triggering delisting, Manager shall apply for Delisting to Board and to DSE.
Regulations 17 provides various scenario where application for De-Listing has to be mandatorily made, under draft regulation Trustee was required to apply for De-Listing whereas under the final regulation Manager will be required to apply for delisting.
17(1)(c)
Delisting
Manager shall apply for delisting if there are no project / assets remaining under REIT for a period of Six months and REIT does not propose to invest in any project in future, provided the time period may be extended with approval of unit holder
17(6)
Delisting
SEBI Board may require the REIT to wind up and sell its assets in order to redeem units of the unit holders for the purpose of delisting of units and the Board may through circulars or guidelines specify the manner of such winding up or sale
Final Regulations also empowers SEBI to ask a REIT wind up its affairs.
18(1)
Investment by REIT
The Investment by a REIT shall only be in securities or properties in India and such investments shall be made in accordance with the Offer Document/Follow-on Offer Document.
The Investment by a REIT shall only be in SPVs or properties or securities or TDR in India in accordance with these regulations and in accordance with the investment strategy as detailed in the offer document as may be amended subsequently.
18(2)
Investment by REIT
The REIT shall not invest in vacant land or agricultural land or mortgages other than mortgage backed securities
The REIT shall not invest in vacant land or agricultural land or mortgages other than mortgage backed securities:Provided that this shall not apply to any land which is contiguous and extension of an existing project being implemented in stages.
18(3)
Investment by REIT through Special Purpose Vehicle
The REIT may invest in properties through Special Purpose Vehicles subject to the following:(a) Such Special Purpose Vehicles shall hold not less than 90% of their assets directly in such properties and shall not invest in other Special Purpose Vehicles;
(b) The REIT shall hold controlling interest and not less than 51% of the equity share capital of the Special Purpose Vehicle;
(c) No other shareholder of the Special Purpose Vehicle shall have any rights that shall prevent the REIT from complying with the provisions of these Regulations;
(d) The Manager, in consultation with the Trustee, shall appoint not less than one authorized representative on the Board of such Special Purpose Vehicles;
The REIT may invest in properties through SPVs subject to the following,-(a) no other shareholder or partner of the SPV shall have any rights that prevents the REIT from complying with the provisions of these regulations;
(b) the manager, in consultation with the trustee, shall appoint not less than one authorized representative on the Board of directors or governing board of such SPVs;
(c) the manager shall ensure that in every meeting including annual general meeting of the SPV, the voting of the REIT is exercised subject to provisions of Companies Act, 2013.
Reg. 18 read with Reg. 2(zs) of Final Regulations interalia provides that SPV shall hold not less than 80% of its assets directly in properties and such SPV shall not be engaged in any activity other than directly holding/ developing properties whereas draft does not casted restriction upon SPV to engage in other activities and restriction limit for SPV to directly invest in properties under draft was 90% of its assets.
18(4)
Investment by REIT through Special Purpose Vehicle
Not less than 90% of value of the REIT assets shall be invested in completed and rent generating properties.
Not less than 80% of value of the REIT assets shall be invested proportionate to the holding of the REITs in completed and rent generating properties.
18 (5)
Investment by REIT in Other Activity
Not more than 10% of value of the REIT assets shall be invested in:(a) Developmental properties;
(b) Listed or unlisted debt of companies;
(c) mortgage backed securities;
(d) Equity shares of companies listed on a recognized stock exchange in India which derive not less than 75% of their revenues from Real Estate activity;
(e) Government securities;
(f) Money market instruments or Cash equivalents;
Not more than 20% per cent. of value of the REIT assets shall be invested proportionate to the holding of the REITs in assets other than as provided in sub-regulation (4) and such other investment shall only be in,-(a) properties, in which not more than ten per cent. of value of the REIT assets
shall be invested, which are:
  • under-construction properties which shall be held by the REIT for not less than three years after completion;
  • under-construction properties which are a part of the existing income generating properties owned by the REIT which shall be held by the REIT for not less than three years after completion;
  • completed and not rent generating properties which shall be held by the REIT for not less than three years from date of purchase;
(b) listed or unlisted debt of companies or body corporate in real estate sector:
Provided that this shall not include any investment made in debt of the SPV;
(c) mortgage backed securities;
(d) equity shares of companies listed on a recognized stock exchange in India which derive not less than seventy five per cent. of their operating income from real estate activity as per the audited accounts of the previous financial year;
(e) government securities;
(f) unutilized FSI of a project where it has already made investment;
(g) TDR acquired for the purpose of utilization with respect to a project where it
has already made investment;
(h) money market instruments or cash equivalents.
18(7)
`Investment by REIT in Rent Generating Properties
REIT to invest 90% of the value of its assets in completed and rent generating properties
REIT shall invest not less than 75% of value of its assets which shall be rent generating assets
18(8)
Investment by REIT in Single Project
Investment upto 100% of Assets of REIT shall be permitted, subject to minimum assets requirement of REIT ie Rs. 1000 Crore
Investment upto 60% of the value of Assets of REIT proportionately on consolidated can be in single project and A REIT shall hold atleast two projects either directly or through SPV
18(10)
Investment in Completed and Rent Generating Project
REIT will be required to hold any completed and rent generating property for a period of not less than three year from the date of purchase of property by REIT or SPV
Investment in Rent Generating Property by a REIT shall be deemed to be lock in for a period of three year from the date of purchase of property.
18(11)
Sale of Investment by REIT
Sale of property by REIT or SPV or sale of share /interest in the SPV by REIT exceeding 10% of the value REIT assets in a financial year will require approval of unit holder.
18(13)
Lending by REITS
A REIT shall not undertake lending to any person, however investment in debt securities will be allowed.
18(16)
Distribution of Dividend
REIT shall distribute 90% of net distributable income after tax to the unit holder as Dividend. Such dividend shall be declared and distributed as prescribed in offer document.
SPV shall distribute 90% of its net distributable cash flow to the REIT in proportion of its holding in SPV. REIT shall distribute 90% of net distributable cash flow to the unit holder. Such dividend shall be declared once in every six months in an financial year.
In the draft regulation SPV were not under obligation to distribute its cash flow however under the final regulation SPV were required to distribute 90% of its net distributable cash flow and REIT in turn shall distribute REITs 90% of net distributable cash flow to its unit holder.
19(5)
Approval of Related party Transaction
Prior approval from unit holder shall be obtained for entering into related party transaction where:-
  1. Total Value of all Related Party Transaction pertaining to acquisition/ sale of assets properties or investment into securities exceeds 5% of the value of REIT
  2. Rental from all assets leased to Related Parties exceeds 5% of total rental of the REIT
  3. Value of borrowed funds from any related party exceed 5% of consolidated borrowing of REIT
Prior approval from unit holder shall be obtained for entering into related party transaction where:-
  1. Total Value of all related party transaction, in a financial year pertaining to acquisition/ sale of property/ investment into securities exceeds 10% of the value of REIT,
  2. Value of borrowed funds from Related Party in a financial year exceeds 10% of total consolidated borrowing of REIT
Threshold limit for prior approval from the unit holder in order to enter into related party transaction has been increased from 5% of the value of REIT to 10% of the value of REIT. Transaction for which approval will be required are borrowings and acquisition or sale of properties or investment.
20
Borrowing and Deferred Payment
  1. Aggregate consolidated borrowing and deferred payment of the REIT shall never exceed 50% of the value of REIT Assets
  2. If such limits are breached due to market movement of the price of under lying assets / securities manager shall inform the trustee and conditions shall be satisfied within 3 Months of such breach
  3. Aggregated consolidated borrowing and deferred payment of REIT shall never exceed 49% of the value of REIT assets.
  4. If such limits are breached due to market movement of the price of under lying assets / securities manager shall inform the trustee and conditions shall be satisfied within 6 Months of such breach
Aggregate consolidated borrowing of REIT and deferred payment shall not exceed 49% of value of REIT and in case of such limit are breached due to market movement the time limit for satisfaction of condition has been extended from 3 month in the draft regulation to 6month in the final regulation.
21 (1)
Valuation of Assets- Qualification of Valuer
The valuer shall not be associate of sponsor or manager or trustee and shall have not less than five years of experience in valuation of Real Estate
Valuer under the draft regulation was considered as Parties to the REIT however under the final regulation Valuer would not be a party to the REIT and shall not be associate of sponsor/ manager/ trustee.
21(4)
Submission of Full Year Valuation Report
A Full year valuation of the assets of the REIT shall be conducted not less than once in a financial year and the report shall be submitted not less than 2 months from the end of financial year to the exchange and unit holder
A Full year valuation of the assets of the REIT shall be conducted not less than once in a financial year within 3 months from the end of financial year, the manager shall submit report to Exchange and unit holder with in 15days of receipt of report.
21(5)
Submission of Half Year Valuation Report
A Half year valuation of the real estate assets shall be conducted, once every six months and the report thereon shall be submitted within one month from the end of every half year
A Half year valuation of the REIT assets shall be conducted, once every six months and the report thereon shall be prepared within 45days from the end of every half year, valuation reports received by the manager shall be submitted to the Exchange and unit holder within 15 days of receipt of report.
21(8)
Approval Prior to purchase or sale of property in certain cases
A REIT shall not purchase a property if value is greater than 110% of value of property as assessed by principle valuer or sale a property if the value is less than 90% of value of property as assessed by principle valuer
A REIT can purchase a property if value is greater than 110% of value of property as assessed by valuer or sale a property if the value is less than   90% of the value of property as assessed by valuer, provided that approval of unit holders have been obtained.
Draft regulation provided that a REIT shall not purchase a property or sale of property if the value of property is more than or less than 110% and 90% respectively of value as determined by the valuer. Final Regulations provides that such transaction can be entered subject to approval of unit holder.
21 (9)
Restriction on Valuer for valuation of Certain Property
The valuer shall not value any assets in which he has been involved during past 12 months for acquisition or disposal of property, except where he was engaged by the REIT for such acquisition or disposal.
In order to avoid conflict of interest valuer shall not value any assets in which the concerned valuer was involved during past 12 months for acquisition or disposal of assets.
22
Meeting of Unit Holder
An Annual Meeting of Unit holder shall be held not less than once in year and time gap between two meeting shall not exceed 18Months. Notice of meeting shall be given not less than 21 working days in advance .
An Annual Meeting of Unit Holder shall be hold not less than once a year within 120 days from the end of financial year and the time gap between 2 meeting shall not exceed 15 Months. Notice of not less than 21 days in advance to be given to unit holder either in writing or through electronic means
22(8)
Meeting of Unit Holder for change in sponsor
Prior to change in sponsor or change in control of sponsor approval of not less than 60% of unit holder in value and by number shall be required
Prior to change in sponsor or change in control of sponsor approval unit holder will be required where by the votes cast in favour of the resolution shall be three times more than the vote cast against the resolution; if such approval is not accorded-
  • in case of change of sponsor the proposed sponsor shall provide an exit option to dissenting share holder;
  • in case of change in control the sponsor or re-designated shall provide for an exit option.
23
Disclosure Requirement
REIT shall ensure that the disclosure in offer document and the follow on offer document are in accordance with Schedule III to the Regulation
The manager shall that the disclosures in the offer document are in accordance with the Schedule III to the regulation.
Under draft regulations REIT was responsible for disclosure in offer document whereas under final regulation manager will be responsible for disclosure in offer document.
23
Disclosure Annual Report
REIT shall submit an annual report to all unit holders not less than 2 Months from the end of financial year
Manager shall submit an annual report to all unit holders within 3 Months from the end of financial year.

[1] http://www.sebi.gov.in/cms/sebi_data/attachdocs/1381398382013.pdf

[2] http://www.sebi.gov.in/cms/sebi_data/pdffiles/28905_t.pdf

[3] http://www.sebi.gov.in/sebiweb/home/detail/29272/yes/PR-SEBI-Real-Estate-Investment-Trusts-Regulations-2014

[The above post is contributed by Aditya Shah at Vinod Kothari & Co. and can be contacted at trainee@vinodkothari.com]

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