Real Estate Investment Trusts

(i)Net Distributable Cash Flow (NDCF)

Operating Income

(Note: Depreciation is non-cash, so ignored)

(ii)Minimum Distribution to unit holders = 90% × 90 = ₹ 81 crore

(iii)Distribution Per Unit (DPU)

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, June 2026, Q. 3(c) (Syllabus 2022).

The eligible issuers for making an initial offer of units by SM REITs in accordance with Chapter VIB of the SEBI (Real Estate Investment Trusts) Regulations, 2024 are as under:

a)the SM REIT or the parties to the SM REIT are debarred from accessing the securities market or dealing in securities by the SEBI;

b)any of the promoters, promoter group or directors of the parties to the SM REIT are debarred from accessing the securities market or dealing in securities by the SEBI;

c)any of the promoters or directors of the parties to the SM REIT is a promoter or director of another company which is debarred from accessing the securities market by the SEBI; (This is not applicable to a person who was appointed as a director only by virtue of nomination by a debenture trustee in other company.)

d)the SM REIT or the parties to the SM REIT or any of the promoters or directors of the parties to the SM REIT are wilful defaulters;

e)any of the promoters or whole-time directors of the parties to the SM REIT isa promoter or whole-time director of another company which is a wilful defaulter;

f)any of the promoters or directors of the parties to the SM REIT is a fugitive economic offender;

g)any fine or penalties levied by the SEBI or stock exchanges is pending to be paid by the SM REIT at the time of filing the scheme offer document.

However, the clauses (a), (b) and (c) shall not be applicable if the period of debarment is over as on the date of filing of the scheme offer document with the SEBI and the designated stock exchange.

Further, no offer of units by a scheme of the SM REIT shall be made unless,–

a)the size of the asset proposed to be acquired in a scheme of the SM REIT is at least rupees fifty crores and less than rupees five hundred crores; and

b)the minimum number of unitholders of the scheme of the SM REIT other than the investment manager, its related parties and associates of the SM REIT are not less than two hundred investors: This shall not be applicable to the migration of existing persons, entities or structures as on the date of this chapter coming into force which are included as part of the migration plan in case the applicant is applying for a certificate of registration.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, June 2025, Q. 2(b) (Corporate Funding and Listings in Stock Exchanges paper, Syllabus 2017).

Eligibility Criteria to Sponsor a REIT

(i)Each sponsor shall hold or propose to hold not less than 5% of the number of units of the REIT on post-initial offer basis. Further, each sponsor and sponsor group shall be clearly identified in the application of registration to SEBI and in the offer document/placement memorandum, as applicable.

(ii)For each sponsor group not less than one person shall be identified as a sponsor.

(iii)Out of the entities categorized as sponsor group, only the following entities may be considered:

a)a person or entity who is directly or indirectly holding an interest or shareholding in any of the assets or SPVs or holding companies proposed to be transferred to the REIT.

b)a person or entity who is directly or indirectly holding units of the REIT on post-issue basis.

c)a person or entity whose experience is being utilized by the sponsor for meeting the eligibility conditions required under REIT regulations.

(iv)The sponsor(s), on a collective basis, have a net worth of not less than ₹ 100 crore. However, each sponsor to have a net worth of not less than ₹ 20 crore.

(v)The sponsor or its associate(s) has not less than five years’ experience in development of real estate or fund management in the real estate industry; However, where the sponsor is a developer, at least two projects of the sponsor must have been completed.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2024, Q. 2(a) (Corporate Funding and Listings in Stock Exchanges paper, Syllabus 2017).

Minimum Unitholding Requirement for sponsors and sponsor groups as per SEBI (Real Estate Investment Trusts) (Second Amendment) Regulations, 2023

The revised regulation mandates that sponsor(s) and sponsor group(s) collectively hold not less than:

•15% of total units of REIT for three years from the date of listing of units in the initial offer. If it exceeds 15% by any sponsor or sponsor groups, it shall be held for a period of not less than one year from the date of listing of units issued in initial offer.

•5% of total units of REIT from beginning on 4 th year till the end of 5 th year from the date of listing of the units issued in the initial offer.

•3% of total units of REITs from beginning of 6 th year till the end of 10 th year from the date of listing of the units issued in the initial offer.

•2% of total units of REITs from the beginning of 11 th year ill the end of 20 th year from the date of listing of the units issued in the initial offer.

•1% of total units of REIT after completion of 20 th year from date of listing of units issued in the initial offer.

However, the maximum value of the units to be held by the sponsor(s) and sponsor group(s) for compliance shall not exceed ₹ 500 crore. The units required to be held as mentioned above shall be locked in and shall not be encumbered.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2024, Q. 2(b) (Corporate Funding and Listings in Stock Exchanges paper, Syllabus 2017).

(ii)

Schedule IX on Stewardship Code has been inserted vide SEBI (REITs) (Second Amendment) Regulations, 2023 which states that the following principles of stewardship code shall be complied with by any unitholder holding not less than 10% of the total outstanding units of the REIT:

1.They must act in the best interests of the REIT and its unit holders as a whole;

2.They should formulate a comprehensive policy on the discharge of their stewardship responsibilities, review and update the same periodically;

3.They should have a policy to manage issues of conflict of interest while fulfilling their stewardship responsibilities;

4.They should periodically monitor the REIT and its investee entities viz. Holding Company(s) and SPV(s);

5.They should have a policy on intervention in the REIT and its Holding Company(s) and SPV(s);

6.They should have a policy on voting.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2024, Q. 6(a) (Syllabus 2022).

The Real Estate Investment Trust (REIT) is an investment vehicle that invests in rent-yielding completed real estate properties which has the potential to transform the Indian real estate sector.

REITs help attracting long-term financing from domestic as well as foreign sources, thereby improving fund availability to real estate developers and reduce some burden on completed assets by allowing owners of such assets to raise capital from investors against issue of units. Further, for the investors, the REIT can provide a new investment vehicle with ongoing returns, elevated transparency and governance standards.

Difference between REITs and Mutual Funds

Trusts) Regulations, 2014 applies to 1996 applies to Mutual Funds REITs

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, June 2023, Q. 2A(ii) (Corporate Funding and Listings in Stock Exchanges paper, Syllabus 2017).

Difference between Real Estate Investment Trusts (REITs) and Infrastructure Investment Trusts (InvITs)

investment trusts often prove risky.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2022, Q. 2(a) (Corporate Funding and Listings in Stock Exchanges paper, Syllabus 2017).

Eligibility : In a REIT structure, the following parties are involved:

i.REIT Applicant (viz. Trust which holds the underlying properties),

ii.Sponsor (like a promoter in case of a listed company),

iii.Trustee of the REIT; and

iv.Manager (viz. a company or an LLP which manages assets and investments of the REIT and undertakes operational activities of the REIT)

Conditions to be fulfilled under SEBI (REIT) Regulations, 2014

i.REIT Applicant

The applicant must be a sponsor on behalf of trust and Trust Deed shall be duly registered in India under the provisions of the Registration Act, 1908 containing its main objective as undertaking activity of REIT in accordance with the REIT Regulations and includes responsibilities of the Trustee in accordance with of the provisions of REIT Regulations. Persons have been designated as sponsor(s), manager and trustee and all such persons are separate entities.

ii.Sponsor

a)Each sponsor shall hold or propose to hold not less than 5% of the number of units of the REIT on post-initial offer basis.

b)For each sponsor group not less than one person shall be identified as a sponsor.

c)Out of the entities categorized as sponsor group, only the following entities may be considered:

•a person or entity who is directly or indirectly holding an interest or shareholding in any of the assets or SPVs or holdcos proposed to be transferred to the REIT.

•a person or entity who is directly or indirectly holding units of the REIT on post-issue basis.

•a person or entity whose experience is being utilized by the sponsor for meeting with the eligibility conditions required under REIT regulations.

d)Sponsor(s), on a collective basis, have a net worth of not less than ₹ 100 crores, with each Sponsor having net worth of at least ₹ 20 crores.

e)Sponsor or its associate(s) has not less than 5 years' experience in development of real estate or fund management in the real estate industry and where the sponsor is a developer, at least 2 projects of the sponsor have been completed.

iii.Trustee

It should be registered with SEBI under SEBI (Debenture Trustees) Regulations, 1993 and is not an associate of the sponsor(s) or manager. It 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 SEBI.

iv.Manager

a)In case, Manager is a body corporate or a company, the net worth of the manager shall not be less than ₹ 10 crores or in case, the manager is a LLP, the value of net tangible assets shall not be less than ₹ 10 crores.

b)Manager or its associate has not less than 5 years' experience in fund management or advisory services or property management in the real estate industry or in development of real estate and have at least 2 key personnel who each have 5 years' experience in Real Estate Activities;

c)It 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.

d)The manager must have entered into an investment management agreement with the trustee which provides for the responsibilities of the manager in accordance with REIT Regulations.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, June 2022, Q. 2(a) (Corporate Funding and Listings in Stock Exchanges paper, Syllabus 2017).

Regulation 2(1) (ztb) of the SEBI (Real Estate Investment Trusts) Regulations, 2014 provides the definition of "Strategic Investor".

It means, -

a.an infrastructure finance company registered with the Reserve Bank of India as a Non-Banking Financial Company;

b.a Scheduled Commercial Bank;

c.a multilateral and/or bilateral development financial institution;

d.a systemically important Non-Banking Financial Company registered with the Reserve Bank of India;

e.a foreign portfolio investor,

f.an insurance company registered with the Insurance Regulatory and Development Authority of India;

g.a mutual fund.

who invest, either jointly or severally, not less than 5% of the total offer size of the REIT or such amount as may be specified by the SEBI from time to time, subject to the compliance with the applicable provisions, if any, of the Foreign Exchange Management Act, 1999 and the rules or regulations or guidelines made thereunder.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2021, Q. 2A(iii) (Corporate Funding and Listings in Stock Exchanges paper, Syllabus 2017).

Participation by the ‘strategic investors’ in the public issue of the REITs

(i)Holding requirements

-Holding by strategic investors – Minimum 5%, maximum 25%.

-Holding by public, other than strategic investors and sponsor– Minimum 25%

-Holding by sponsor – Minimum 5%, maximum 70%

(ii)Issue price of the units and utilisation of funds

-The price at which units are offered to the strategic investors must not be less than the price determined in the public issue.

-It must be ensured that the subscription amount is kept in the separate account until the public issue is opened.

(iii)Lock-in period

-The units subscribed by strategic investors, pursuant to the unit subscription agreement, will be locked-in for a period of 180 days from the date of listing in the public issue.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2020, Q. 2(a) (Corporate Funding and Listings in Stock Exchanges paper, Syllabus 2017).