SEBI notifies final rules on REITs - Here's our take!

SEBI today notified norms for building transparency and bringing a regularized structure for REITs and Infrastructure Investment Funds (InvITs). Here are some of the key things that came out of today's announcement

  1.  The minimum size for both the trusts would be 250 cr with a public float of at least 25% with a minimum asset base of 500 cr

  2.  SEBI in process to ensure that there's governance and transparency said that all related party transactions should be at "arms-length" in accordance with relevant accounting standards with both trusts required to make investments either directly or through Special Purpose Vehicles. In case of PPP projects, money can be put in only through SPV.

3. For REITs, the minimum public holding should be 25 per cent while the total number of outstanding units at all times as well as the number of unit holders -- who are part of the public -- should be 200.4. Under both the initial offer and follow-on public offer, the REIT shall not accept subscription of an amount less than two lakh rupees from an applicant 5. At least 80 per cent of the value of REIT assets should be invested in completed and rent generating properties with REIT being barred from investing in vacant land or agricultural land or mortgages other than mortgage backed securities. 6. Not less than seventy five per cent of the revenues of the REIT and the SPV, other than gains arising from disposal of properties, shall be, at all times, from rental, leasing and letting real estate assets or any other income incidental to the leasing of such assets 7. At least two projects should be held by a REIT, either directly or through SPV. Out of that, only up to 60 per cent of the asset value can be invested in one project. With regard to InvITs, they should put in at least 80 per cent of the value of the assets in completed and revenue generating infrastructure assets should, among others, raise funds only through public issue of units. In this case, minimum subscription from any investor in initial and follow-on offer would have to be Rs 10 lakh. 8. A investment manager of InvIT can apply for delisting if among others, there are no projects or assets remaining under the trust for more than six months and it does not propose to invest in any project in future. 9. For trusts, that propose to invest over ten per cent of its asset value in under construction projects, funds can be raised only through private placement to Qualified Institutional Buyers and body corporate. In such cases the trusts can raise minimum investment of Rs 1 crore from any investor and "from not less than five and not more than one thousand investors".
10. REIT and InvIT  have to get listed in three years time, failing which they would have to surrender their registration certificates. 11. A maximum of three sponsors can be there. In the case of real estate investment trust (REIT) , the collective net worth of sponsors should be at least Rs 100 crore and on individual basis, the same has been fixed at minimum level of Rs 20 crore. A manager for REIT should have a minimum net worth of Rs 10 crore in case of a "body corporate or a company" while the net tangible assets of value should not less than Rs 10 crore where the manager is a LLP (Limited Liability Partnership).For InvIT, each sponsor should have a net worth of not less than Rs 100 crore if it is a body corporate or a company and the criteria is same for net tangible assets pertaining to LLP. An investment manager for InvIT should have a net worth of at least Rs 10 crore and is required to have an "office in India from where the operations pertaining to the InvIT is proposed to be conducted". All this and more is with the intention of bringing in a lot of investment in real estate through these trusts and some of the above action items are in the same direction. What's your take?
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