The Securities and Exchange Board of India (SEBI) has recently made amendments to the regulations pertaining to small and medium Real Estate Investment Trusts (REITs) under the SEBI Real Estate Investment Trusts Amendment Regulations, 2024. These amendments, which have been made to the 2014 regulations, will come into effect upon their publication in the official gazette. A Real Estate Investment Trust refers to a person or entity that pools a minimum of Rs 50 crore and issues units to at least 200 investors with the aim of acquiring and managing real estate assets or properties. The income generated from these assets is distributed to the investors, who do not have control over the day-to-day operations of the properties.
Requirements for SM REITs
To obtain a certificate of registration as a small and medium REIT (SM REIT), an application must be submitted by the investment manager on behalf of the trust. The investment manager needs to have a net worth of at least Rs 20 crore and a minimum of two years’ experience in the real estate industry or real estate fund management. Additionally, at least half of the directors of the investment manager should be independent and not associated with the manager or investment manager of another REIT or SM REIT. Furthermore, the trustee must not be an associate of the investment manager. When preparing the draft scheme offer document, the investment manager will identify the real estate assets or properties that the SM REIT plans to acquire. The minimum price of each unit of the SM REIT scheme will be Rs 10 lakh. To safeguard the interests of investors, the SEBI board can appoint a person to supervise the records and documents of the SM REIT.
Operational and Investment Conditions for SM REITs
Each scheme of the SM REIT must be given a separate name that does not mislead or promise guaranteed returns to investors. The asset size proposed to be acquired in a scheme of the SM REIT must be a minimum of Rs 50 crore and cannot exceed Rs 500 crore. Furthermore, the scheme must have at least 200 unitholders, excluding the investment manager, its related parties, and the associates of the SM REIT. At least 25% of the total outstanding units of each SM REIT scheme should be offered and allotted to the public. The SM REITs are prohibited from entering into transactions with related parties, including those related to facility management and property management. The special purpose vehicle (SPV) invested by the SM REIT must be the direct and sole owner of the acquired or proposed assets. Additionally, the SM REIT must invest at least 95% of the value of its assets in completed and revenue-generating properties without investing in under-construction or non-revenue generating real estate assets. The SPV may raise capital through equity investment and borrowing from the SM REIT scheme.
Conclusion
SEBI’s amendments to the regulations for small and medium REITs aim to streamline and strengthen the functioning of these investment vehicles in the real estate sector. By imposing certain requirements and conditions, SEBI seeks to protect the interests of investors who participate in SM REIT schemes. The amendments also highlight the importance of ensuring transparency and prudent investment practices within the industry.
