Regulatory Alert: Amendment to SEBI (Real Estate Investment Trusts) Regulations, 2014

• The concept of “De-classification of the status of a sponsor(s)” of a REITs has been introduced.
• Listed REITs can apply for de-classification of the status of a sponsor(s) upon fulfilment of certain conditions:
  • Units of REITs must be listed for at least 3 years
  • Unit holding of sponsor and its associates taken together must not exceed 10% of the outstanding units of the REIT
  • The REIT manager must not be controlled by such sponsor or its associates
  • sponsor or its associate of REIT must not be fugitive economic offender;
  • Prior approval of unit holders must be taken in accordance with given rules

• A person along with persons acting in concert with him in REIT cannot acquire units which, taken together with the existing holding, crosses 25% of the value of outstanding REIT (except sponsor(s), its related parties, and its associates). In the event where it crosses 25%, approval of 75% of the unit holders by value excluding the value of units held by related parties is obtained.
• In case of non-receipt of approval, the person acquiring the units must provide an exit option to the dissenting unit holders in the manner prescribed.

Strategic Investor

• The meaning of Strategic Investor was limited to include:
  • Infrastructure finance company
  • Scheduled Commercial Bank
  • Multilateral / bilateral development financial institution
  • Systemically important Non-Banking Financial Company
  • Foreign Portfolio Investor
  • Insurance company (NEW INSERTION IN THE EXISTING REGULATIONS)
  • Mutual Fund over (NEW INSERTION IN THE EXISTING REGULATIONS)

Minimum holding limits of Units in REIT

• The sponsor(s) and sponsor group(s) together must hold at least 15% of the units at all the times; and
• Each sponsor individually must hold at least 5% of the units at all the times.

Selling  of units below minimum holding limits by sponsor(s) / sponsor group(s) or re-designated sponsor(s) / sponsor group(s) or

• Selling of units below the minimum holding limits mentioned above are to be subjected to certain conditions:
  • Lock-in period of 3 years from the date of listing must have been completed
  • New person must be appointed as ‘re-designated’ sponsor in place of existing sponsor
  • Such new ‘re-designated’ sponsor must obtain prior approval from unit holders or must provide them with the exit option

• A REIT must make an initial offer of its units by way of public issue only. Such issue must comply with below mentioned conditions:
  • REIT must be registered
  • The value of REIT must be at least INR 500 Crores
  • There must be at least 200 unitholders
  • Offer size must be at least INR 250 Crores
  • Maximum subscription from any investor (other than sponsor(s), its related parties, and associates) shall not cross 25% of the total unit capital (NEW INSERTION IN THE EXISTING REGULATIONS)

• For the matters listed below, approval from unitholders are required where votes cast in favour must be more than the votes cast against:
  • Matter of Investment conditions and distribution policy, related party transactions and valuation of assets
  • Transaction, other than borrowing, where value is more than 25% of the REIT assets
  • Borrowing more than specified limit
  • Any issue of units after initial offer by the REIT
  • Increasing period for compliance with investment conditions to 1 year
  • Any issue in ordinary course of business and which could be material in the opinion of sponsor or trustee, or manager might believe requires approval of unitholders
  • Any issue as required by SEBI or stock exchange
  • De-classification of status of sponsor (NEW INSERTION IN THE EXISTING REGULATIONS)

• For the matters listed below, approval from unitholders is required where votes cast in favour must be at least one and half times the votes cast against:
  • Change / removal of removal of the manager
  • Any material change in investment strategy or any change in the management fees of the REIT
  • Proposal to seek delisting
  • Value of the units held by a person along with its associates (other than sponsors) exceeds 50% of the value of outstanding REIT units; Further, the provision of providing exit option to unitholders in case of non-receipt of approval in such case has also been removed (REMOVAL FROM THE EXISTING REGULATIONS)
  • Any issue in ordinary course of business and which sponsor or trustee or manager might believe
  • Any issue as required by SEBI or stock exchange
  • Any issue taken up on request of unit holders

• In case of any change in sponsor/re-designated sponsor or change in control of sponsor/re-designated sponsor,
  • The prior approval from unitholders is required to be taken in the manner prescribed and
  • In case non-receipt of approval, the proposed sponsor/re-designated or the existing sponsor/re-designated sponsor must provide an exit option to dissenting unit holders by buying their units

• In case of any change in sponsor/inducted sponsor or change in control of sponsor/ inducted sponsor,
  • The prior approval from unitholders is required to be taken in the manner prescribed and
  • In case non-receipt of approval, the proposed sponsor/ inducted sponsor or the existing sponsor/ inducted sponsor, as the case may be, must provide an exit option to dissenting unit holders by buying their units in the manner prescribed by the Board (NEW INSERTION).