Infrastructure Investment Trusts/ Real Estate Investment Trusts

Revised pricing methodology for privately placed infrastructure investment trusts

SEBI, vide circular dated February 8, 2023, revised the pricing methodology for institutional placement by privately placed Infrastructure Investment Trusts ("InvITs"). The floor price for institutional placement for privately placed InvITs will be the new asset value per unit of such InvIT. The institutional placement by public InvIT will continue to be at a price not less than the average of the weekly high and low of the closing prices of the units of the same class quoted on the stock exchange during the 2 (two) weeks preceding the relevant date.

Subordinate units to be issued by privately placed InvITs upon acquisition of an infrastructure project

SEBI, vide notification dated May 27, 2024, issued the SEBI (InvIT) (Amendment) Regulations, 2024, amending SEBI (InvIT) Regulations, 2014 ("2014 Principal Regulations"). Some of the key amendments are as follows:

1. a new term "subordinate unit" is defined to mean an instrument issued by an InvIT which can be reclassified as an ordinary unit, where ordinary unit hods the same meaning as the term unit in the 2014 Principal Regulations;
2. under the mandatory requirement for eligibility criteria of registration of an InvIT, there is only 1 (one) class of units, and all units carry equal voting rights and distribution rights. The unitholder(s) holding not less than 10% of the total outstanding units of the InvIT, are entitled to nominate 1 (one) director on the board of directors of the investment manager and are required to comply with stewardship code specified in Schedule VIII of the 2014 Principal Regulations;
3. under the right and responsibility of the sponsor and sponsor group(s), for the purpose of calculating the minimum unitholding requirements, subordinate units cannot be considered in computing total outstanding units of the InvIT and are not eligible for meeting the minimum unitholding requirement;
4. no InvIT can raise funds through public issue if any subordinate units are issued and are outstanding;
5. a new chapter (Chapter IVA) is inserted regarding the framework for issuance of subordinate units; and
6. the investment manager must disclose the unitholding pattern for ordinary units and subordinate units separately as specified by the SEBI.

Guidelines for small and medium real estate investment trusts

SEBI, vide notification dated March 8, 2024, introduced the SEBI (Real Estate Investment Trusts) (Amendment) Regulations, 2024 ("Amended REIT Regulations"), outlining provisions for Small and Medium ("SM") Real Estate Investment Trusts ("REITs"). The key provisions are as follows:

1. Amended definition of REIT: The definition of 'REIT' is substituted to mean 'a person that pools INR 50,00,00,000 (Indian Rupees fifty crore) or more for the purpose of issuing units to at least 200 (two hundred) investors so as to acquire and manage real estate asset(s) or property(ies), that would entitle such investors to receive the income generated therefrom without giving them the dayto-day control over the management and operation of such real estate asset(s) or property(ies)';
2. An explanation is added to the definition of 'REIT' stating that a REIT will include a SM REIT. Further, it is clarified that, any company which acquires and manages real estate asset(s) or property(ies) and offers or issues securities to the investors, will not be construed as a REIT;
3. Eligibility criteria for formation of SM REITs: The Amended REIT Regulations prescribe certain eligibility criteria for the formation of SM REITs. Some of the key eligibility criteria are: (a) the applicant for registration of a SM REIT must be the investment manager on behalf of the REIT; (b) separate persons must be designated as investment manager and trustee of the SM REIT, and they should not be associated with each other; (c) the investment manager must (i) be clearly identified in the application for grant of registration and offer document; (ii) have a net worth of at least INR 20,00,00,000 (Indian Rupees twenty crore), out of which at least INR 10,00,00,000 (Indian Rupees ten crore) must be in the form of positive liquid net worth; (iii) have experience of at least 2 (two) years in the real estate industry or real estate fund management. Alternatively, the investment manager can employ at least 2 (two) key managerial personnel, each possessing at least 5 (five) years' experience in real estate industry or real estate fund management; (iv) clearly describe the proposed activities of SM REIT at the time of making the application for registration; (d) the SM REIT and the parties to the SM REIT are fit and proper persons in terms of the SEBI (Intermediary) Regulations, 2008; and (e) the rights of unit holders are pro rata and pari passu and no unit holder should enjoy superior voting rights;
4. Conditions pertaining to initial offer of scheme by SM REIT: The SM REIT must make an initial offer of a scheme within 3 (three) years from the date of registration. The Amended REIT Regulations also prescribe the conditions to be complied with for the initial offer of a scheme, such as: (a) the investment manager must identify the assets proposed to be acquired or disclose relevant details such as features of the real estate assets in the draft offer document; (b) the minimum price of each unit of the SM REIT must be INR 10,00,000 (Indian Rupees ten lakh) or such amount as may be prescribed by SEBI; (c) the value of the real estate assets proposed to be acquired in each scheme should be at least INR 50,00,00,000 (Indian Rupees fifty crore); (d) the investment manager must file the draft scheme with SEBI through a merchant banker; (e) the draft scheme filed with SEBI will be made public for inviting comments by hosting it on the website of SEBI, designated stock exchanges and merchant bankers associated with the issue, for not less than 21 (twenty-one) days.
5. Investment Conditions: The SM REIT's scheme is mandated to invest at least 95% of the value of its assets in completed and revenue-generating properties. It is prohibited from investing in underconstruction or non-revenue-generating real estate assets. However, up to 5% in value of the scheme's assets can be invested in unencumbered liquid assets such as investment in MF, fixed deposit;
6. Mode of fund raising: The SM REIT scheme may raise funds from any investor whether Indian or foreign by the way of issuance of units. However, the investment by foreign investors is subject to the guidelines of the RBI and the Government of India ("GoI");
7. Minimum public unitholding and delisting: The minimum offer and allotment to the public in each scheme of the SM REIT must be at least 25% of the total outstanding units of such scheme. The minimum public holding for the units of each scheme of SM REIT must be satisfied failing which action may be taken by SEBI and the designated stock exchange including delisting of units.

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