SEBI (Real Estate Investment Trusts) Regulations, 2014

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Key terms in this chapter

Additional information and event-based disclosures

REITs must disclose statements of the net distributable cash flows of the REIT, its holdco and SPVs; the fees paid to the manager; and the statement of deviations or variations, submitted to the stock exchanges on a quarterly basis where the units are listed. REITs must register on the SCORES platform of SEBI, and investor grievances must be addressed within twenty-one days of receipt of the complaint. Event-based disclosures include the acquisition or disposal of any properties exceeding five per cent of the value of the REIT assets; additional borrowing at the level of the holdco, SPV or REIT exceeding five per cent of the value of the REIT assets; any additional issue of units; details of any credit rating obtained and any change in it; any issue requiring approval of the unit holders; any legal proceedings which may have a significant bearing on the functioning of the REIT; notices and results of meetings of unit holders; any instance of non-compliance with the regulations; and any material issue which in the opinion of the manager or trustee needs to be disclosed to the unit holders.

Board composition and nomination rights

The REIT board should have a minimum of six directors with one woman independent director, and the quorum for a board meeting is one-third of its total strength or three directors, whichever is higher, including at least one independent director. The minimum information to be placed before the board is specified in Part A of Schedule VIII; the board must review compliance reports every quarter pertaining to all laws applicable to the REIT and the steps taken to rectify instances of non-compliance; the chief executive officer, chief financial officer and compliance officer must provide the compliance certificate including the items specified in Part B of Schedule VIII; and the board of directors of the manager must specify the recommendation of the manager in the notice to the unit holders. Unit holders holding ten per cent or more of the total outstanding units, individually or collectively, have a right but not an obligation to appoint a nominee director, being a non-independent director, on the board of the manager; where the unitholding of more than one unit holder is aggregated the notice must identify up to two unit holders as authorised representatives. A shareholder or lender of the manager or of the REIT, its holdcos or SPVs, being an entity, does not have this right even if it holds more than ten per cent of the units.

Change of manager and further duties of the trustee

On any change in the manager due to removal or otherwise, the trustee must obtain approval from the unit holders and approval from SEBI prior to the change; must appoint the new manager within three months from the date of termination of the earlier investment management agreement; the previous manager continues to act at the discretion of the trustee until the new manager is appointed; the trustee must ensure that the new manager stands substituted as a party in all documents to which the earlier manager was a party; and must ensure that the earlier manager continues to be liable for all its acts of omission and commission notwithstanding the termination. The trustee must also obtain prior approval from the unit holders and from SEBI in case of a change in control of the manager. The trustee must not invest in units of the REIT in which it is designated as trustee; must ensure that the activity of the REIT is operated in accordance with the trust deed, the regulations and the offer documents; must provide SEBI and the designated stock exchange with such information as they seek pertaining to the activity of the REIT; and must immediately inform SEBI if any act detrimental to the interest of unit holders is noted.

Contents of the offer document and advertisements

The offer document must include all information specified in Schedule III, broadly the basic details of the REIT such as registered office and registration number; details of the sponsor, manager, trustee and other parties; the background of the REIT including its structure, details of arrangements pertaining to underlying REIT assets entered into prior to the issue and credit ratings; the terms of issue including number of units, price, distribution policy, listing and commitment from strategic investors; a description of the assets under the REIT; business details including investment strategy, use of proceeds and leverage; related party transactions; valuation methodology; audited financial statements of the REIT, manager and sponsor for the previous three years; sector or sub-sector specific information; the rights of unit holders; title and approval disclosures, litigation and regulatory actions; risk factors; and brief details on taxation and regulatory aspects. The offer document must not be misleading or contain untrue statements or mis-statements and must not provide for any guaranteed returns to investors. Advertisements must not be misleading or contain anything extraneous to the contents of the offer document, and any positive highlights must also contain risk factors with equal importance. The draft offer document and offer document must be accompanied by declarations signed by the board of directors of the manager and sponsor, a full valuation report, a due diligence certificate and in-principle approval from the exchanges.

Continual disclosures and financial information

The manager of every REIT must submit an annual report to all unit holders, electronically or in physical copies, and to the designated stock exchanges within three months from the end of the financial year; and a half-yearly report to all unit holders with respect to the activities of the REIT within forty-five days from the end of the half year ending on 30 September. The unit holding pattern must be disclosed for each class of unit holders one day prior to the listing of units on the stock exchanges, within twenty-one days from the end of each quarter, and within ten days of any capital restructuring of the REIT resulting in a change exceeding two per cent of the total outstanding units. A REIT must submit half yearly audited or unaudited results within forty-five days from the end of the half year, the unaudited results being accompanied by a limited review report of the auditors, and audited annual financial information within sixty days of the end of the financial year, to the stock exchanges. Financial information must be disclosed both on a standalone and a consolidated basis, and the financial information of the manager must be disclosed along with that of the REIT where the net worth of the manager is materially eroded. The board of directors or governing board of the manager must approve the financial statements, which must be signed by two designated personnel of the manager and the chairperson or managing director or partner or whole-time director or partner, or in the absence of all of them by any other director or partner of the manager.

Debt securities and borrowings

REITs follow the provisions of the SEBI (Issue and Listing of Non-Convertible Securities) Regulations, 2021 for the issue of debt securities, and the provisions of the Companies Act, 2013 do not apply to REITs for such issuance. For the issuance of debt securities a REIT must appoint one or more debenture trustees registered under the SEBI (Debenture Trustees) Regulations, 1993, but a trustee to the REIT is not eligible to be appointed as debenture trustee to such an issue. Any secured debt securities issued must be secured by the creation of a charge on the assets of the REIT, holdco or SPV having a value sufficient for the repayment of the amount of the debt securities and interest. The aggregate consolidated borrowings cannot exceed forty-nine per cent of the value of the REIT assets, and where borrowings are between twenty-five and forty-nine per cent of that value a credit rating and the approval of the unit holders are required. A REIT having a net worth of Rs 100 crore or higher is eligible to issue commercial papers in terms of the Reserve Bank Commercial Paper Directions, 2017 and the SEBI (Issue and Listing of Non-Convertible Securities) Regulations, 2021, and the issuance of listed commercial papers must be within the overall debt limit permitted under the REIT Regulations.

Definition and structure of a REIT

A REIT or real estate investment trust means a person that pools rupees fifty crore or more for the purpose of issuing units to at least two hundred investors so as to acquire and manage real estate assets or properties that would entitle such investors to receive the income generated therefrom without giving them day-to-day control over the management and operation of those assets or properties; a REIT includes a small and medium REIT under the Regulations. The structure is similar to that of a mutual fund, except that REITs invest only in real estate assets: the trust is set up by the sponsor, the ownership of the property vests in the trustee, and the beneficiaries of the trust are the unit holders. With effect from 1 January 2026 any investment made by mutual funds and specialised investment funds in REITs will be treated as an investment in equity-related instruments, while investments held by debt schemes of mutual funds and investment strategies of SIFs as on 31 December 2025 will be grandfathered, asset management companies being encouraged to divest REIT holdings from debt scheme portfolios gradually having regard to market conditions, liquidity and investors' best interests.

Fast track rights issues and preferential offers

A REIT meeting certain parameters may file an offer document for a rights issue under the fast track route with the stock exchanges, with a copy filed with SEBI. The parameters include that the units have been listed on a stock exchange for at least three years immediately preceding the record date; all units are held in dematerialised form on the record date; the average market capitalisation of public unitholding is at least Rs 250 crore; the REIT is compliant with the listing and disclosure requirements; it has redressed at least ninety-five per cent of the complaints received from investors till the end of the quarter immediately preceding the month of the record date; no show-cause notice issued by SEBI is pending against the REIT, the parties to it or their promoters, partners or directors as on the record date; none of them has settled any alleged violation of securities laws with SEBI during the three years immediately preceding the record date; the units have not been suspended from trading as a disciplinary measure during the last three years; no regulatory action has been imposed on the REIT in the three years preceding the year in which the rights issue is proposed; there is no conflict of interest between the lead merchant bankers and the REIT or the parties to it; the sponsors and sponsor group mandatorily subscribe to their rights entitlement and do not renounce their rights except within the respective sponsor group or for the purpose of complying with minimum public shareholding norms; and there are no audit qualifications on the audited accounts for the financial years disclosed in the letter of offer. A listed REIT may make a preferential offer only to institutional investors as defined under the Regulations, and the trading lot is one unit.

Holdco, SPV and property classifications

A holdco or holding company means a company or limited liability partnership in which the REIT holds or proposes to hold not less than fifty per cent of the equity share capital or interest and which in turn has made investments in other SPVs which ultimately hold the properties, and which is not engaged in any activity other than holding the underlying SPVs, holding real estate or properties and activities pertaining and incidental to such holdings. An SPV or special purpose vehicle means any company or limited liability partnership in which either the REIT or the holdco holds or proposes to hold not less than fifty per cent of the equity share capital or interest; which holds not less than eighty per cent of its assets directly in properties and does not invest in other SPVs; and which is not engaged in any activity other than holding and developing property and activities incidental to such holding or development. A completed property means property for which an occupancy certificate has been received from the relevant authority; an under-construction property means a property of which construction is not complete and for which the occupancy certificate has not been received; and a rent generating property means property which has been leased or rented out in accordance with an agreement entered into for the purpose.

Initial public offer requirements

REITs may raise funds only through an initial public offer, and any subsequent issue of units after the initial public offer must be through a follow-on offer, preferential allotment, qualified institutional placement, rights issue, bonus issue, offer for sale or any other mechanism specified by SEBI. To make an initial offer the REIT must be registered with SEBI; the value of the REIT assets must not be less than Rs 500 crore, being the value of the specific portion of the holding of the REIT in the underlying assets or SPVs; the minimum number of unit holders other than the sponsors, their related parties and associates forming part of the public must be not less than two hundred; the maximum subscription from any investor other than the sponsors, their related parties and associates must not be more than twenty-five per cent of the total unit capital; and the offer size must not be less than Rs 250 crore. The requirement of value must be fulfilled before filing the offer document with SEBI, with an undertaking to that effect and adequate disclosures in the offer document or placement memorandum.

Inspection by SEBI

SEBI has powers to conduct inspection of the activities of REITs. The outcome or final decision of the inspection may require the REIT to delist its units from the stock exchanges and surrender its certificate of registration; to wind up; to sell its assets; to take appropriate action against the parties to the REIT; or may involve prohibiting the REIT or the parties to it from operating in the capital market or from accessing the capital market for a specified period.

Investment conditions

Investment by a REIT may only be in a holding company, SPVs, properties, securities or transferable development rights in India. A REIT must not invest in vacant land or agricultural land or in mortgages other than mortgage backed securities, save that this does not apply to any land which is contiguous with and an extension of an existing project being implemented in stages. Where the REIT invests in properties through SPVs, no other shareholder or partner of the SPV may exercise any rights that prevent the REIT from complying with the regulations, and an agreement must have been entered into with such shareholders or partners to that effect prior to investment in the SPV; where the SPV is a company or limited liability partnership the manager, in consultation with the trustee, must appoint at least such number of nominees on the board of directors or governing board of the SPV as are in proportion to the shareholding or holding interest of the REIT in it; and the manager must ensure that in every meeting including the annual general meeting of the SPV the voting of the REIT is exercised. The shareholders' agreement or partnership agreement must provide an appropriate mechanism for the resolution of disputes between the REIT and the other shareholders or partners in the holdco or SPV, and the provisions of the regulations prevail in case of inconsistency.

Listing and delisting

It is mandatory for the units of all REITs to be listed on a recognised stock exchange having nationwide trading terminals, and all units issued by REITs must be in dematerialised form. After listing the REIT may redeem units only by way of a buyback or at the time of delisting; the units must remain listed on the designated stock exchanges unless delisted; and the REIT must maintain the minimum public holding limit, failing which the units may be delisted by SEBI. The manager must apply for delisting of units to SEBI and the stock exchanges where the public holding falls below the specified limit; where no projects or assets remain under the REIT for a period exceeding six months and it does not propose to invest in any project in future; where the trustee and manager request such delisting and that request has been approved by unit holders; or where the unit holders apply for such delisting. The exchanges or SEBI may initiate delisting for violation of the listing agreement, the regulations or the Act, or if it is in the interest of unit holders. The procedure for delisting, including the provision of an exit option to unit holders, follows the listing agreement and the procedure specified by SEBI and the designated exchanges. On delisting the REIT must surrender its certificate of registration to SEBI, must no longer undertake the activity of a REIT, and the REIT and the parties to it continue to be liable for all their acts of omission and commission.

Listing, refunds and failure to raise funds

Units must mandatorily be listed on the stock exchange within six working days of the close of the issue in the case of publicly offered units. Subscription money must be refunded to all applicants if at least ninety per cent of the fresh issue size is not received as specified in the offer document, or if the number of subscribers to the initial public offer forming part of the public is less than two hundred. On oversubscription the money that may be retained, a maximum of twenty-five per cent of the issue size, must be mentioned in the offer document, the balance must be refunded to applicants to the extent of the oversubscription, adequate disclosures for utilisation of the excess money must be made in the offer document, and that money cannot be used for general purposes. REITs must pay interest at fifteen per cent per annum from the closure of the issue where the units are not listed or the money not refunded within the specified time. Units may also be offered for sale to the public. The amount earmarked for general purposes in the objects of the issue must not exceed ten per cent of the amount raised by the REIT by the issuance of units. Failure to do an initial public offer within three years of registration, which may be extended by another year by SEBI, entails surrender of the registration certificate.

Maintenance of records and the investor charter

The manager must maintain in physical or electronic form, for a period of not less than seven years, records of the decisions of the manager with respect to investments or divestments and supporting documents; all investments or divestments of the REIT and supporting documents including the rationale; agreements entered into by or on behalf of the REIT; documents relating to the appointment of the trustee, registrar and others; insurance policies for real estate assets; the investment management agreement; all documents relating to the issue and listing of units; distributions declared and made to unit holders; disclosures and periodical reporting to the trustee, SEBI, unit holders and the designated stock exchanges; valuation reports including the methodology of valuation; books of accounts and financial statements; audit reports; unit holders' grievances and actions taken including correspondence with the unit holder and SEBI; any other material documents; documents pertaining to registration; and notices and agenda sent to unit holders. All registered merchant bankers are advised to disclose on their websites the investor charter for public offers by REITs, and investor complaints and their redressal, at the latest by the seventh of the succeeding month. SEBI has also introduced an investor charter for REITs to enhance financial consumer protection alongside financial inclusion and literacy, in view of developments including the online dispute resolution platform and SCORES 2.0. After listing, the manager must comply with the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015.

Meetings, vigil mechanism, compliance reports and website

An annual meeting of all unit holders must be held not less than once a year within one hundred and twenty days from the end of the financial year, and the time between two meetings must not exceed fifteen months; the meeting may be held through audio-visual means, and notice to unit holders may be given through emails registered with the REIT or with the depositories. The manager must formulate a vigil mechanism, including a whistle blower policy, for directors and employees to report genuine concerns. A secretarial compliance report given by a practising company secretary must be filed with the stock exchanges within sixty days from the end of each financial year and annexed to the annual report, and a quarterly compliance report on corporate governance must be filed with the exchanges within twenty-one days from the end of the quarter. REITs must maintain a functional website containing details of the business, financial information, an email id for investor grievances, contact details of designated officials, notices, call letters and circulars, all reports including compliance reports filed with the stock exchanges, and all intimations made by the REIT to the stock exchanges.

Minimum public unitholding and subscription

The minimum offer and allotment to the public must be at least twenty-five per cent of the total outstanding units of the REIT where the post-issue capital calculated at offer price is less than Rs 1,600 crore; of the value of at least Rs 400 crore where the post-issue capital is equal to or more than Rs 1,600 crore and less than Rs 4,000 crore; and at least ten per cent of the total outstanding units where the post-issue capital is equal to or more than Rs 4,000 crore. Units offered to the sponsor or the manager or their related parties or associates are not counted towards units offered to the public. A listed REIT whose public holding is below twenty-five per cent must increase it to at least twenty-five per cent within three years from the date of listing pursuant to the initial offer. The minimum subscription amount from any investor in an initial and follow-on offer must be within the range of Rs 10,000 to Rs 15,000, and the maximum subscription from any investor other than the sponsors, their related parties and associates must not be more than twenty-five per cent of the total unit capital.

Obligations of the auditor

The auditor must conduct the audit of the accounts of the REIT and draft the audit report; ensure that the accounts and financial statements give a true and fair view of the state of affairs of the REIT; has a right of access at all times to the books of accounts and vouchers pertaining to the activities of the REIT; has a right to require such information and explanation pertaining to those activities as he considers necessary for the performance of his duties; and must undertake a limited review of the audit of all entities or companies whose accounts are to be consolidated with the accounts of the REIT as per the applicable Indian Accounting Standards.

Obligations of the sponsor and the lock-in ladder

The sponsor and sponsor group set up the REIT and appoint its trustees, and must transfer or undertake to transfer to the REIT their entire shareholding, interest and rights in the holdco or SPV, or ownership of the real estate assets, prior to the allotment of units to applicants. They must collectively hold not less than fifteen per cent of the total units of the REIT for three years from the date of listing of units in the initial offer, any holding exceeding fifteen per cent being held for not less than one year from that date; five per cent of the total units from the beginning of the fourth year until the end of the fifth year; three per cent from the beginning of the sixth year until the end of the tenth year; two per cent from the beginning of the eleventh year until the end of the twentieth year; and one per cent after completion of the twentieth year. The maximum value of the units required to be held for compliance with the requirements after the first three years must not exceed five hundred crore rupees, or such other value as SEBI may decide, based on the latest available net asset value of the REIT. Those units are locked in and must not be encumbered. The sponsors and sponsor groups are responsible for all acts, omissions, representations and covenants of the REIT and for the sale or transfer of assets, holdco or SPV to the REIT.

Obligations of the valuer

The valuer must at all times ensure that the valuation of the REIT assets is impartial, true and fair and in accordance with the regulations; have adequate and robust internal controls to ensure the integrity of its valuation reports; have sufficient key personnel with adequate experience and qualification; and have sufficient financial resources to conduct its business effectively and meet its liabilities. Neither the valuer nor its employees involved in valuing the assets may invest in units of the REIT or in the assets being valued, or sell assets or units of REITs held prior to appointment, until designated as valuer and for not less than six months after ceasing to be valuer. The valuer must conduct valuation with transparency and fairness, render high standards of service, exercise due diligence and proper care, exercise independent professional judgment, act with independence, objectivity and impartiality, and discharge its duties efficiently and competently. It must not accept remuneration in any form for valuing the REIT assets from any person other than the REIT or its authorised representative; must, before accepting an assignment from a related party, disclose to the REIT any direct or indirect consideration it may have; must disclose any pending business transactions, contracts under negotiation and other arrangements with the manager or any other contracting party and any other factor that may interfere with its independence; must not make false, misleading or exaggerated claims to secure assignments; must not provide misleading valuation by incorrect information or by withholding relevant information; and must not accept an assignment which interferes with its ability to do a fair valuation.

Policy, process and review of nominee directors

The board of directors of the manager must formulate and adopt a policy for the selection of nominee directors containing the qualifications, criteria for appointment, evaluation parameters of individuals, remuneration and sitting fees, the process of removal or resignation of unitholder nominee directors and the role of the nomination and remuneration committee, and must make it available on the website of the REIT. The eligibility of a unitholder nominee director is confirmed by the manager based on the evaluation done by the nomination and remuneration committee or the board in line with the policy, and the appointment must be made within thirty days of that confirmation. Unitholder nominee directors must recuse themselves from voting on any transaction where the director, the director's associates, the eligible unit holders who nominated him or an associate of theirs is a party. The manager must send written intimation to all unit holders at their registered email addresses requesting them to inform it if any eligible unit holders wish to exercise the right to nominate a director, and eligible unit holders wishing to exercise the right must inform the manager by written notice within ten days of receipt of that intimation. Within ten days from the end of each calendar month the manager must review whether the eligible unit holders who exercised the board nomination right continue to hold the required number of units and must submit such report to the trustee. The trust deed and the investment management agreement must provide for the nomination and appointment of unitholder nominee directors.

Purpose of the REIT Regulations

India's economic growth has depended on infrastructure, including the real estate sector, and the pace at which demand for commercial space and buildings is increasing witnesses robust growth in that sector. To facilitate developers in raising the large sums required for such projects, and to provide an alternative avenue of investment for investors, SEBI framed the SEBI (Real Estate Investment Trusts) Regulations, 2014. These Regulations enable fund raising through an initial public offer, private placement of units, and borrowings through the issue of commercial papers.

Real estate, real estate assets and REIT assets

Real estate or property means land and any permanently attached improvements to it, whether leasehold or freehold, and includes buildings, sheds, garages, fences, fittings, fixtures, warehouses, car parks and other assets incidental to the ownership of real estate, but does not include mortgage. Any asset falling under the purview of infrastructure as defined by the Ministry of Finance notification of 7 October 2013 is not considered real estate or property for the purposes of the Regulations, save that hotels, hospitals and convention centres forming part of composite real estate projects, whether rent generating or income generating, and common infrastructure for composite real estate projects, industrial parks and special economic zones, are considered real estate or property. Real estate assets means properties held by a REIT, on a freehold or leasehold basis, whether directly or through a holdco or a special purpose vehicle; and REIT assets means real estate assets and any other assets held by the REIT on a freehold or leasehold basis, whether directly or through a holdco or SPV.

Registration and conditions of certificate

An application for a certificate of registration as a REIT is made by the sponsor on behalf of the trust in the form specified in Schedule I, accompanied by a non-refundable application fee as specified in Schedule II. The instrument of trust must be a deed duly registered in India under the Registration Act, 1908, and the trust deed must have as its main objective the undertaking of the activity of a REIT in accordance with the regulations, including the responsibilities of the trustee. The proposed activities must be clearly described; the parties to the REIT must be fit and proper persons based on the criteria in Schedule II of the SEBI (Intermediaries) Regulations, 2008; details of any previous application rejected by SEBI must be provided or an undertaking given; and details of any disciplinary action taken by SEBI or any other regulatory authority against the REIT, the parties to it or their directors or governing board members must be provided or an undertaking given. SEBI, on being satisfied that the trust fulfils the requirements and after payment of the requisite fees, grants a certificate of registration, which may be granted with such conditions as SEBI deems appropriate. The certificate is subject to the conditions that the REIT abides by the SEBI Act and the REIT Regulations; forthwith informs SEBI in writing if any information previously submitted is found to be false or misleading in any material particular or if there is any material change; that the REIT and the parties to it satisfy the eligibility conditions at all times; and that they comply at all times with the code of conduct in Schedule VI. SEBI has introduced an online system for applications for registration, reporting and filings.

Related party transactions and dispute resolution

All related party transactions must be on an arm's length basis in accordance with the relevant accounting standards and must be disclosed in the offer document and to the designated stock exchanges and unit holders periodically. After listing, the prior approval of unit holders is necessary if the total value of all related party transactions in a financial year pertaining to the acquisition or sale of properties, whether directly or through holdcos or SPVs, or investments into securities, exceeds ten per cent of the value of the REIT; or if the value of funds borrowed from related parties in a financial year exceeds ten per cent of the total consolidated borrowings of the REIT, the holdco and the SPVs. Disputes between investors and the manager are subject to a resolution mechanism that includes mediation, conciliation or arbitration in accordance with the procedure specified by SEBI, and no loss, damage or expense incurred by the manager or its officers, including in relation to the resolution of claims or disputes of investors, may be met out of the trust property.

Related party, valuer and value of REIT assets

A related party carries the same meaning as under the Companies Act, 2013 or the applicable accounting standards and also includes the parties to the REIT and the promoters, directors and partners of those parties. A valuer means any person who is a registered valuer under section 247 of the Companies Act, 2013 or as specified by SEBI from time to time. The value of the REIT assets means the aggregate value of all the assets under the REIT as assessed by the valuer.

Reporting by the manager to the trustee and the exchanges

Within thirty days of the end of the quarter the manager must submit to the trustee quarterly reports on the activities of the REIT, including receipts for all funds received and payments made, the position on compliance with the regulations, a performance report and the status of development of under-construction properties; valuation reports as required within fifteen days of receipt from the valuer; decisions to acquire, sell or develop any property or expand existing completed properties along with the rationale; details of any action requiring approval from unit holders; and details of any other material fact including a change in its directors, a change in its shareholding, or any legal proceedings that may have a significant bearing on the activity of the REIT, within seven working days of such action. The manager must co-ordinate with the trustee with respect to the operations of the REIT; must ensure that the computation and declaration of the net asset value based on the valuer's valuation is disclosed to the stock exchanges not later than fifteen days from the date of valuation, such computation being done and declared not less than once every six months; must ensure that the audit of the accounts by the auditor is done not less than once a year and the report submitted to the exchanges within sixty days of the end of the financial year ending 31 March; and must place before its board or governing board a report on the activity and performance of the REIT at least once every three months.

Responsibilities of the manager

The manager makes the investment decisions with respect to the underlying assets of the REIT including further investment or divestment; ensures that the real estate assets of the REIT, holdco or SPV have proper legal and marketable titles and that all material contracts including rental or lease agreements entered into on behalf of the REIT, holdco or SPV are legal, valid, binding and enforceable; ensures that investments accord with the investment conditions and the investment strategy; undertakes management of the REIT assets including lease management, maintenance, regular structural audits and safety audits, either directly or through the appointment and supervision of appropriate agents; in consultation with the trustee appoints the valuers, auditor, registrar and transfer agent, merchant banker, custodian and other intermediaries, service providers or agents in a timely manner; appoints an individual or firm as auditor; arranges adequate insurance coverage for the REIT assets and, where assets are held by a holdco or SPV, ensures that the real estate assets are adequately insured; where the REIT invests in under-construction properties, may undertake the development directly or through the SPV or appoint another person, and must oversee the progress of development, approval status and other aspects up to completion; ensures it has adequate infrastructure and sufficient key personnel at all times; along with the merchant bankers is responsible for all activities pertaining to the issue and listing of units; ensures that disclosures in the offer document and other documents are material, true, correct and adequate; declares distributions to unit holders; ensures adequate and timely redressal of unit holders' grievances; ensures that disclosures to unit holders, SEBI, trustees and the exchanges accord with the regulations; ensures adequate controls to segregate its activity as manager of the REIT from its other activities; must not obtain any commission, rebate or other remuneration in connection with the issue of units; ensures that the valuation of the REIT assets is done by the valuers; appoints a custodian; designates an employee or director as compliance officer; convenes meetings of unit holders and maintains records of them; and ensures compliance with the laws of the State or local body applicable to the activity of the REIT including local building laws.

Responsibilities of the trustee

The trustee holds the REIT assets in the name of the REIT for the benefit of unit holders; enters into an investment management agreement with the manager on behalf of the REIT; oversees the activities of the manager in the interest of unit holders and obtains a compliance certificate from it quarterly; ensures that the manager complies with reporting and disclosure requirements; reviews the transactions carried out between the manager and its associates, and wherever the manager has advised that there may be a conflict of interest obtains confirmation from a practising chartered accountant or a valuer, as applicable, that the transaction is on an arm's length basis; periodically reviews the status of unit holders' complaints and their redressal; makes distributions and ensures that the manager makes timely declaration of distributions; ensures that the subscription amount is kept in a separate bank account in the name of the REIT and used only for adjustment against allotment of units or refund until listing; ensures that the remuneration of the valuer is not linked to or based on the value of the assets being valued; ensures that the manager convenes meetings of unit holders and oversees the voting; may require the manager to set up systems and procedures and submit reports for effective monitoring; and may take up with SEBI or the designated stock exchange any matter approved in a meeting of unit holders which requires such action.

The manager and the trustee

The manager may be a company, limited liability partnership or body corporate which manages the assets and investments of the REIT and undertakes its operational activities, playing the role a fund manager plays in a mutual fund. It must have a net worth of not less than Rs 10 crore if a body corporate or company, or net tangible assets of not less than Rs 10 crore if a limited liability partnership; not less than five years of experience in fund management, advisory services, property management in the real estate industry or development of real estate; and two or more key personnel each having more than five years of experience in those fields. Not less than half of its directors or members must be independent and must not be directors or members of a manager of another REIT, and it must have entered into an investment management agreement with the trustee providing for its responsibilities. The trustee is a person who holds the REIT assets in trust for the benefit of the unit holders, is registered under the SEBI (Debenture Trustees) Regulations, 1993, is not an associate of the sponsors or the manager, and has sufficient resources with respect to infrastructure and personnel; its role is supervisory in nature, overseeing the activities of the manager and ensuring that the REIT is operated in accordance with its constitutional documents. The investment management agreement means an agreement between the trustee and the manager laying down the roles and responsibilities of the manager towards the REIT.

The offer process, strategic investors and allotment

The appointment of a merchant banker is the first step. The merchant banker must file the draft offer document with the prescribed fees with the designated stock exchanges and SEBI not less than thirty working days before filing the offer document with them, and the offer document must be filed not less than five working days before the opening of the offer. The draft offer document filed with SEBI must be made public for comments by hosting it on the websites of SEBI, the designated exchanges, the REIT and the merchant bankers for not less than twenty-one days; SEBI's comments must be incorporated before filing with the exchanges; and both documents must be accompanied by a due diligence certificate signed by the lead merchant banker. The REIT may open the issue within a period of not more than one year from the date of issuance of observations by SEBI, and may invite subscriptions and allot units to any person whether resident or foreign, foreign investment being subject to Reserve Bank and government guidelines. Strategic investors, playing a role similar to anchor investors, must jointly or severally invest not less than five per cent and not more than twenty-five per cent of the total offer size and enter into a binding unit subscription agreement with the manager; the price at which they agree to buy units must not be less than the issue price determined in the public issue; broad details of the agreement must be disclosed in the draft offer document or offer document; and their units are locked in for one hundred and eighty days from the date of listing in the public issue. The minimum number of unit holders other than the sponsors, their related parties and associates is two hundred. Applications must be accompanied by a statement containing the abridged version of the offer document, containing the risk factors and a summary of the terms of the issue. The offer must be open for a minimum of three working days and a maximum of thirty days; on oversubscription units are allotted to applicants other than anchor investors on a proportionate basis rounded to the nearest integer subject to the minimum subscription amount per subscriber; units are allotted only in dematerialised form; and pricing is determined through the book building process or any method prescribed by SEBI.

The sponsor and sponsor group

A sponsor may be a company, limited liability partnership or body corporate which sets up the REIT, and the application for registration is made by the sponsor on behalf of the trust. Each sponsor must hold or propose to hold at least five per cent of the number of units of the REIT on a post-initial offer basis; must have a net worth of not less than Rs 100 crore, each sponsor having a net worth of not less than Rs 20 crore; and the sponsor or its associates must have not less than five years of experience in the development of real estate or fund management in the real estate industry, and where the sponsor is a developer at least two projects must have been completed. The sponsor group includes the sponsors; where the sponsor is a body corporate, entities or persons controlled by it, entities or persons who control it, and entities or persons controlled by those controllers; and where the sponsor is an individual, an immediate relative of that individual, being any spouse of that person or any parent, brother, sister or child of the person or of the spouse, and entities or persons controlled by that individual.

Valuation of assets

The valuer must not be an associate of the sponsors, the manager or the trustee, and must have more than five years of experience in valuation of real estate. A full valuation includes a detailed valuation of all assets of the REIT by the valuer, including physical inspection of every property, and the full valuation report must include the mandatory minimum disclosures specified in Schedule V. A full valuation must be conducted once in every financial year and completed within three months from the end of the financial year, and a half yearly valuation of the REIT assets must be conducted for the half-year ending on 30 September to incorporate any key changes in the previous six months, that half yearly valuation report being prepared within forty-five days from the end of the half year. Valuation reports must be filed by the manager with the designated stock exchange and the unit holders within fifteen days from receipt. No valuer may undertake valuation for the same property for more than four years consecutively. Where there is any material development having an impact on the valuation of assets, a full valuation of the property concerned must be carried out within two months from the date of the event and the valuation report disclosed to the trustee, investors and the designated stock exchanges within fifteen days of that valuation. The valuer must not value any asset in which it has been involved with the acquisition or disposal within the last twelve months, other than where the valuer was engaged by the REIT for that acquisition or disposal.