SEBI implements significant changes to REIT regulations

Market regulator SEBI has now implemented several significant amendments to the regulatory regime around Real Estate Investment Trusts (REITs), little over a month-and-a-half after its board gave its nod to these changes.

REITs are investment pooling vehicles that invest in revenue-generating real estate assets.

• Also read: Near to medium-term prospects look dim for India’s office-based REITs

The changes now notified by SEBI — effective August 17 — include introduction of nomination rights at the board of the Manager of REITs for unit-holders of REITs.

Also, it has now been stipulated that any unit-holder holding not less than 10 per cent of the total outstanding units of the REIT should comply with a Stewardship Code.

Sponsors’ unit-holding norms

Another significant amendment that has been implemented now by SEBI relates to changing the requirement of minimum unit-holding by Sponsors. 

Now, SEBI has implemented a regime where during the life of the REIT, the Sponsor would be required to hold a certain minimum unit-holding on a reducing scale for the entire life of the REIT. Also the mandatory unit-holding of the Sponsor shall always be locked in and be unencumbered.

• Also read: SEBI’s amended regulations pose challenges for REITs and InvITs’ M&A and sponsorship

Prior to the latest change, SEBI had stipulated that a Sponsor shall hold not less than 15 per cent of the total units for a period of not less than three years from the date of listing of units issued or initial offer.

After three years, there was no mandatory unit-holding requirement for a Sponsor. This minimum unit-holding requirement regime has now been revamped to ensure that Sponsors have their “skin in the game” at all times.