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What is a Real Estate Investment Trust – REIT
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What Is A Real Estate Investment Trust – REIT

Professional SEBI registration services for REIT.
Helping the company in post-registration compliance.
Procedure to carry out registration with SEBI.
Follows framework for Due Diligence with SEBI.
Document Compilation for the registration services.

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    The Indian real estate sector has been a lucrative investment option for savvy investors being the 2nd most prominent income generating sector after agriculture.
    REIT allows even the small budget investors to make a safe and a rewarding investment.
    A real estate investment trust, or REIT, is a company that owns, operates or finances income-through real estate. REITs are traded on major exchanges and provide investors with a liquid stake in real estate.

    According to a report from Cushman & Wakefield – The potential of commercial properties in India that are a ‘REITable’ investment is between $43 billion and $54 billion across top cities.
    With factors like a favorable Union Budget 2017-18 for home buyers and property being the favorite investment of Indians which provide greater satisfaction to them than mere paper investments; REIT investment can be a hot cake.

    How do REIT works?

    Real estate investment trusts (REITs) and infrastructure investment trusts (InvITs) are mediums thru which private investment in infrastructure and real estate can be made. It allows for individual investors with a small sum of Rs 2 lakhs, to secure units in exchange. The money thus collected is pooled into a REIT fund whereby investors acquire ownership in commercial real estate portfolios that receive income from properties such as apartment complexes, office buildings, hotels and shopping malls. Capital gains accruing from the sale of the commercial assets are distributed to an investor in a way where 90% of income is distributed as dividends to investors.

    The size and structure of a REIT

    The SEBI board has kept the minimum asset sizes to be invested in, at Rs 500 Crores. However, the minimum issue size would have to be less than Rs 250 Crores. As with stocks, the investors will be able to buy the units from either primary and/or the secondary markets. REITs is structured as trusts where assets are held with independent trustees for investors.

    REIT Categories

    Equity REITs- The majority of REITs are publicly traded whereby REITs own or operate income-producing real estate. Mortgage REITs – mREITs provide financing for the income-producing real estate by purchasing or originating mortgages and mortgage-backed securities and earning income from the interest on these investments. Public non-listed REITs – PNLRs are registered with the SEC but do not trade on national stock exchanges. Private REITs – Private REITs are offerings that are exempt from SEC registration and whose shares do not trade on national stock exchanges.

    REIT Guidelines in India

    Investment Guidelines in India REIT has to invest at least 80% of its total assets in completed and rent-generating real estate, with a lock-in period of 3 years

    A maximum of 20% of the total value of REITs can be from:
    Under construction properties
    The listed or unlisted debt of real estate companies
    Mortgage-backed securities
    Listed Equities generating not less than 75% of their income from real estate activities
    Government securities
    Cash or money market instruments

    Fundraising through public offer of units Minimum value of REIT assets: INR 500 crore

    Slabs for minimum offer size

    If post issue capital < NR 1,600 crores – minimum 25% or INR 250 Crores, whichever is higher

      If post issue capital =/> INR 1,600 Crores but < INR 4,000 crores – minimum INR 400 Crores

    If post issue capital =/> INR 4,000 Crores but < INR 4,000 crores – minimum 10%

      Minimum offer size: INR 250 crore

    Minimum subscription amount: INR 10 lakh

    Trading lot: INR 5 lakh

    Minimum number of unitholders (other than sponsors or related parties): 20

    Fundraising through private placement of units Minimum value of InvIT assets: INR 500 crore

    Minimum offer size: INR 250 crore

    Minimum subscription amount: INR 1 crore

      Trading lot: INR 1 crore

    Minimum unit holders (other than sponsors): 5

    Maximum unit holders (other than sponsors): 1,000

    Document Required

    Listing Requirements

    Mandatory listing within 12 working days of the IPO
    Minimum public subscription: 90% of the fresh issue size

    Minimum number of subscribers

    Other than sponsors and its associates shall be 200. If it falls below 200 then there is No mandatory requirement to delist the units.

    Distribution policy

    A REIT is to distribute at least 90% of the sale proceeds arising from the sale of property/equity shares/interest in a Hold Co/SPV unless reinvestment is proposed within 1 year
    Distribution to be undertaken at least once every 6 month

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      Terms in use

      Real estate

      Rent/income generating hotels, hospitals and convention centers

      Common infrastructure for composite real estate projects, industrial parks and special economic zones

      Sponsors

      Minimum holding of 5% of total units of REIT with a maximum of 3 sponsors

      A single or group entity with a net worth of min INR 100 Crores with each sponsors’ network of at least 20 Crores

      Minimum experience of 5 years in the development of real estate or real estate fund management

      Track record of at least two completed projects

      Manager

      A corporate or a company with minimum net worth of 10 crore

      Minimum experience of five years in fund management/advisory/property management

      A minimum of two key personnel with five years’ experience

      Manager’s Duties

      Who ensures that a REIT has a proper legal, binding and marketable titles

      Identify and recommend investment opportunities

      Comply with conditions and strategy mandatory for investment

      Appointing other service providers in consultation with trustee

      Ensuring that REIT’s assets are adequately insured

      Addressing grievances and distribution-related issues of unitholders’

       

      Ensuring annual audit of REIT’s accounts by an auditor

      Overseeing developmental activities

      Providing activity and performance reports on a REIT every three months to its board or governing board

      Ensuring adequate disclosure and timely submission of documents to the concerned stock exchange

      Maintaining records pertaining to activities of a REIT for a minimum period of seven years

      Trustee

      Hold REIT assets in the name of REIT for the benefit of unitholders

      Registered with SEBI, and not related to the sponsor or manager

      Should not be an associate of sponsor/ manager

      Registered with SEBI, and not related to the sponsor or manager

      Duties of a Trustee

      Appointing a manager

      Overseeing the manager’s activities and operations and obtaining compliance certificates on a quarterly basis

      Reviewing related party transactions

      Obtaining unit holders’ approval on specified matters

      ValuerA CA/CS/Cost Accountant/ Merchant Broker registered with SEBI who undertakes financial and technical valuation.
      Strategic Investo

      A category of investors Who together invest not less than five percent of the total offer size. This is to mainly instil confidence in the other investors and includes:

      An infrastructure finance company registered with RBI as a Non-Banking Financial Company

      Scheduled Commercial Bank

      Non-Banking Financial Companies registered with Reserve Bank of India

      Foreign portfolio investors

      Valuation

      Complete valuation of a REIT taken up at least once every financial year

      Valuation to be undertaken from a financial as well as technical perspective

      Minimum experience of a Valuer should be five years

      Not related to or associated with the relevant REIT parties

      Half-yearly valuation of REIT assets

      Complete valuation to be undertaken– If

      The acquisition price is more than 110% of the valuation

      The sale price is less than 90% of such valuation

      Revenue of REIT is derived from the following

      Sale of real estate
      Financial instruments
      Debt/equity/compound
      Financial instruments
      Investment in debt instruments

      SPVs

      SEBI board allows REITs to invest at least 50% of equity share capital, or interest in special purpose vehicles (SPVs), or holding companies of the SPV and vice-versa.

      Benefits of REIT:

      To Investors

      Small retail investors able to participate in asset classes normally unaffordable for them by investing small amounts
      It provides a regular stream of income along with reduced portfolio volatility to investors
      As a result of it being a listed entity, its bought and sold with ease thus providing liquidity, easy entry and exit in the real estate sector
      Holding of multiple assets allows for better risk management and reduce concentrated asset risk
      Fragmentation of holdings with multiple owners avoided leading to high-quality asset maintenance
      Low-risk investments attract long-term insurance and pension funds to invest in them
      Improved transparency, disclosure allow informed decision making to investors

      To Business

      More stable Equity financing as against debt financing Businesses can focus on their core competencies
      Capital-raising avenues for mediocre developers
      Availability of last-mile funding for stalled projects
      Development of capital markets at reduced cost from long-term stable investors

      To Economy

      Returns are normally seen to outpace price Inflation which allows dormant funds into projects triggering better economy growth
      Accelerated financing to curtail sectors including transportation, energy and realize the goal of smart cities

      Don’t hesitate to write to MUDS at [email protected] or call MUDS at +91 7011198909 for Free Consultation !

      Why MUDS

      MUDS is a multidisciplinary advisor with a combination of skills like auditing, tax, advisory. We have successfully undertaken floating of IPO/FPO, GDRs and ADRs, Direct listing. We are trusted partners to niche organizations delivering valuation, financial advisories and end to end management of issues and we also specialize in serving REIT clients.

      We have a strong understanding conducting due diligence and seeding new issues into the market. Here are some of our services pertaining to REIT.

      Financial Due DiligencePreparation of financial statements and financial numbers required in the offer document
      Preparation of opening balance sheet of the Company
      Assistance in preparation of operating cash flows
      Validation of key assumptions be presented in the offer document
      Lead Advisory ServicesAssistance in drafting responses to the regulator comment letter
      Preparation of opening balance sheet of the Company
      Evaluation of REIT as a fund raising options
      Assistance in setting up of quarterly close process for the REIT
      Internal Audits / Process Reviews
      NAV declaration every 6 months or lesser intervals
      Assistance in registration of REIT with SEBI
      Review of listing documents from a tax & regulatory perspective
      Preparation of periodic updates on the performance of the REIT to be circulated amongst the investors
      Review of related party transactions and future tax structure
      Structuring investments by the investor into the REITs
      Issuance of New UnitsAssistance in drafting of MD&A in relation to the offer document.
      Preparation of opening balance sheet of the Company
      Evaluation of REIT as a fund raising options
      Conducting background check of third parties
      ValuationValuation of the portfolio Valuation to ascertain the fair value of the transaction /
      Determine lease potential of the asset and market assessment of rentals an asset can command
      Monetization of leased assets
      LiasioningLiasioning with independent accountants, auditors, appointment of valuers as applicable

      Contact details of professionals at MUDS

      Contact No: +91 7011198909

       

      Alternately Call our Legal Expert Now For Free Consultation at 09599653306

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