Markets regulator SEBI has released the detailed guidelines for public issuance of Real Estate Investment Trusts (REITs) including allocation of units to institutional investors.
Real Estate Investment Trusts:
A REIT, or Real Estate Investment Trust, is a company that owns or finances income-producing real estate.
Modeled after mutual funds, REITs provide investors of all types regular income streams, diversification and long-term capital appreciation.
REITs typically pay out all of their taxable income as dividends to shareholders. In turn, shareholders pay the income taxes on those dividends.
REITs allow anyone to invest in portfolios of large-scale properties the same way they invest in other industries – through the purchase of stock.
In the same way shareholders benefit by owning stocks in other corporations, the stockholders of a REIT earn a share of the income produced through real estate investment – without actually having to go out and buy or finance property.
Main Features of Guidelines:
The trusts, its promoters and directors, which have been barred from accessing the securities markets, or those who are in the ‘wilful defaulter’ list, would not make any public issue.
In an issue made through the book building process, up to 75 per cent would be allocated to institutional investors and 25 per cent to other investors.
Such trusts can allocate up to 60 per cent of the portion available for allocation to institutional investors to anchor investors.
The anchor investor would make an application of a value of at least Rs. 10 crore in the public issue. Allocation to such investors would be on a discretionary basis and subject to the minimum of two investors for allocation up to Rs. 250 crore and minimum of 5 investors for allocation of over Rs. 250 crore.
The merchant banker would make arrangements for distribution of the application form along with a copy of the abridged version of the offer document.
An issue would be opened after at least five working days from the date of filing the offer document with SEBI. The issue would be kept open for at least three working days but not more than 30 days.
However, in case the price band in a public issue made through the book building process is revised, the bidding period disclosed in the final offer document would be extended for a minimum period of one working day, provided that the total bidding period would not exceed 30 days.
The manager on behalf of the REIT shall make prompt, true and fair disclosure of all developments taking place between the date of filing offer document with the board and the date of allotment of units which may have a material effect on the REIT, by issuing public notices.
No Real Estate Investment Trusts shall alter the terms of units which may adversely affect the interests of the holders of that units unless a resolution to that effect is passed at a meeting of the unit holders in accordance with REIT Regulations.
To facilitate growth of Real Estate Investment Trusts, SEBI in November 2016 notified revised and easier regulations for raising capital through this instrument.
SEBI had notified the REIT Regulations in 2014, allowing setting up of and listing of such trusts, which are very popular in some advanced markets. However, not a single trust has been set up in India as of now as investors await further measures, including tax breaks, to make these instruments more attractive.