Regulation 18 - Investment conditions and distribution policy - Securities and Exchange Board of India (Real Estate Investment Trusts) Regulations, 2014

CHAPTER V INVESTMENT CONDITIONS, RELATED PARTY TRANSACTIONS, BORROWING AND VALUATION OF ASSETS Investment conditions and distribution policy. 18. (1) The Investment by a REIT shall only be in 1 [holdco and/or] SPVs or properties or securities or TDR in India in accordance with these regulations and in accordance with the investment strategy as detailed in the offer document as may be amended subsequently. (2) The REIT shall not invest in vacant land or agricultural land or mortgages other than mortgage backed securities: Provided that this shall not apply to any land which is contiguous and extension of an existing project being implemented in stages. (3) The REIT may invest in properties through SPVs subject to the following,- (a) no other shareholder or partner of the SPV shall 2 [exercise] any rights that prevents the REIT from complying with the provisions of these regulations 3 [and an agreement 4 [has been] entered into with such shareholders or partners to that effect prior to investment in the SPV]: 5 [Provided that the shareholders agreement or partnership agreement shall provide for an appropriate mechanism for resolution of disputes between the REIT and the other shareholders or partners in the SPV: Provided further that the provisions of these regulations shall prevail in case of inconsistencies between such agreement(s) and the obligations cast upon a REIT under these regulations.] 6 [(b) the manager, in consultation with the trustee, shall appoint atleast such number of nominees on the board of directors or the governing board of such SPVs, as applicable, which are in proportion to the shareholding or holding interest of the REIT in the SPV;] (c) the manager shall ensure that in every meeting including annual general meeting of the SPV, the voting of the REIT is exercised 7 [***]. 8 [(3A) The REIT may invest in properties through holdco subject 9 [to] the following,- (a) the ultimate holding interest of the REIT in the underlying SPV(s) is not less than twenty six per cent; (b) no other shareholder or partner of the holdco or the SPV(s) shall 10 [exercise] any rights that prevent the REIT, the holdco or the SPV(s) from complying with the provisions of these regulations and an agreement 11 [has been] entered into with such shareholders or partners to that effect prior to investment in the holdco and/or SPVs: 12 [Provided that the shareholders agreement or partnership agreement shall provide for an appropriate mechanism for resolution of disputes between the REIT and the other shareholders or partners in the holdco and/or SPV; Provided further that the provisions of these regulations shall prevail in case of inconsistencies between such agreement(s) and the obligations cast upon a REIT under these regulations.] 13 [(c) the manager, in consultation with the Trustee, shall appoint atleast such number of nominees on the board of directors or the governing board of the holdco and/or the SPV, which are in proportion to the shareholding or holding interest of the REIT/holdco in the SPV;] (d) the manager shall ensure that in every meeting including annual general meeting of the holdco and/or SPV(s), the voting of the REIT is exercised;] (4) Not less than eighty per cent. of value of the REIT assets shall be invested 14 [***] in completed and rent 15 [and/or income] generating properties subject to the following,- (a) if the investment has been made through a 16 [holdco and/or] SPV, whether by way of equity or debt or equity linked instruments or partnership interest, only the portion of direct investments in properties by such 17 [ holdco and/or] SPVs shall be considered under this sub-regulation and the remaining portion shall be included under sub-regulation (5); (b) if any project is implemented in stages, the part of the project which is completed and 18 [rent and/or income generating] shall be considered under this sub-regulation and the remaining portion including any contiguous land as specified under proviso to sub-regulation (2) shall be included under clause (a) of sub-regulation (5). (5) Not more than twenty per cent. of value of the REIT assets shall be invested 19 [***] in assets other than as provided in sub-regulation (4) and such other investment shall only be in,- (a) properties, 20 [whether directly or through a company or LLP,] 21 [***] which are: (i) under-construction properties which shall be held by the REIT for not less than three years after completion; (ii) under-construction properties which are a part of the existing income generating properties owned by the REIT which shall be held by the REIT for not less than three years after completion; (iii) completed and not rent generating properties which shall be held by the REIT for not less than three years from date of purchase; (b) listed or unlisted debt of companies or body corporate in real estate sector: Provided that this shall not include any investment made in debt of the 22 [holdco and/or SPVs]; (c) mortgage backed securities; (d) equity shares of companies 23 [which are] listed on a recognized stock exchange in India which derive not less than seventy five per cent. of their operating income from real estate activity as per the audited accounts of the previous financial year; 24 [ (da) unlisted equity shares of companies which derive not less than seventy five per cent. of their operating income from real estate activity as per the audited accounts of the previous financial year: Provided that the investments, made through unlisted equity shares of a company, in under construction properties and/or completed and not rent generating properties, shall be in compliance with clause (a) of this sub-regulation.] (e) government securities; (f) unutilized FSI of a project where it has already made investment; (g) TDR acquired for the purpose of utilization with respect to a project where it has already made investment; (h) money market instruments or cash equivalents. 25 [(5A) The investment conditions as specified at sub-regulation (4) and (5) of regulation 18 shall be complied at the time of Offer document and thereafter.] (6) Not less than 26 [fifty one] per cent. of the 27 [consolidated] revenues of the REIT 28 [, holdco] and the SPV, other than gains arising from disposal of properties, shall be, at all times, from rental, leasing and letting real estate assets or any other income incidental to the leasing of such assets. 29 [***] 30 [***] (9) Conditions specified in sub-regulations (4), (5), (6), (7) and (8) shall be monitored on a half-yearly basis and at the time of acquisition of an asset: Provided that if such conditions are breached on account of market movements of the price of the underlying assets or securities or change in tenants or expiry of lease or sale of properties, the manager shall inform the same to the trustee and ensure that the conditions as specified in this regulation are satisfied within six months of such breach: Provided further that the period may be extended by another six months subject to approval from investors in accordance with regulation 22. (10) A REIT shall hold any completed and rent generating property, whether directly or through 31 [holdco or] SPV, for a period of not less than three years from the date of purchase of such property by the REIT or 32 [holdco or] SPV. (11) For any sale of property, whether by the REIT or 33 [holdco or] the SPV or for sale of shares or interest in the SPV by the 34 [holdco or] REIT exceeding ten per cent. of the value of REIT assets in a financial year, the manager shall obtain approval from the unit holders in accordance with regulation 22. (12) A REIT shall not invest in units of other REITs. (13) A REIT shall not undertake lending to any person 35 [other than the holding company/special purpose vehicle(s) in which the REIT has invested in, subject to disclosures specified in Schedule IV]: Provided that investment in debt securities shall not be considered as lending. (14) With respect to investment in leasehold properties, the manager shall consider the remaining term of the lease, the objectives of the REIT, the lease profile of the REIT s existing real estate assets and any other factors as may be relevant, prior to making such investment. (15) In case of any co-investment with any person(s) in any transaction,- (a) the investment by the other person(s) shall not be at terms more favourable than those to the REIT; (b) the investment shall not provide any rights to the person(s) which shall prevent the REIT from complying with the provisions of these regulations; (c) the agreement with such person(s) shall include the minimum percentage of distributable cash flows that will be distributed and entitlement of the REIT to receive not less than pro rata distributions and mode for resolution of any disputes between the REIT and the other person(s). (16) With respect to distributions made by the REIT and the 36 [holdco and/or] SPV,- (a) not less than ninety per cent. of net distributable cash flows of the SPV shall be distributed to the REIT 37 [/holdco] in proportion of its holding in the SPV subject to applicable provisions in the Companies Act, 2013 or the Limited Liability Partnership Act, 2008; 38 [(aa) with regard to distribution of net distributable cash flows by the holdco to the REIT, subject to applicable provisions in the Companies Act, 2013 or the Limited Liability Partnership Act, 2008, the following shall be complied: (i) with respect to the cash flows received by the holdco from underlying SPVs, 100% of such cash flows received by the holdco shall be distributed to the REIT; and (ii) with respect to the cash flows generated by the holdco on its own, not less than 90% of such net distributable cash flows shall be distributed by the holdco to the REIT;] (b) not less than ninety per cent. of net distributable cash flows of the REIT shall be distributed to the unit holders; (c) such distributions shall be declared 48 [ **** ] not less than once every six months in every financial year and shall be made 49 [ within five working days from the record date ] ; 50 [ Explanation . For the purpose of above clause, record date for the payment of distribution shall be two working days from the date of the declaration of distribution, excluding the date of declaration and the record date. ] (d) if any property is sold by the REIT or 39 [holdco or SPV or if the equity shares or interest in the holdco/SPV are sold by the REIT, then],- (i) if the REIT proposes to reinvest sale proceeds, if any, into another property, it shall not be required to distribute any sale proceeds from such sale to the unit holders; 40 [***] (ii) if the REIT 41 [***] proposes not to invest the sales proceeds made into any other property, 42 [within a period of 1 year,] it shall be required to distribute not less than ninety per cent. of the sales proceeds in accordance with clauses (a) 43 [, (b), (c) and (d) of sub-regulation 16]; (e) if the distributions are not made within 51 [ the timeline specified in clause (c) of sub-regulation 16 ] , then the manager shall be liable to pay interest to the unit holders at the rate of fifteen per cent. per annum till the distribution is made and such interest shall not be recovered in the form of fees or any other form payable to the manager by the REIT. 44 [ (f) any amount remaining unclaimed or unpaid out of the distributions declared by a REIT in terms of sub-clause (c), shall be transferred to the Investor Protection and Education Fund constituted by the Board in terms of section 11 of the Act, in such manner as may be specified by the Board 45 [ : ]] 46 [ Provided that the amount transferred to Investor Protection and Education fund shall not bear any interest. ] 47 [ (g) the unclaimed or unpaid amount of a person that has been transferred to the Investor Protection and Education Fund in terms of sub-clause (f), may be claimed in such manner as may be specified by the Board. ] (17) No schemes shall be launched under the REIT. (18) The Board may specify any additional conditions for investments by the REIT as it deems fit. **************** NOTES:- 1 Inserted by the SEBI (Real Estate Investment Trusts) (Amendment) Regulations, 2016, w.e.f. 30.11.2016 2 Substituted for the word have by the Securities and Exchange Board of India (Real Estate Investment Trusts) (Amendment) Regulations, 2018, w.e.f. 10.04.2018. 3 Inserted by the SEBI (Real Estate Investment Trusts) (Amendment) Regulations, 2016, w.e.f. 30.11.2016 4 Substituted for the words shall be by the Securities and Exchange Board of India (Real Estate Investment Trusts) (Amendment) Regulations, 2018, w.e.f. 10.04.2018. 5 Inserted by the Securities and Exchange Board of India (Real Estate Investment Trusts) (Amendment) Regulations, 2018, w.e.f. 10.04.2018. 6 Substituted by the Securities and Exchange Board of India (Real Estate Investment Trusts) (Amendment) Regulations, 2018, w.e.f. 10.04.2018. Prior to the substitution, the clause read as:, (b) the manager, in consultation with the trustee, shall appoint the majority of the Board of directors or governing board of such SPVs[, as applicable; 7 Omitted subject to provisions of Companies Act, 2013 by the SEBI (Real Estate Investment Trusts) (Amendment) Regulations, 2016, w.e.f. 30.11.2016 8 Inserted by the SEBI (Real Estate Investment Trusts) (Amendment) Regulations, 2016, w.e.f. 30.11.2016 9 Inserted by the Securities and Exchange Board of India (Real Estate Investment Trusts) (Amendment) Regulations, 2018, w.e.f. 10.04.2018. 10 Substituted for the word have by the Securities and Exchange Board of India (Real Estate Investment Trusts) (Amendment) Regulations, 2018, w.e.f. 10.04.2018. 11 Substituted ibid for the words shall be . 12 Inserted by the Securities and Exchange Board of India (Real Estate Investment Trusts) (Amendment) Regulations, 2018, w.e.f. 10.04.2018. 13 Substituted ibid. Prior to the substitution, the clause read as:, (c) the manager, in consultation with the Trustee, shall appoints the majority of the Board of directors or governing board of the holdco and/or SPV(s); 14 Omitted proportionate to the holding of the REITs by the SEBI (Real Estate Investment Trusts) (Amendment) Regulations, 2016, w.e.f. 30.11.2016 15 Inserted by the SEBI (Real Estate Investment Trusts) (Amendment) Regulations, 2017, w.e.f. 15.12.2017 16 Inserted by the SEBI (Real Estate Investment Trusts) (Amendment) Regulations, 2016, w.e.f. 30.11.2016 17 Inserted by the SEBI (Real Estate Investment Trusts) (Amendment) Regulations, 2016, w.e.f. 30.11.2016 18 Substituted for the words rent-generating by the SEBI (Real Estate Investment Trusts) (Amendment) Regulations, 2017, w.e.f. 15.12.2017 19 Omitted proportionate to the holding of the REITs by the SEBI (Real Estate Investment Trusts) (Amendment) Regulations, 2016, w.e.f. 30.11.2016 20 Inserted by the Securities and Exchange Board of India (Real Estate Investment Trusts) (Amendment) Regulations, 2018, w.e.f. 10.04.2018. 21 Omitted in which not more than ten per cent. of value of the REIT assets shall be invested, by the SEBI (Real Estate Investment Trusts) (Amendment) Regulations, 2016, w.e.f. 30.11.2016 22 Substituted for SPV by the SEBI (Real Estate Investment Trusts) (Amendment) Regulations, 2016, w.e.f. 30.11.2016 23 Inserted by the Securities and Exchange Board of India (Real Estate Investment Trusts) (Amendment) Regulations, 2018, w.e.f. 10.04.2018. 24 Inserted by the Securities and Exchange Board of India (Real Estate Investment Trusts) (Amendment) Regulations, 2018, w.e.f. 10.04.2018. 25 Inserted by the SEBI (Real Estate Investment Trusts) (Amendment) Regulations, 2016, w.e.f. 30.11.2016 26 Substituted for seventy five by the SEBI (Real Estate Investment Trusts) (Amendment) Regulations, 2016, w.e.f. 30.11.2016 27 Inserted by the Securities and Exchange Board of India (Real Estate Investment Trusts) (Amendment) Regulations, 2018, w.e.f. 10.04.2018. 28 Inserted by the SEBI (Real Estate Investment Trusts) (Amendment) Regulations, 2016, w.e.f. 30.11.2016 29 Omitted by the Securities and Exchange Board of India (Real Estate Investment Trusts) (Amendment) Regulations, 2018, w.e.f. 10.04.2018. Prior to omission, the clause read as:, (7) Not less than seventy five per cent. of value of the REIT assets proportionately on a consolidated basis shall be rent generating. 30 Omitted by the SEBI (Real Estate Investment Trusts) (Amendment) Regulations, 2017, w.e.f. 15.12.2017. Prior to the omission, the sub-regulation read as follows:, (8) A REIT shall hold at least two projects, directly or through 170[holdco and/or] SPV, with not more than sixty per cent. of the value of the assets, proportionately on a consolidated basis, in one project. 31 Inserted by the SEBI (Real Estate Investment Trusts) (Amendment) Regulations, 2016, w.e.f. 30.11.2016 32 Inserted by the SEBI (Real Estate Investment Trusts) (Amendment) Regulations, 2016, w.e.f. 30.11.2016 33 Inserted by the SEBI (Real Estate Investment Trusts) (Amendment) Regulations, 2016, w.e.f. 30.11.2016 34 Inserted by the SEBI (Real Estate Investment Trusts) (Amendment) Regulations, 2016, w.e.f. 30.11.2016 35 Inserted by theSEBI (Real Estate Investment Trusts) (Amendment) Regulations, 2017, w.e.f. 15.12.2017 36 Inserted by the SEBI (Real Estate Investment Trusts) (Amendment) Regulations, 2016, w.e.f. 30.11.2016 37 Inserted by the SEBI (Real Estate Investment Trusts) (Amendment) Regulations, 2016, w.e.f. 30.11.2016 38 Inserted by the SEBI (Real Estate Investment Trusts) (Amendment) Regulations, 2016, w.e.f. 30.11.2016 39 Substituted for SPV by the SEBI (Real Estate Investment Trusts) (Amendment) Regulations, 2016, w.e.f. 30.11.2016 40 Omitted and if the SPV proposes to reinvest sale proceeds, if any, into another property, it shall not be required to distribute any sale proceeds from such sale to the REIT; by the SEBI (Real Estate Investment Trusts) (Amendment) Regulations, 2016, w.e.f. 30.11.2016 41 Omitted or SPV by the SEBI (Real Estate Investment Trusts) (Amendment) Regulations, 2016, w.e.f. 30.11.2016 42 Inserted by the SEBI (Real Estate Investment Trusts) (Amendment) Regulations, 2016, w.e.f. 30.11.2016 43 Substituted for and (b) by the SEBI (Real Estate Investment Trusts) (Amendment) Regulations, 2016, w.e.f. 30.11.2016 44. Inserted vide Notification No. SEBI/LAD-NRO/GN/2023/123 dated 14-02-2023 45. Substituted vide Notification No. SEBI/LAD-NRO/GN/2023/160 dated 20-10-2023 before it was read as, . 46. Inserted vide Notification No. SEBI/LAD-NRO/GN/2023/160 dated 20-10-2023 47. Inserted vide Notification No. SEBI/LAD-NRO/GN/2023/160 dated 20-10-2023 48. Omitted vide Notification No. SEBI/LAD-NRO/GN/2024/208 dated 26-09-2024 w.e.f. sixtieth day from the date of its publication in the Official Gazette before it was read as, and made 49. Substituted vide Notification No. SEBI/LAD-NRO/GN/2024/208 dated 26-09-2024 w.e.f. sixtieth day from the date of its publication in the Official Gazette before it was read as, not later than fifteen days from the date of such declaration 50. Inserted vide Notification No. SEBI/LAD-NRO/GN/2024/208 dated 26-09-2024 w.e.f. sixtieth day from the date of its publication in the Official Gazette 51. Substituted vide Notification No. SEBI/LAD-NRO/GN/2024/208 dated 26-09-2024 w.e.f. sixtieth day from the date of its publication in the Official Gazette before it was read as, fifteen days of declaration