REGISTRATION OF REAL ESTATE INVESTMENT TRUST (REIT)

[Mr. M. GOVINDARAJAN]

Definition

The expression ‘Real Estate Investor Trust’ is defined under Regulation 2(1)(zm) of the Regulation as a trust registered as such under these regulations.

Registration

Regulation 3 of the Securities and Exchange Board of India (Real Estate Investment Trust) Regulations, 2014 (‘Regulation’ for short) provides that certificate of registration is to be obtained to act as Real Estate Investment Trust (‘REIT’ for short).

Sponsor to apply

Sponsor is to apply to Securities and Exchange Board of India (‘SEBI’ for short), on behalf of the trust in Form A which contains the following-

• General information about the trust;
• Details of the trust;
• Details of trustee;
• Details of sponsor(s);
• Details of Manager;
• Details of business plan and investment strategy;
• Details of regulatory action taken in the past, if any;
• Other information/declarations;
• Declaration of statement.

Fees

The applicant shall pay non-refundable application fees of Rs. 2 lakh along with the application for grant of certificate of registration.

Terms and conditions

The Board may, in order to protect the interests of investors, appoint any person to take charge of records, documents of the REIT and for this purpose, also determine the terms and conditions of such an appointment.  The Board shall take into account requirements as specified in these regulations for the purpose of considering grant of registration.

Consideration of SEBI

For the purpose of grant of certificate of registration to the applicant the Board shall consider the following-

•  the applicant is the sponsor on behalf of] trust and the instrument of trust is in the form of a deed duly registered in India under the provisions of the Registration Act, 1908;
• the trust deed has its main objective as undertaking activity of REIT in accordance with these regulations and includes responsibilities of the Trustee
•  have been designated as sponsor(s), manager and trustee under these regulations and all such persons are separate entities;
• with regard to sponsors-

• each sponsor shall hold or propose to hold not less than five per cent. of the number of units of the REIT on post-initial offer basis;
• each sponsor and sponsor group shall be clearly identified in the application of registration to the Board and in the offer document/placement memorandum, as applicable

for each sponsor group not less than one person shall be identified as a sponsor;

of the entities categorized as sponsor group, only the following entities may be considered:-

• a person or entity who is directly or indirectly holding an interest or shareholding in any of the assets or SPVs or holdcos proposed to be transferred to the REIT.
• a person or entity who is directly or indirectly holding units of the REIT on post-issue basis.
• a person or entity whose experience is being utilized by the sponsor for meeting with the eligibility conditions required under sub-clause (iii) of clause (d) of sub-regulation (2) of regulation 4 of these regulations

•  the sponsor(s), on a collective basis, have a net worth of not less than Rs.100 crore.  each sponsor has a net worth of not less than Rs.20 crore.
• the sponsor or its associate(s) has not less than five years experience in development of real estate or fund management in the real estate industry:  where the sponsor is a developer, at least two projects of the sponsor have been completed;

• with regard to Manager-

• the manager has a net worth of not less than Rs.10 crore if the manager is a body corporate; or
• a company or net tangible assets of value not less than Rs.10 crore in case the manager is a LLP;

•  the manager or its associate has not less than 5 years experience in fund management or advisory services or property management in the real estate industry or in development of real estate;
• the manager has not less than 2 key personnel who each have not less than 5 years experience in fund management or advisory services or property management in the real estate industry or in development of real estate;
• the manager has not less than half, of its directors in the case of a company or of members of the governing Board in case of an LLP, as independent and not directors or members of the governing Board of the manager of another REIT; and
• the manager has entered into an investment management agreement with the trustee which provides for the responsibilities of the manager in accordance with regulation 10;

• with regard to trustee-

• the trustee is registered with the Board under SEBI (Debenture Trustees) Regulations, 1993 and is not an associate of the sponsor(s) or manager; and
• the trustee has such wherewithal with respect to infrastructure, personnel, etc. to the satisfaction of the Board and in accordance with circulars or guidelines as may be specified by the Board;
• no unit holder of the REIT enjoys superior voting or any other rights over another unit holder and there are no multiple classes of units of REIT;
• subordinate units may be issued only to the sponsors and its associates, where such subordinate units shall carry only inferior voting or any other rights compared to other units;  unit holders holding not less than ten percent of the total outstanding units of the REIT, either individually or collectively, shall be entitled to nominate one director on the board of directors of the Manager, in the manner as may be specified by the Board; the director so nominated shall recuse from voting on any transaction in which such nominee director or associate of such nominee director or the unit holder who nominated such nominee director or the associate of such unit holder is a party; any unit holder holding not less than 10% of the total outstanding units of the REIT shall comply with the stewardship code specified in Schedule IX of these regulations;

•  the applicant has clearly described at the time of application for registration, details pertaining to proposed activities of the REIT;
• the REIT and parties to the REIT are fit and proper persons based on the criteria as specified in Schedule II of the Securities and Exchange Board of India (Intermediaries) Regulations, 2008;
• whether any previous application for grant of certificate by the REIT or the parties to the REIT or their directors/members of governing board] has been rejected by the Board;
• whether any disciplinary action has been taken by the Board or any other regulatory authority against the REIT or the parties to the REIT or their directors/members of governing board] under any Act or the regulations or circulars or guidelines made there under.

The Board may require the applicant to furnish any such information or clarification as may be required by it for the purpose of processing of the application.  The Board, if it so desires, may require the applicant or any authorized representative to appear before the Board for personal representation in connection with the grant of certificate.                                    

Payment of second fee

The Board on being satisfied that the trust fulfils, the requirements specified in regulation 4 shall send intimation to the [trust].  The applicant shall pay as non-refundable registration fees a sum of Rs.10 lakhs within 15 days from the date of receipt of intimation from the Board.  On receipt of payment SEBI may grant certificate of registration in Form B to the applicant. 

Conditions

The certificate of registration is subject to the following conditions-

• The REIT shall abide the provisions of the Act and these regulations.
• The REIT shall forthwith inform the Board in writing, if any information or particulars previously submitted to the Board are found to be false or misleading in any material particular or if there is any material change in the information already submitted.
• the REIT and parties to the REIT shall satisfy with the conditions specified in regulation 4 at all times; and
• the RETI and parties to the REIT shall comply, at all times, with the Code of conduct.

Refusal of registration

If SEBI is of the opinion that a certificate should not be granted to the trust, it may reject the application after giving the applicant a reasonable opportunity of being heard.  The decision of the Board to reject the application shall be communicated to the applicant within thirty days of such decision.