SEBI Proposes Measures to Promote Ease of Doing Biz for Small, Medium REITs

To facilitate ease of doing business for Small and Medium REITs (SM REITs), markets regulator Sebi on Wednesday proposed standardising disclosures in scheme offer documents and simplifying public issue processes for such schemes.

Additionally, the regulator proposed to align SM REIT (Real Estate Investment Trust) regulations with existing REIT norms. The proposals aim to simplify regulations, promote transparency, and improve ease of doing business for SM REITs.

SM REITs were introduced in March 2024 to encourage smaller real estate investments and increase participation in the sector. These are similar to REITs but operate on a smaller scale with a minimum asset value of Rs 50 crore compared to Rs 500 crore for regular REITs.

SM REITs can set up special purpose vehicles (SPVs) to manage assets and are required to invest 95 per cent of assets in completed, revenue-generating properties and distribute 95 per cent of net income to investors quarterly.

In its consultation paper, Sebi has proposed standardising disclosures in scheme offer documents, whereby it suggested splitting the document into two parts -- Key Information of the Trust (KIT) that contains information about the SM REIT, its Investment Manager, Trustee, and overall structure and Key Information of the Scheme (KIS) that includes details specific to the individual scheme and its assets.

On processing of KIT and KIS, Sebi suggested that for the first scheme, KIT and KIS must be filed together for its review.

For subsequent schemes, only the new KIS needs to be submitted, while KIT is updated for records. Sebi will review only the KIS.

Any material changes in the KIT should be disclosed through an addendum on the SM REIT's website and reported to Sebi and stock exchanges within 7 days.

Further, the investment manager needs to ensure that KIT is updated every 6 months and updated KIT is disclosed on the website of SM REIT within 30 days from the end of half year.

The investment manager is required to file the updated KIT with Sebi and stock exchanges for records within 30 days from the end of half a year.

With regards to proposals for the public issue process for SM REITs, the regulator suggested for extension of REIT Guidelines to SM REITs with certain exceptions.

Also, the regulator has suggested additional provisions for SM REIT public issues, whereby SM REIT schemes can only issue units through public offers.

The initial offer should be made within one year of Sebi's observations. If not, new KIT and KIS documents must be filed.

Further, both units should be allotted beyond the offer size. If oversubscribed, units are allotted proportionately or through a lottery for the minimum lot. Moreover, up to 1 per cent of the public offer should be reserved for minimum lot allocation.

Unit prices should be determined through book building. At least 90 per cent of the issue size should be subscribed for the offer to succeed. Funds allocated for general purposes should not exceed 10 per cent of the amount raised.

Any unitholder (other than the investment manager) holding units before the offer must retain units for 1 year post-listing.

The Securities and Exchange Board of India (Sebi) has sought public comments till November 13 on the proposals.