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Summary of SM REIT Regulations

A.    Key Definitions:

1.      Real Estate Investment Trust (REIT): means a person that pools rupees fifty crores or more for the purpose of issuing units to at least two hundred investors so as to acquire and manage real estate asset(s) or property(ies), that would entitle such investors to receive the income generated therefrom without giving them the day-to-day control over the management and operation of such real estate asset(s) or property(ies).

Explanation 1. – For the purpose of these regulations, a REIT or Real Estate Investment Trust shall include an SM REIT under Chapter VIB of these regulations.

Explanation 2. – For the removal of doubts, it is hereby clarified that for the purpose of these

regulations, any company which acquires and manages real estate asset(s) or property(ies) and offers or issues securities to the investors, shall not be construed as a REIT or Real Estate Investment Trust;”

2.      Small and Medium REIT (SM REIT): “Small and Medium REIT” or “SM REIT” means a REIT that pools money from investors under one or more schemes in accordance with sub-regulation (2) of regulation 26P;

Sub-regulation (2) of regulation 26P;

No offer of units by a scheme of the SM REIT shall be made unless,–

(a) the size of the asset proposed to be acquired in a scheme of the SM REIT is at least rupees fifty crores and less than rupees five hundred crores; and

(b) the minimum number of unitholders of the scheme of the SM REIT other than the investment manager, its related parties and associates of the SM REIT are not less than two hundred investors.

3.      Scheme: means a distinct and separate scheme of an SM REIT launched under this chapter for owning of real estate assets or properties through special purpose vehicles.

4.      Special Purpose Vehicle (SPV): “Special purpose vehicle” or “SPV” means any company which is a wholly owned subsidiary of the scheme of the SM REIT and the SPV shall not have any other capital or ownership interest in it.

5.      Trustee: means a trustee registered with the Board under Securities and Exchange Board of India (Debenture Trustees) Regulations, 1993, who holds the assets of SM REIT and its schemes in trust and for the benefit of the unit holders, in accordance with these regulations.

6.      Investment Manager: means a company incorporated in India and which sets up the SM REIT manages assets and investments and undertakes operational activities of SM REIT.


B.     Investment Manager (IM)/Sponsor:

1.      Single entity to operate as Manager and sponsor.

2.      The regulations stipulate that the Investment Manager/Sponsor must be a company incorporated in India.

3.      Only one entity is required to serve as both the Investment Manager and Sponsor. There is no necessity for separate entities to fulfil these roles.

4.      The Investment Manager must possess a net worth of at least INR 20 crores, with a minimum of INR 10 crores in liquid net worth.

5.      The IM should have a minimum of two years of experience in the real estate industry or real estate fund management. Alternatively, the IM may employ two Key Management Personnel (KMPs), each possessing at least five years of experience in the real estate industry or real estate fund management.

6.      Minimum investment of IM in SM REIT (from the date of initial listing):

Time period from initial listing of scheme’s units

Minimum investment of IM in SM REIT

Up to 3 years

SM REIT has opted not to undertake leverage:

Ø   5% of total outstanding units of the scheme

SM REIT has opted to undertake leverage:

Ø  15% of total outstanding units of the scheme (if opted to undertake leverage) Holding of IM in excess of minimum 5% or 15% of total outstanding units shall be held for at least 1 year (from the date of listing of units issued in the initial offer).

4-5 years

5% of total outstanding units of the scheme

6-10 years

3% of total outstanding units of the scheme

11-20 years

2% of total outstanding units of the scheme

Post 20 years

1% of total outstanding units of the scheme


7.      The IM is solely responsible for managing the assets and investments of the SM REIT and undertaking its operational activities. Additionally, it is mandated that the trademark, brand name, website, etc., of the SM REIT, be exclusively used for the activities of the SM REIT.

8.      At least half of the directors of the Investment Manager should be independent and should not serve as directors of other SM REITs. This ensures a level of independence and prevents potential conflicts of interest.


C.    Statutory Fees:

The following fees are charged by SEBI from the REIT:

1.      Non-refundable application fee: INR 1 lakh.

2.      Registration fee: INR 10 lakh.

3.      Filing fee at the time of initial offering or a follow on offering: non-refundable filing fees that is the higher of, INR 5 lakh, and 0.1% of the total scheme issue size including intended retention of oversubscription.


D.    Procedure of obtaining registration as a SM REIT from SEBI:

4.      Draft Trust Deed outlining the main objective of undertaking activities of an SM REIT in accordance with SEBI REIT Regulations.

5.      Registration of Trust under the provisions of the Registration Act, 1908.

6.      Ensure that the trustee is not an associate of the investment manager.

7.      The parties to the SM REIT are fit and proper persons.

8.      The applicant has clearly described at the time of application for registration, details pertaining to the proposed activities of the SM REIT.

9.      Separate persons have been designated as investment manager of the SM REIT and trustee of the SM REIT.

10.   An application for grant of certificate of registration as SM REIT shall be made, by the investment manager on behalf of the Trust in Form-A as specified in the Schedule IA to REIT Regulations.

11.   Payment of non-refundable application fee of INR 1 lakh.

12.   The Board may require the applicant to furnish any information or clarification as may be required by it for the purpose of processing of the application for registration.

13.   The Board, on being satisfied that the trust fulfils the requirements specified in REIT Regulation, shall send an intimation to the trust.

14.   Payment of registration fees of INR 10 lakhs within 15 days from the date of receipt of intimation from the Board.

15.   The Board may grant certificate of registration after complying the requirement specified in the REIT Regulations.


E.     Initial Offer:

1.      SM REIT has to make an initial offer of a scheme within 3 years from the date of registration with the Board. If it fails to do so it shall surrender its certificate of registration to the Board and cease to operate as an SM REIT.

2.      The investment manager shall, through a merchant banker, file the draft scheme offer document with the SEBI, along with fees non-refundable filing fees that is the higher of, INR 5 lakh, and 0.1% of the total scheme issue size including intended retention of oversubscription and with the designated stock exchange.

3.      The minimum price of each unit of the scheme of the SM REIT shall be INR 10 lakhs.

4.      Each scheme of the SM REIT shall be identified by a separate name, which shall not be misleading and shall not portray any guaranteed returns to the investors.

5.      The value of real estate assets or properties in each scheme shall be at least INR 50 crore and less than INR 500 Crore.

6.      The investment manager and the trustee shall ensure that the assets of each scheme, the bank accounts, investment or demat accounts and the books of accounts of each scheme are segregated and ring-fenced.

7.      Property documents maintained in safe deposit boxes, at a schedule commercial bank and be annually inspected by the trustee.

8.      The draft scheme offer document filed with the Board shall be made public, for comments, if any, by hosting it on the websites of the Board, designated stock exchanges and merchant bankers associated with the issue, for a period of not less than twenty-one days.

9.      The board must issue observations within 30 days, if any, addressed before the scheme launch.

10.   Units must be issued in dematerialized form.

11.   Bids must be accepted through a book-building platform.


F.     Investment Conditions:

1.      The Special Purpose Vehicle (SPV) is mandated to exclusively hold all assets acquired or intended for acquisition by the SM REIT's scheme, serving as its wholly-owned subsidiary.

2.      SM REITs cannot invest in under-construction or non-revenue-generating real estate assets.

3.      At least 95% of the scheme's assets (for each of its schemes) must be invested in completed and revenue-generating properties.

4.      Up to 5% of the scheme's assets may be invested in unencumbered liquid assets.

5.      The scheme of SM REIT shall not be permitted to lend to any entity other than lending to its own SPV.


G.    Valuation of assets

1.      Valuation of assets must be conducted annually by a valuer, including physical inspection of each property.

2.      Valuation reports must be obtained for material developments and prior to any issue of units. The valuation must promptly reflect significant asset-related developments; reports, including summaries, must be updated within two months of such events and prior to any public unit issuance, ensuring reports are not over six months old, with no subsequent material changes, especially for property acquisitions or sales.

3.      The investment manager shall ensure that the valuer is not an associate of the investment manager or trustee of the SM REIT and that the signatory to the valuation reports has at least 5 years of experience in valuation of real estate, and possesses such other qualifications, experience and track-record that the Board may specify from time to time.

4.      The investment manager shall submit the valuation reports to the trustee, designated stock exchanges and unit holders within 1 working day from the receipt of such valuation reports.

5.      Prior to any issue of units to the public and any other issue of units in the scheme as may be specified by the Board, the investment manager shall require the valuer to undertake full valuation of the particular scheme of SM REIT assets and include a summary of the report in the scheme offer document.

6.      The investment manager shall ensure that no valuer undertakes valuation of the properties of the schemes of the SM REIT for more than 4 years consecutively.

7.      For any purchase of a new property or sale of an existing property, the investment manager shall require the valuer to undertake a full comprehensive valuation of that property.


H.    Pros and Cons


1.      Flexibility and Liquidity: SM REITs provide business owners with flexibility by converting hard asset ownership into ownership of units, allowing them to retain, sell, or donate units as needed.

2.      Capital Growth and Income: Investing in SM REITs can yield consistent income through dividends, offering a reliable source of income for investors.

3.      Diversification: SM REITs provide access to diversified real estate assets, aiding in portfolio diversification and spreading risk. (Diversified portfolio for maximum profits).

4.      Cash Flow and Investor Capital: Establishing a SM REIT can help free up cash flow, attract additional investors, and raise capital to support business growth strategies like expansion, digital transformation, or acquisitions.

5.      Professional Management: SM REITs are regulated entities with professional management teams overseeing properties, allowing for effective commercial real estate management without direct involvement.

6.      Stable investment and source of income due to 95% revenue-generating investments.

7.      Enhanced liquidity and exit opportunities for investors.


1.      Interest Rate Sensitivity: SM REITs are sensitive to interest rate changes, impacting their profitability and share value.

2.      Market Volatility: SM REIT values can fluctuate based on market and economic conditions, potentially leading to price drops during market downturns.

3.      Fees and Liquidity: SM REITs may have set fees that can erode profits, and investors may face limitations on accessing funds, affecting liquidity.

4.      Risk of Management: The success of a SM REIT depends on the expertise of the management team, with unskilled decisions posing risks to investors.

5.      Regulatory Differences: SM REITs are subject to different regulations compared to Real Estate Investment Groups, impacting their structure, management, and liquidity

6.      There are pre-requisites of net worth and experience etc. for Investment Managers.

7.      Acquiring funds, pre-listing compliances, issue, and subscription size.

8.      Seeking interest of investors as a number of investors has to be more than 200.


I.      Points to Ponder

1.      Investors can be Indian or Foreign, subject to guidelines specified by the Reserve Bank of India and the Government of India.

2.      Individuals involved in issuing units of the SM REIT scheme are prohibited from providing any form of incentive, whether direct or indirect, to encourage applications in the issue. This prohibition applies to incentives in the form of cash, kind, services, or any other manner, except for fees or commission for services directly related to the issue.

3.      At least 25% of the total outstanding units of the scheme must be held by the public.

4.      For a scheme of SM REIT opting to utilize leverage, total borrowings at the scheme level shall not exceed 49% of the scheme assets. Credit rating and unit holder approval are required for further borrowings exceeding 25% of the scheme assets.

5.      At least 95% of Net Distributable Cash Flows must be distributed to the SM REIT scheme and the amount retained at the SPV level may be utilized as specified by SEBI.

6.      100% of NDCF of the SM REIT Scheme must be distributed to the unit holders in such schemes.

7.      SM REITs are restricted from entering into transactions with related parties, except for payment of fees to the Investment Manager and trustee.

·        Note: “Related Party” shall mean related parties under the Companies Act, 2013 or applicable Accounting Standards and the following: i. parties to the SM REIT; ii. promoters, directors, and partners of the persons in clause (i) above

8.      Annual unit holder meetings must occur within 120 days of the fiscal year-end, with intervals not surpassing 15 months; unitholders are entitled to distributions and voting rights, and their approval is necessary for Investment Manager or investment strategy changes.

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