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regular-article-logo Saturday, 25 May 2024

Real Estate Investment Trust sponsors face exit option stymie under new Sebi proposal

The market regulator believes the modification will ensure continuous alignment of unit holders’ interest with the sponsors of the REITs and InvITs

Sambit Saha Calcutta Published 30.06.23, 05:40 AM
Representational image

Representational image File picture

Sponsors of real estate investment trusts (REIT) and infrastructure investment trusts (InvIT) will have to maintain ‘a certain minimum unit holding’ on a reducing scale during the entire life of the investment vehicles, Sebi has proposed.

The market regulator believes the modification will ensure continuous alignment of unit holders’ interest with the sponsors of the REITs and InvITs.

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At present, Sebi regulations mandate the sponsor, which is akin to a promoter in a company, to hold a minimum of 15 per cent unit holding for a period of at least three years from the date of the listing of the units.

The proposed amendments for this nascent investment class are part of a slew of changes being brought about by Sebi after its late evening board meeting on Wednesday.

Moreover, Sebi has decided to introduce board nominations rights to unit holders of REITs and InvITs. The regulator has now proposed that unit holders having 10 per cent or more unit holding, either individually or collectively, can now nominate members on the board.

Real estate sector experts believe the decisions of the regulator are well timed and aligned with the aim of protecting the interest of minority unit holders while raising transparency and accountability.

There are four REITs listed on the Indian bourses. Over a period of time, they are becoming increasingly popular investment vehicles for retail investors to own a slice of the burgeoning commercial real estate market of India.

Anuj Puri, chairman of Anarock, said the proposed change of sponsors holding a certain minimum unit holding would significantly help maintain accountability.

He also hailed the move to allow significant unit holders, akin to shareholders in a company structure, nomination rights. “More than anything else, this move by Sebi will help investors have better control of their investments since they can nominate their own person,” Puri, who is also an independent director on the board of Embassy Office Park REIT, added.

However, the regulator’s proposal to ensure sponsors to remain invested may appear to be counterproductive to sponsors as REIT and InvIT are often considered to be asset monetisation vehicles to recoup investments over a very long period of time.

Private equity giant Blackstone, which is a sponsor in Embassy Office Park REIT and Nexus Select Trust, has been diluting stake in Embassy REIT for the last 4 years.

Samantak Das, chief economist and executive director (research and REIS) at JLL, however, countered that the regulation would pose any significant challenge. “It is good to have skin in the game,” he said, adding that this fiat would ensure active interest in the success of investment vehicles.

Apart from these two changes, the Sebi board also proposed introduction of provision for self-sponsored investment manager for the REIT and InvIT.

“To create an opportunity for mature and independent, professionally managed investment managers to emerge, and to provide an additional exit option for the sponsor of InvIT/ REIT, the board approved the proposal for introduction of self-sponsored investment manager i.e. an investment manager who also takes on the responsibilities of the Sponsor of InvIT/ REIT,” Sebi said. However, the minimum unit holding requirement would still be applicable in this case.

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