Wednesday, June 29, 2022

Real Estate Investment Trust ( REIT)

                                         

Real Estate Investment Trusts (REITs) are companies that own or finance income-producing real estate in a range of property sectors.

They provide all investors the chance to own valuable real estate, present the opportunity to access dividend-based income and total returns, and help communities grow, thrive and revitalize

REITs allow anyone to invest in portfolios of real estate assets the same way they invest in other industries – through the purchase of individual company stock or a mutual fund or exchange traded fund (ETF).

The stockholders of a REIT earn a share of the income produced through real estate investment – without actually having to go out and buy, manage or finance property.

These companies have to meet a number of requirements to qualify as REITs.

Concept of REIT –

REIT now exists in several countries worldwide such as Australia, Singapore, Japan, France, UK, etc.

• For real estate developer – Alternate funding mechanism and provides liquidity

• For investor – Access to high value real estate and earn steady return

Structure/Value chain stakeholders

REIT will be set up as a Trust under the Indian Trusts Act, 1982. It has to be registered with SEBI. REIT to hold specified assets:

• Directly or through SPV holding real asset assets; or

• Invest in SPV which have investments in other SPVs which subsequently hold real estate assets (hold co structure

Key stakeholders of REIT

• Sponsor to set up REIT and appoint trustee

• Trustees to hold assets on behalf of and for the benefit of investors

• Manager to assume operational responsibility of REIT

 • Valuer to ensure fair and transparent valuation – In respect of financial valuation – In respect of technical asset valuation.

What are the assets in which REIT can invest.?

Who can invest in REIT?

All categories of investors can invest in units of REIT unless restricted by any other regulation governing such investor, which includes the following:

• Mutual funds (within maximum limit)

• Insurance companies / insurer (subject to certain conditions)

• Banks (overall ceiling of 20 percent of their net worth permitted for direct investment in shares, convertible bonds/debentures, units of equity oriented mutual funds and exposures to Venture Capital Funds (VCFs) subject to the certain conditions)

• Strategic Investors4 such as: – Infrastructure finance company registered with RBI as a NBFC; – Scheduled Commercial Bank; – International multilateral financial institution; – Systemically important NBFCs registered with Reserve Bank of India; and – Foreign portfolio investors.

Key Provisions – Issue & listing of units

Distribution of Net distributable cash flows

CA Divya Thakkarhttps://www.financeshadow.com
Chartered accountant | IIM Bangalore 7+years of experience in Consultancy, Investment Banking, Ecommerce & IT Industry. Expert in IFRS, USGAAP, INDAS & US Regulatory requirement. Currently working with Deloitte Touche & Company in Risk ,Finance & Control advisory. Worked in Companies like Barclays Bank, HCL Technologies Ltd & BazaarCart.

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