ET EXPLAINER: What do the new REIT regulation amendments mean for investors?

The changes have implications for investor rights, sponsor transactions and capital-market access for India’s listed property trusts. The revised voting threshold shifts the basis for calculating approvals, while the new exit provision provides a mechanism for dissenting investors when a sponsor leaves under specified circumstances.

The provision for depository receipts could create an additional route for accessing REIT units, subject to regulatory requirements. The amendments also alter the definition of common infrastructure under the regulations.

1. How has the unitholder approval requirement changed?

The amendment changes the voting threshold for specified resolutions under Regulation 22. Earlier, approval was required from unitholders holding at least 75% by value, excluding units held by parties related to the transaction. Under the revised provision, votes in favour must constitute at least 75% of the total votes cast on the resolution, excluding votes cast by parties related to the transaction.

The change shifts the basis of calculating approval from the value of units held by unitholders to the votes cast on the resolution. This could affect how investor participation influences the outcome of specified decisions.

2. What protection do investors get when a sponsor exits?

The amendment introduces a specific provision for REITs with multiple sponsors. If a sponsor exits, the outgoing sponsor, its sponsor group entities, a continuing sponsor or its sponsor group entities must provide dissenting unitholders an option to exit by purchasing their units, in the manner specified by SEBI.

The provision establishes an exit mechanism for investors who disagree with the sponsor’s departure. Its practical implications will depend on the circumstances of the transaction and the detailed requirements governing the purchase of units.

3. Can REIT units now be accessed through depository receipts?

The amended regulations permit depository receipts to be issued against REIT units, subject to compliance with the regulations and the manner specified by SEBI.

Depository receipts could provide an additional route for investors to obtain exposure to securities backed by REIT units. However, the amendment does not automatically make Indian REITs accessible through a new overseas issuance. The applicable regulatory framework, compliance requirements and subsequent directions from SEBI will determine how the provision is implemented.

4. Does the amendment change the definition of real estate assets?

The amendment removes the words “for composite real estate projects, industrial parks and SEZ” from the definition of common infrastructure under Regulation 2(1)(zi).

This is a technical change to the regulatory wording. Its effect on the treatment of particular assets or infrastructure arrangements will depend on the remaining provisions and how they apply to individual REIT structures. The deletion should not, by itself, be interpreted as blanket approval for every category of real estate asset to be included in a REIT.

5. What should REIT investors and managers watch next?

REIT managers, sponsors, trustees and investors will need to assess the revised voting requirements and sponsor-exit provisions against their existing governance and transaction processes.

The provision for depository receipts also warrants attention as SEBI specifies the manner in which they may be issued. The amendments provide a regulatory framework for these changes, but their impact on investor participation, liquidity and capital raising will depend on implementation and actual transactions.

For investors, the key consideration is how the revised rules affect their voting rights and exit options. For the industry, the changes introduce additional flexibility in structuring access to REIT units, alongside specific governance requirements.