The Securities and Exchange Board of India (“SEBI”), in the exercise of its powers under Section 11(1) of the Securities and Exchange Board of India Act, 1992 and Regulation 14(3), Regulation 14(11) and Regulation 33 of the SEBI (Real Estate Investment Trusts) Regulations, 2014 (“REITS Regulations”), vide Circular No. SEBI/HO/DDHS/DDHS-PoD-2/P/CIR/2025/43,[1] dated March 28, 2025, introduced key amendments pertaining to the Real Estate Investment Trusts (“REITs”). The amendments have been made to the Master Circular for REITs, dated May 15, 2024 (“Master Circular”). The provisions laid hereunder shall come into effect immediately.
I. Review of Lock-In Provisions for Preferential Issue of Units for Real Estate Investment Trusts (REITs)
- Regulation 11(3) of the SEBI (Real Estate Investment Trusts) Regulations, 2014 (“REIT Regulations”) mandates that the sponsor(s) and sponsor group(s) must hold a minimum of 15% (fifteen percent) of the total units of the REIT for 3 (three) years from the date of listing of units in the initial offer.
- However, Para 10.6.1 of the Master Circular concerning the lock-in requirement for units issued through a preferential issue, previously stated that the units allotted to the sponsor(s) and sponsor group(s) were to be locked-in for 3 (three) years from the date of trading approval, with additional provisions for units exceeding 25% (twenty five percent) of the total unit capital.
- Amendment to Para 10.6.1 of the Master Circular:
- 15% (fifteen percent) Lock-In for Three Years: 15% (fifteen percent) of the units allotted to sponsor(s) and sponsor group(s) shall be locked in for 3 (three) years from the date of trading approval.
- Remaining Units Lock-In for 1 (One) Year: The remaining units allotted to sponsor(s) and sponsor group(s) shall be locked in for 1 (one) year from the date of trading approval, provided the sponsor(s) and sponsor group(s) continue to comply with the minimum unitholding requirements as per Regulation 11(3) of the REIT Regulations.
- New Provision for Inter-Se Transfer of Locked-In Units (Para 10.6.5 of the Master Circular):
- Transfer Among Sponsor and Sponsor Group: Units subject to lock-in may be transferred among sponsor(s) and sponsor group entities, but the lock-in shall continue for the remaining period.
- Change of Sponsor: In the event of a change in sponsor, locked-in units held by the outgoing sponsor or its sponsor group entities may be transferred to the incoming sponsor or its sponsor group entities, provided the incoming sponsor or its group meets the minimum unitholding requirements under the REIT Regulations.
- Conversion to Self-Sponsored Manager: If the REIT transitions to a self-sponsored manager, the locked-in units may be transferred to the self-sponsored manager or its shareholders/group entities, subject to compliance with minimum unitholding requirements.
II. Guidelines for Follow-On Offer by Publicly Offered REITs
- Regulation 14(3) of the REIT Regulations provides that a follow-on offer is a method for raising funds after the initial public offer of units. A follow-on offer includes an offer for the sale of units by existing unit holders to the public.
- New Regulatory Framework for Follow-On Offers
- The provisions for public issues of REIT units (as outlined in Chapter 2 of the Master Circular) shall also apply to follow-on offers by REITs.
- REITs must pay fees as per Schedule II of the REIT Regulations during submitting the follow-on offer document or draft to SEBI.
- REITs undertaking a follow-on offer must:
- Apply to all stock exchanges where units are listed for in-principle approval and designate one stock exchange as the designated stock exchange.
- Issue units in dematerialized form.
- Additional Provisions for Follow-On Offer
- Merchant Banker and Manager Responsibility: The merchant banker and manager are responsible for obtaining in-principle approval and final listing and trading approvals.
- General Purpose Funds: The amount allocated for general purposes, as outlined in the objects of the issue within the follow-on offer document filed with SEBI, must align with the provisions specified under sub-Regulation 22(A) of Regulation 14 of the REIT Regulations.
- Minimum Public Unitholding: The minimum public unitholding after the follow-on offer shall be at least 25% (twenty five percent) of the total outstanding units of the REIT on a post-issue basis.
- Applicability of Regulation 15: Regulation 15 of the REIT Regulations shall also apply to the follow-on offer document and advertisements related to the follow-on offer.
- Timelines for Allotment and Listing: The timelines for the allotment and listing of units for a follow-on offer shall adhere to the same guidelines outlined for initial public offers (“IPOs”) in Chapter 2 of the Master Circular for REITs.
- Interest Payment for Failure to Allot or List Units: In cases where there is a failure to allot or list the units as part of the follow-on offer, the provisions specified under Regulation 14(20) and Regulation 14(21) of the REIT Regulations shall apply, relating to the payment of interest for such failure.
- Restriction on Further Issuance of Units: A REIT shall be prohibited from undertaking any further issue of units during the period between the filing of the draft follow-on offer document and the listing of the units (or the refund of application monies), except for units issued under a unit-based employee benefit scheme (if applicable). This restriction shall apply to public issues, rights issues, preferential issues, institutional placements, or any other form of issuance.
- Disclosure of Financial Information: The provisions in Chapter 3 of the Master Circular related to the disclosure of financial information shall apply to the follow-on offer document, except for Section-B pertaining to the provisions related to the disclosure of projections of the REIT’s revenues and operating cash flows and Section-G pertaining to the principles for the preparation of combined financial statements.
- Submission of Follow-On Offer Documents
- REITs shall submit the draft follow-on offer document through the merchant banker to SEBI for observations, following the same timelines as for an IPO.
- The final follow-on offer document must be filed with SEBI and the recognized stock exchanges after incorporating SEBI’s observations.
- The merchant banker must submit a due diligence certificate in Form A and Form B of Annexure-1 of the Master Circular along with the filing of the draft follow-on offer document.
[1] https://www.sebi.gov.in/legal/circulars/mar-2025/amendment-to-master-circular-for-real-estate-investment-trusts-reits-dated-may-15-2024_93143.html