#1भारतीय प्रतिभूति और विनिमय बोर्ड Bi Securities and Exchange Board of India GB Introduction to Real Estate Investment Trusts (REITs)#2Disclaimer GB ❖ Information contained in this presentation is as on December 10, 2021. ❖ The information contained in this presentation is only for Educational and Awareness Purposes related to securities. market. ❖ This presentation is only for Educational and Investor Awareness Programs and shall not be used for any legal interpretations. ✰ SEBI or Stock Exchanges or Depositories shall not be responsible for any damage or loss to any one of any manner from use of this material. ❖ Suggestions or feedbacks, if any, may please be sent by mail to [email protected]. 2#3Flow of Presentation GB 1. What are REITs? - Overview; 2. 3. G D W N - 4. 5. 6. Structure of REITs; Role of Constituents of REITS; Cash flow in REITs; Benefits of investing in REITs; Who can invest in REITs; 7. How to own units of REITs; 8. Rights of unitholders in REITs; 9. Taxation aspects of REITS; 10. Points to ponder before investing in REITs. 3#4What are REITS - Overview GB REITS stands for 'Real Estate Investment Trusts'. REITs are like Mutual Funds. REITs allow pooling of money from multiple investors into a single trust ■ Trust which is professionally managed by a manager Manager invests in immovable and rent yielding properties or special purpose vehicles (SPVs) holding such kind of properties. REITs own, operate and manage a portfolio of income generating real estate assets. REITs give investors access to the benefits of owning real estate assets in small ticket sizes. ➤Listing of REIT is mandatory. Thus, they are traded on the stock exchanges and investors can buy and sell REIT units just like trading of shares of any listed company.#5Trustee Structure of REIT Sponsor/Investor Ownership of units Holds the REIT assets in trust for the benefit of the Unit holders Distribution of cash flows GB Management Services Manager REIT Manager Fee Distribution Holding Company of Cash Flows SPV * Distribution of Cash Flows * REITs to hold assets either through Special Purpose Vehicles (SPVs) or directly 1 SPV * 5#6Role of Constituents of REITS GB Sponsor Trustee Investment Manager · • • • • Sets up the REIT Transfers its shareholdings in SPV / assets to the REIT Appoints the Trustee Holding the REIT assets in trust for the benefit of the unit holders Responsible for ensuring that the business activities and investment policies comply with the provisions of the regulations Sets the strategic direction of the REIT and decides on the acquisition, divestment or enhancement of assets Responsible for all activities related to issue and listing of units • Takes decisions on distribution to unitholders Makes disclosures to various stakeholders as per regulations Ensures redressal of investor grievances 16#7What Assets Can a REIT Own? Rental income Earning Real Estate Projects GB Commercial Sectors Offices, Hotels, Retail, Industrial, Healthcare NOT PERMITTED Agricultural Land Speculative landbank Min. 80% completed & income producing assets Max. 20% under-construction assets Leverage Restrictions Unitholder approval needed for Debt to Capitalization above 25% Debt to Capitalization capped at 49% 7#8Cash flow in REITs: An illustration Unitholders ■ Distributed to Unitholders ■ For tax treatment in the hands of Unitholders, distributions are divided into - Dividend - Interest Unitholders make investment into REIT by subscribing to its units SPV* 1 REIT - Return of Capital REIT invests into SPVs in the form of Equity Distribution in the form of : ■ Dividend ■ Interest ■ Return of Capital SPV* 2 * REITS to hold assets either through Special Purpose Vehicles (SPVs) or directly SPV* 3 GB 8 00#9REITS - A Hybrid Product between Equity and Fixed Income Fixed Income REITS Equity GB Regular and growing cash yield Yield Oriented Appreciation through increasing property valuation Capital Appreciation Oriented REITS generate income in two ways, viz. (i) Regular income through Dividend / Interests, (ii) Income through Capital gains 9#10Benefits of Investing in REITs? GB Liquidity REIT units are freely traded in stock markets like equity shares Transparency Strong governance framework and disclosure requirements from SEBI Asset Quality Fractional ownership commercial assets Distributions Income stability due to requirement to distribute at least 90% of cash flows semi-annually Performance Upside participation in capital appreciation from organic/inorganic growth Diversification Investment in a diversified portfolio across sectors/ cities 10#11Taxation aspects in REITS GB Nature of Distribution Tax Treatment in the hands of Investor # Interest income Dividends Rental income Taxable Exempted (If the SPV has not opted for the lower tax regime) Taxable (If the SPV has opted for the lower tax regime) Taxable # Investors need to check which type of income they receive and applicable tax treatment. 11#12Investment Characteristics Return Profile Tax Efficiency Comparative Analysis Vis-à-vis traditional investments REIT Units Minimum lot size of 1 unit ► Freely transferable listed securities ► Professionally managed ► No entry / exit load Returns driven by capital appreciation and regular cash distribution (90% mandatory) ► Dividends: Exempted# Direct Investment in Real Estate 25 lakh onwards (for strata units) Illiquid & non- transparent market ►Hassles in managing assets ► Transaction costs involved ► Returns driven by a timely and profitable exit ►Interest: Taxable # ►Rent is taxable Rent: Taxable # Real Estate Equity Shares GB Minimum lot size of 1 share ► Freely transferable listed securities ► No entry / exit load Returns driven by capital appreciation and dividends (NOT mandatory) ►Dividends are taxable Notes: # Investors need to check which type of income they receive and applicable tax treatment. 12 22#13Who can Invest in REITS? GB Any investor (domestic / foreign / retail / institutional) can buy REIT units in India; The minimum subscription amount is in the range of 10,000 to 15,000/- and the trading lot is 1 unit. (revised w.e.f. July 30, 2021) Previously it was ₹50,000 & 100 units, respectively; Investors can purchase REIT units through a Demat account, similar to how they would purchase equity shares; REITs are suitable for those who wants to take price benefits / returns from Real Estate. 13#14How to own units of REITS ➤ Investors can own units of REITs in following manner: • . GB By subscribing to issue in Initial Public Issue (IPO) or Follow- on Issue of a REITs, By purchasing units of REITS from Stock Exchange, where they are listed, Procedures for the bidding, application, payment, and Allotment of REITS Units in Public Issue (IPO or Follow-on Issue) • . Price of Units shall be determined through Book building process, Investors are required to participate in the Issue only through the ASBA process. 14#15How to own units of REITs (...contd.) GB Investors are required to pay the full Bid Amount or instruct the bank to block the full Bid Amount at the time of Bidding, • Investors should note that Allotment to successful Bidders will be only in the dematerialized form, • • Mention correctly the details of the Bidders' depository accounts including DP ID, PAN, Client ID and Bid cum Application Forms, Units of REITs are listed on a stock exchange within 12 working days from the close of issue. 15#16Rights of unitholders in REITS GB ➤ Right to receive returns through cash distributions made by the trust, ➤ Right to vote on matters pertaining to acquisition of new assets or borrowing, Right to vote on related party matters, ➤ Right to vote on matters such as appointment or change of the Investment Manager, ➤ Right to vote on induction of a Sponsor, with the opportunity to exit for dissenting voters, Right to vote on exit of Sponsor, Right to receive periodic disclosures like annual report, valuation report, quarterly/ semi-annual financials, etc. 16#17Disclosures to Unit-holders by the REIT GB Investors are advised to regularly refer to the disclosures / communications sent by the REIT and stay aware about their investments Earnings Materials Published quarterly and benchmarked to global disclosure standards Earnings Call Held quarterly by management Half-yearly Report Published semi-annually (NOT Required by Listed Companies) Independent REIT Valuation Conducted half-yearly Unitholder Meetings & Webinars Held throughout the Year Annual Meeting Held once a year 17#18Regulations to protect the interests of REITS unitholders GB Securities Exchange Board of India (SEBI) SEBI (REITs) Regulations, 2014 ▸ SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 ▸ SEBI (Prohibition of Insider Trading) Regulations, 2015 Reserve Bank of India ► Foreign Exchange Management (Non-debt Instruments Rules), 2019 Indian Trusts Act, 1882 Others ► Companies Act, 2013 Competition Act, 2002 18#19Points to Ponder while investing in REITS Stability of income of Trust depends stability of income earned from the assets of Trust, Invest in REITs which offer better transparency, Investment in REITs is to generate regular income and also to earn capital gains, ➤ Due diligence to be made before taking investment decisions. 19#20Additional Information EBi ■ For Further Information, you may visit following websites: www.sebi.gov.in/ https://investor.sebi.gov.in/ □ For Grievance Redressal, you may visit following website: www.scores.gov.in/ Or, you may call SEBI at following Toll-free Helpline Numbers from 9:00am to 6:00pm on all days (excluding declared holidays in the state of Maharashtra): 1800 266 7575 1800 22 7575 Helpline is Available in 8 Languages: English, Hindi, Bengali, Gujarati, Marathi, Kannada, Telugu and Tamil 20 20#21THANK YOU GB 21