Section 18 in Securities and Exchange Board of India (Real Estate Investment Trusts) Regulations, 2014
18. Investment conditions and distribution policy.
(1)The Investment by a REIT shall only be in [holdco and/or] [Inserted by Notification No. SEBI/L.A.D.-NRO/GN/2016-17/022, dated 29.11.2016 (w.e.f. 26.9.2014).] SPVs or properties or securities or TDR in India in accordance with these regulations and in accordance with the investment strategy as detailed in the offer document as may be amended subsequently.(2)The REIT shall not invest in vacant land or agricultural land or mortgages other than mortgage backed securities:Provided that this shall not apply to any land which is contiguous and extension of an existing project being implemented in stages.(3)The REIT may invest in properties through SPVs subject to the following,-(a)no other shareholder or partner of the SPV shall [exercise] [Substituted 'have' by Notification No. SEBI/LAD-NRO/GN/2018/06, dated 10.4.2018 (w.e.f. 29.9.2014).] any rights that prevents the REIT from complying with the provisions of these regulations [and an agreement [has been] [Inserted by Notification No. SEBI/L.A.D.-NRO/GN/2016-17/022, dated 29.11.2016 (w.e.f. 26.9.2014).] entered into with such shareholders or partners to that effect prior to investment in the SPV;][Provided that the shareholders' agreement or partnership agreement shall provide for an appropriate mechanism for resolution of disputes between the REIT and the other shareholders or partners in the SPV;Provided further that the provisions of these regulations shall prevail in case of inconsistencies between such agreement(s) and the obligations cast upon a REIT under these regulations.] [Inserted by Notification No. SEBI/LAD-NRO/GN/2018/06, dated 10.4.2018 (w.e.f. 29.9.2014).](b)[ the manager, in consultation with the trustee, shall appoint atleast such number of nominees on the board of directors or the governing board of such SPVs, as applicable, which are in proportion to the shareholding or holding interest of the REIT in the SPV;] [Substituted by Notification No. SEBI/LAD-NRO/GN/2018/06, dated 10.4.2018 (w.e.f. 29.9.2014).](c)the manager shall ensure that in every meeting including annual general meeting of the SPV, the voting of the REIT is exercised [***] [Omitted 'subject to provisions of Companies Act, 2013' by Notification No. SEBI/L.A.D.-NRO/GN/2016-17/022, dated 29.11.2016 (w.e.f. 26.9.2014).].(3A)[ The REIT may invest in properties through holdco subject [to] [Inserted by Notification No. SEBI/L.A.D.-NRO/GN/2016-17/022, dated 29.11.2016 (w.e.f. 26.9.2014).] the following,-(a)the ultimate holding interest of the REIT in the underlying SPV(s) is not less than twenty six per cent;(b)no other shareholder or partner of the holdco or the SPV(s) shall [exercise] [Substituted by Notification No. SEBI/LAD-NRO/GN/2018/06, dated 10.4.2018 (w.e.f. 29.9.2014).] any rights that prevent the REIT, the holdco or the SPV(s) from complying with the provisions of these regulations and an agreement [has been] [Substituted 'shall be' by Notification No. SEBI/LAD-NRO/GN/2018/06, dated 10.4.2018 (w.e.f. 29.9.2014).] entered into with such shareholders or partners to that effect prior to investment in the holdco and/or SPVs;[Provided that the shareholders' agreement or partnership agreement shall provide for an appropriate mechanism for resolution of disputes between the REIT and the other shareholders or partners in the holdco and/or SPV;Provided further that the provisions of these regulations shall prevail in case of inconsistencies between such agreement(s) and the obligations cast upon a REIT under these regulations.] [Inserted by Notification No. SEBI/LAD-NRO/GN/2018/06, dated 10.4.2018 (w.e.f. 29.9.2014).](c)[ the manager, in consultation with the Trustee, shall appoint atleast such number of nominees on the board of directors or the governing board of the holdco and/or the SPV, which are in proportion to the shareholding or holding interest of the REIT/holdco in the SPV;] [Substituted by Notification No. SEBI/LAD-NRO/GN/2018/06, dated 10.4.2018 (w.e.f. 29.9.2014).](d)the manager shall ensure that in every meeting including annual general meeting of the holdco and/or SPV(s), the voting of the REIT is exercised;](4)Not less than eighty per cent. of value of the REIT assets shall be invested [***] [Omitted 'proportionate to the holding of the REITs' by Notification No. SEBI/L.A.D.-NRO/GN/2016-17/022, dated 29.11.2016 (w.e.f. 26.9.2014).] in completed and rent [and/or income] [Inserted by Notification No. SEBI/LAD-NRO/GN/2017-18/022, dated 15.12.2017 (w.e.f. 26.9.2014).] generating properties subject to the following,-(a)if the investment has been made through a [holdco and/or] [Inserted by Notification No. SEBI/L.A.D.-NRO/GN/2016-17/022, dated 29.11.2016 (w.e.f. 26.9.2014).] SPV, whether by way of equity or debt or equity linked instruments or partnership interest, only the portion of direct investments in properties by such [holdco and/or] [Inserted by Notification No. SEBI/L.A.D.-NRO/GN/2016-17/022, dated 29.11.2016 (w.e.f. 26.9.2014).] SPVs shall be considered under this sub-regulation and the remaining portion shall be included under sub-regulation (5);(b)if any project is implemented in stages, the part of the project which is completed and [rent and/or income generating] [Substituted 'rent-generating' by Notification No. SEBI/LAD-NRO/GN/2017-18/022, dated 15.12.2017 (w.e.f. 26.9.2014).] shall be considered under this sub-regulation and the remaining portion including any contiguous land as specified under proviso to sub-regulation (2) shall be included under clause (a) of sub-regulation (5).(5)Not more than twenty per cent. of value of the REIT assets shall be invested [***] [Omitted 'proportionate to the holding of the REITs' by Notification No. SEBI/L.A.D.-NRO/GN/2016-17/022, dated 29.11.2016 (w.e.f. 26.9.2014).] in assets other than as provided in sub-regulation (4) and such other investment shall only be in,-(a)properties, [***] [Omitted 'in which not more than ten per cent. of value of the REIT assets shall be invested' by Notification No. SEBI/L.A.D.-NRO/GN/2016-17/022, dated 29.11.2016 (w.e.f. 26.9.2014).], [whether directly or through a company or LLP,] [Inserted by Notification No. SEBI/LAD-NRO/GN/2018/06, dated 10.4.2018 (w.e.f. 29.9.2014).] which are:(i)under-construction properties which shall be held by the REIT for not less than three years after completion;(ii)under-construction properties which are a part of the existing income generating properties owned by the REIT which shall be held by the REIT for not less than three years after completion;(iii)completed and not rent generating properties which shall be held by the REIT for not less than three years from date of purchase;(b)listed or unlisted debt of companies or body corporate in real estate sector:Provided that this shall not include any investment made in debt of the [holdco and/or SPVs] [Inserted by Notification No. SEBI/L.A.D.-NRO/GN/2016-17/022, dated 29.11.2016 (w.e.f. 26.9.2014).];(c)mortgage backed securities;(d)equity shares of companies [which are] [Inserted by Notification No. SEBI/LAD-NRO/GN/2018/06, dated 10.4.2018 (w.e.f. 29.9.2014).] listed on a recognized stock exchange in India which derive not less than seventy five per cent. of their operating income from real estate activity as per the audited accounts of the previous financial year;(da)[ unlisted equity shares of companies which derive not less than seventy five per cent. of their operating income from real estate activity as per the audited accounts of the previous financial year: [Inserted by Notification No. SEBI/LAD-NRO/GN/2018/06, dated 10.4.2018 (w.e.f. 29.9.2014).]Provided that the investments, made through unlisted equity shares of a company, in under construction properties and/or completed and not rent generating properties, shall be in compliance with clause (a) of this sub-regulation.] [Inserted by Notification No. SEBI/LAD-NRO/GN/2018/06, dated 10.4.2018 (w.e.f. 29.9.2014).](e)government securities;(f)unutilized FSI of a project where it has already made investment;(g)TDR acquired for the purpose of utilization with respect to a project where it has already made investment;(h)money market instruments or cash equivalents.(5A)[ The investment conditions as specified at sub-regulation (4) and (5) of regulation 18 shall be complied at the time of Offer document and thereafter.] [Inserted by Notification No. SEBI/L.A.D.-NRO/GN/2016-17/022, dated 29.11.2016 (w.e.f. 26.9.2014).](6)Not less than [fifty one] [Substituted 'seventy five' by Notification SEBI/L.A.D.-NRO/GN/2016-17/022, dated 29.11.2016 (w.e.f. 29.9.2014).] per cent. of the [consolidated] [Inserted by Notification No. SEBI/LAD-NRO/GN/2018/06, dated 10.4.2018 (w.e.f. 29.9.2014).] revenues of the REIT [holdco] [Inserted by Notification No. SEBI/L.A.D.-NRO/GN/2016-17/022, dated 29.11.2016 (w.e.f. 26.9.2014).] and the SPV, other than gains arising from disposal of properties, shall be, at all times, from rental, leasing and letting real estate assets or any other income incidental to the leasing of such assets.(7)[ ***] [Omitted by Notification No. SEBI/LAD-NRO/GN/2018/06, dated 10.4.2018 (w.e.f. 29.9.2014).](8)[ ***] [Omitted by Notification No. SEBI/LAD-NRO/GN/2017-18/022, dated 15.12.2017 (w.e.f. 26.9.2014).](9)Conditions specified in sub-regulations (4), (5), (6), (7) and (8) shall be monitored on a half-yearly basis and at the time of acquisition of an asset:Provided that if such conditions are breached on account of market movements of the price of the underlying assets or securities or change in tenants or expiry of lease or sale of properties, the manager shall inform the same to the trustee and ensure that the conditions as specified in this regulation are satisfied within six months of such breach:Provided further that the period may be extended by another six months subject to approval from investors in accordance with regulation 22.(10)A REIT shall hold any completed and rent generating property, whether directly or through [holdco or] [Inserted by Notification No. SEBI/L.A.D.-NRO/GN/2016-17/022, dated 29.11.2016 (w.e.f. 26.9.2014).] SPV, for a period of not less than three years from the date of purchase of such property by the REIT or [holdco or] [Inserted by Notification No. SEBI/L.A.D.-NRO/GN/2016-17/022, dated 29.11.2016 (w.e.f. 26.9.2014).] SPV.(11)For any sale of property, whether by the REIT or [holdco or] [Inserted by Notification No. SEBI/L.A.D.-NRO/GN/2016-17/022, dated 29.11.2016 (w.e.f. 26.9.2014).] the SPV or for sale of shares or interest in the SPV by the [holdco or] [Inserted by Notification No. SEBI/L.A.D.-NRO/GN/2016-17/022, dated 29.11.2016 (w.e.f. 26.9.2014).] REIT exceeding ten per cent of the value of REIT assets in a financial year, the manager shall obtain approval from the unit holders in accordance with regulation 22.(12)A REIT shall not invest in units of other REITs.(13)A REIT shall not undertake lending to any person [other than the holding company/special purpose vehicle(s) in which the REIT has invested in, subject to disclosures specified in Schedule IV] [Inserted by Notification No. SEBI/LAD-NRO/GN/2017-18/022, dated 15.12.2017 (w.e.f. 26.9.2014).]:Provided that investment in debt securities shall not be considered as lending.(14)With respect to investment in leasehold properties, the manager shall consider the remaining term of the lease, the objectives of the REIT, the lease profile of the REIT's existing real estate assets and any other factors as may be relevant, prior to making such investment.(15)In case of any co-investment with any person(s) in any transaction,-(a)the investment by the other person(s) shall not be at terms more favourable than those to the REIT;(b)the investment shall not provide any rights to the person(s) which shall prevent the REIT from complying with the provisions of these regulations;(c)the agreement with such person(s) shall include the minimum percentage of distributable cash flows that will be distributed and entitlement of the REIT to receive not less than pro rata distributions and mode for resolution of any disputes between the REIT and the other person(s).(16)With respect to distributions made by the REIT and the [holdco and/or] [Inserted by Notification No. SEBI/L.A.D.-NRO/GN/2016-17/022, dated 29.11.2016 (w.e.f. 26.9.2014).] SPV,-(a)not less than ninety per cent of net distributable cash flows of the SPV shall be distributed to the REIT [/holdco] [Inserted by Notification No. SEBI/L.A.D.-NRO/GN/2016-17/022, dated 29.11.2016 (w.e.f. 26.9.2014).] in proportion of its holding in the SPV subject to applicable provisions in the Companies Act, 2013 or the Limited Liability Partnership Act, 2008;(aa)[ with regard to distribution of net distributable cash flows by the holdco to the REIT, subject to applicable provisions in the Companies Act, 2013 or the Limited Liability Partnership Act, 2008, the following shall be complied: [Inserted by Notification No. SEBI/L.A.D.-NRO/GN/2016-17/022, dated 29.11.2016 (w.e.f. 26.9.2014).](i)with respect to the cash flows received by the holdco from underlying SPVs, 100% of such cash flows received by the holdco shall be distributed to the REIT; and(ii)with respect to the cash flows generated by the holdco on its own, not less than 90% of such net distributable cash flows shall be distributed by the holdco to the REIT;](b)not less than ninety per cent. of net distributable cash flows of the REIT shall be distributed to the unit holders;(c)such distributions shall be declared and made not less than once every six months in every financial year and shall be made not later than fifteen days from the date of such declaration;(d)if any property is sold by the REIT or [holdco or SPV or if the equity shares or interest in the holdco/SPV are sold by the REIT, then] [Substituted 'SPV' by Notification No. SEBI/L.A.D.-NRO/GN/2016-17/022, dated 29.11.2016 (w.e.f. 26.9.2014).],-(i)if the REIT proposes to reinvest sale proceeds, if any, into another property, it shall not be required to distribute any sale proceeds from such sale to the unit holders; [***] [Omitted 'and if the SPV proposes to reinvest sale proceeds, if any, into another property, it shall not be required to distribute any sale proceeds from such sale to the REIT' by Notification No. SEBI/L.A.D.-NRO/GN/2016-17/022, dated 29.11.2016 (w.e.f. 26.9.2014).];(ii)if the REIT [***] [Omitted 'or SPV' by Notification No. SEBI/L.A.D.-NRO/GN/2016-17/022, dated 29.11.2016 (w.e.f. 26.9.2014).] proposes not to invest the sales proceeds made into any other property, [within a period of 1 year] [Inserted by Notification No. SEBI/L.A.D.-NRO/GN/2016-17/022, dated 29.11.2016 (w.e.f. 26.9.2014).] it shall be required to distribute not less than ninety per cent of the sales proceeds in accordance with clauses (a) [(b), (c) and (d) of sub-regulation 16] [Substituted 'and (b)' by Notification No. SEBI/L.A.D.-NRO/GN/2016-17/022, dated 29.11.2016 (w.e.f. 26.9.2014).];(e)if the distributions are not made within fifteen days of declaration, then the manager shall be liable to pay interest to the unit holders at the rate of fifteen per cent per annum till the distribution is made and such interest shall not be recovered in the form of fees or any other form payable to the manager by the REIT.(17)No schemes shall be launched under the REIT.(18)The Board may specify any additional conditions for investments by the REIT as it deems fit.
