The Securities and Exchange Board of India (Sebi), on June 27, 2023, notified the options through which the listed Real Estate Investment Trusts (REITs) and Infrastructure Investment Trusts (InvITs) can meet the minimum public holding requirement of 25 per cent.
This follows Sebi’s 2014 notification that mandated all listed REITs and InvITs to achieve a minimum of 25 per cent public unitholding within three years of their listing. To ensure adherence to these regulations, Sebi has released a new circular for the managers of REITs and InvITs explaining the options available.
Ways To Achieve 25% Public Unit Holding
One of the methods is the issuance of units to the public through an offer document. Additionally, sponsors or managers can sell units to the public through an offer document or via the stock exchange in the secondary market.
REITs and InvITs can also conduct rights and bonus issues for public unit holders. It allows existing unit holders to receive additional units based on their current holdings, incentivising them to maintain or increase their investments. Further, units can be allotted through institutional placement.
By meeting certain conditions, sponsors, managers, and their associates can sell units in the open market. They can sell up to 2 per cent of the total paid-up unit capital of the REIT or InvIT or five times the average monthly trading volume of the REIT and InvIT units every financial year until the minimum public unitholding requirement is due. They can sell a maximum of 5 per cent of the paid-up unit capital during a financial year.
Another way is to transfer units held by sponsors or managers to an Exchange Traded Fund (ETF) managed by a SEBI-registered mutual fund, up to 5 per cent of the paid-up unit capital of the REIT or InvIT.
To ensure compliance, SEBI has instructed stock exchanges to monitor the methods employed by InvITs in increasing their public unitholding. Any non-compliance observed by the stock exchanges must be reported to SEBI every quarter.
REITs and InvITs serve as investment trusts that enable individuals to invest in real estate or infrastructure assets. By pooling in money like a mutual fund, they can offer investors an opportunity to participate in these sectors while providing liquidity and diversification benefits. These investment vehicles generate regular income and long-term capital appreciation for unit holders.