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Business News/ Market / Stock-market-news/  REITs must disclose revenue outlook: Sebi
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REITs must disclose revenue outlook: Sebi

Sebi says investment managers of real estate investment trusts, or Reits, must have a minimum 3-year operating cash flow forecast in offer documents

Earlier this month, Sebi issued norms for public issuance of REITs, including allocation of units to institutional investors. Photo: Abhijit Bhatlekar/MintPremium
Earlier this month, Sebi issued norms for public issuance of REITs, including allocation of units to institutional investors. Photo: Abhijit Bhatlekar/Mint

Mumbai: The Securities and Exchange Board of India (Sebi) on Monday said that investment managers of real estate investment trusts, or REITs, should project the fund’s revenues and property-wise operating cash flows for at least three successive years in its offer documents.

The capital markets regulator also said that the managers must disclose the details of assets that are proposed to be owned by the REITs before the allotment of units is made in the public offer as it seeks to make the security vehicle more transparent.

In the past eight years, Sebi has tweaked the REITs rules several times, aiming to promote investments modelled along the lines of mutual funds in real estate.

But so far, not a single one has been set up. On 6 October, Embassy Office Parks filed an application with Sebi to launch one, and the regulator is currently vetting the proposal.

Apart from cash flow projections, the regulator also wants investment managers to disclose the details of working capital.

In case there is insufficient working capital, a statement should be provided describing how the fund proposes to meet this requirement, the Sebi circular said.

For ensuring transparency in dealings by REITs and the entities associated with them, the market watchdog said the trust will need to disclose the details of all related parties, the nature of related party transactions and their values in the offer documents.

Further, while allotting REIT units to the public, fund managers will need to disclose the financial information of three preceding years including balance sheets, profit and loss statements, changes in unit holders’ equity, cash flows, statement of net assets at fair value, statement of total returns at fair value and so on, Sebi said.

REITs also have to compulsorily disclose all “material" items in their financial statements. Sebi defined such material items as those which can influence decisions made by REITs. Separately, any item of income or expenditure worth Rs10 lakh or amounting to at least 1% of the REIT’s revenue from operations will need to be disclosed separately.

The move comes after Sebi earlier this month issued detailed norms for public issuance of REITs, including allocation of units to institutional investors.

In case of any related party transaction involving acquisition or disposal of a REIT asset, the trust will have to inform about summary of valuation report, material conditions or obligations in relation to the transactions, and commissions received by any associate of the related party in relation to the transaction, Sebi said.

In case of a capital offering subsequent to the initial offer, the market value of the units traded on all the stock exchanges where REIT is listed will have to be disclosed.

The trust will have to disclose the framework for calculation of net distributable cash flows, said the Sebi circular.

While financial numbers have to be shown according to Indian accounting standards, “if any of the investment manager/sponsor is a foreign entity and is not legally required to comply with the Companies Act, 2013, then the financial statements of such entity may be prepared in accordance with International Financial Reporting Standards (IFRS)," Sebi noted.

“Sebi has offered further clarity on its earlier guidelines and these are in line with global best practices. These also ensure that there are high quality issuers of REITs once they are launched in India," said Raj Menda, corporate chairman of Bengaluru-based RMZ Corp.

Abhishek Goenka, partner, PwC said that now there is clarity that the accounting norms companies have to follow is Ind-AS (Indian accounting standards). “Also, in line with its guidelines on transparency, Sebi has asked for disclosure of rental generation of each priority," he said.

Madhurima Nandy and PTI
contributed to this story.

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ABOUT THE AUTHOR
Anirudh Laskar
Anirudh reports on significant corporate matters including large mergers and acquisitions, India's emerging e-commerce sector and regulatory issues in the corporate and financial services industry. Over the past 17 years, he has covered many beats including banking, NBFCs, aviation, automobile, insurance, markets, SEBI, IRDAI, mutual funds, investment banking, private equity, deals, and conglomerates.
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Published: 27 Dec 2016, 12:33 AM IST
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