Real Estate Investment Trusts: formula sheet

Key formulas

Equity REIT

Owns and operates property → income = rent (plus sale gains)

Most common type. Indian REITs are largely of this kind.

Mortgage REIT

Lends against property or holds mortgage securities → income = interest

Exposed to interest rate and credit risk rather than property value.

Hybrid REIT

Equity REIT + Mortgage REIT

Holds both properties and mortgages.

Parties to an Indian REIT

Sponsor + Manager + Trustee (+ Unit holders)

The REIT is a trust registered with SEBI. The trustee must be independent of the sponsor and manager.

Role summary

Sponsor = sets up; Manager = manages; Trustee = holds and oversees; Unit holders = own units

Use this one-line frame to answer role questions.

Minimum asset value and offer size

Value of REIT assets ≥ ₹500 crore; initial offer size ≥ ₹250 crore

These are the figures in the Regulations as amended. Both conditions apply to an initial public offer, and they are two separate tests. Confirm against the current text.

Minimum subscription

Minimum subscription = 90% of the offer size

If not received, the offer fails and money is refunded within the period stated in the Regulations.

Spread of allottees

Number of subscribers, other than the sponsor(s), its associates and the sponsor group, ≥ 200

Ensures the units are not closely held. Confirm the exact exclusions against the current text of the Regulations.

Sponsor holding

Sponsors collectively ≥ 25% of total units after the initial offer, for at least 3 years from listing; a sponsor must hold ≥ 5% to count towards this

Any holding above 25% is locked in for 1 year from listing. The lock-in keeps sponsors committed. Figures are as per the Regulations as amended; confirm against the current text.

Public holding

Public unit holding ≥ 25% of outstanding units after listing

This comes from the minimum public offer and public holding conditions, so read it with the offer rules. Confirm the figure and any relaxation against the current Regulations.

Ordinary resolution

Votes in favour > votes against

Votes of related parties and their associates who are interested in the matter are excluded.

Special resolution

Votes in favour ≥ 2 × votes against

Used for the weightier matters listed in the Regulations. Interested related parties and their associates cannot vote here either.

Minimum distribution

Distribution ≥ 90% × Net distributable cash flows (NDCF)

At SPV level, the distribution is made to the REIT or holdco. At REIT level, it is made to unitholders. Check the current regulation for the exact NDCF definition.

Frequency of distribution

At least once every quarter

Current position after SEBI's amendment; the 2014 Regulations originally required at least half-yearly distribution. Declared and paid within the time limit in the Regulations.

Net Asset Value per unit

NAV = (Value of assets − Liabilities) ÷ Number of units

Asset value comes from the valuer's report. Units outstanding must be used, not the units offered.

Valuation frequency

Full valuation by the valuer: at least once a year (as at March 31); half-yearly valuation as at September 30 is an update of the latest full valuation

Valuer must be independent and eligible under the Regulations. Confirm the disclosure period in the current Regulations.

Quick revision

• A REIT is a trust that owns income-producing real estate and distributes most of its income to unit holders.
• The governing law is the SEBI (Real Estate Investment Trusts) Regulations, 2014, as amended.
• Know the parties: trust, sponsor, manager and trustee, and what each does.
• A REIT must be registered with SEBI before it raises money from the public.
• Check eligibility conditions for sponsor, manager and trustee separately; do not mix them.
• Learn the investment limits and asset restrictions with their exact figures from the current text.
• Know the borrowing limits and the conditions that apply when they are exceeded.
• Units are listed on a recognised stock exchange after the offer.
• Unit holders have voting rights on specified matters, so learn which decisions need their approval.
• Distribution must follow the prescribed frequency and share of cash flows.
• Valuation is done by a registered valuer, and disclosures are made periodically.
• In answers, state the rule, apply it to the facts, and give a clear conclusion.

Common mistakes

• Describing a REIT as a company that owns property. Fix: Say it is a trust. Investors hold units, not shares, and the trustee holds the assets for unit holders.
• Confusing REITs with direct property ownership or real estate mutual funds. Fix: Stress that a REIT holds real estate assets through a regulated trust and its units are listed, unlike direct ownership.
• Saying a mortgage REIT owns buildings and earns rent. Fix: Link mortgage REITs to lending and interest income. Ownership and rent belong to equity REITs.
• Mixing up the manager and the trustee. Fix: The manager runs operations and investments. The trustee holds the assets for unit holders and supervises the manager.
• Counting related-party votes in the result. Fix: Always remove votes of related parties and their associates who are interested in the matter before computing the majority.
• Mixing up ₹500 crore asset value with ₹250 crore offer size. Fix: Remember: assets 500, offer 250. They are two separate tests, so check each one on its own.
• Applying the 90% to profit instead of net distributable cash flows. Fix: Use NDCF as defined in the Regulations. It is cash-based, not profit-based.
• Saying distribution is only at the REIT level. Fix: State both levels: SPV or holdco to the REIT, then the REIT to unitholders.

Exam tips

• Open with a crisp definition that uses the word trust and the word units. It earns easy marks.
• Give investor benefits and sector benefits separately when the question says both.
• Always include risks in an evaluation question. A one-sided answer loses marks.
• Use the case facts, such as the investor's amount or the property type, in your conclusion.
• Keep roles of sponsor, manager and trustee short and accurate; detailed regulations are covered in later topics.
• Start every answer with a one-line definition of a REIT as a trust, then move to the point asked.
• For a classification case, point to the exact facts (rent, interest, assets held) that decide the type.
• Use the one-line role summary for sponsor, manager, trustee and unit holders, then add case-specific duties.