Sebi Proposes Changes To Disclosure Requirements For REITs and InvITs - Check Details

The Securities Exchange Board of India (Sebi) released a draft consultation paper on February 14. The market regulator proposed several changes to the disclosure requirements for financial results of Real Estate Investment Trusts (REITs) and Infrastructure Investment Trusts (InvITs). The proposed changes seek to align the disclosure requirements of InvITs and REITs with Sebi’s Issue of Capital and Disclosure Requirements (ICDR) and Listing Obligations and Disclosure Requirements (LODR).

The market regulator has proposed changes to both the disclosure of financial information in the offer document or placement memorandum, and continuous disclosures and compliances by REITs and InvITs.

The changes have been proposed by the regulator after it received a report from the Working Group on Ease of Doing Business for REITs and InvITs. The Working Group was constituted under the aegis of Hybrid Securities and Advisory Committee (HySAC).

“Based on the report of the Working Group, inputs of Indian REITs Association and Bharat InvITs Association, recommendations of the HySAC and internal deliberations, it is proposed to revise Chapter 3 and Chapter 4 along with paragraph 7 of Annexure – 5 and Annexure – 6 of the Master Circulars,” Sebi said.

The market regulator said that the proposed changes include certain Ease of Doing Business Measures (EoDBM) and some measures which are aimed at protecting investors. Here’s a look at the proposed changes:

Ease of Doing Business Measures

Some of the key Ease of Doing Business Measures include the alignment of the period of disclosure of financial statements in the offer document for InvITs and REITs with Issue of Capital and Disclosure Requirements Regulations, 2018. The regulator also proposed that REITs and InvITs should disclose combined financial statements in the offer document or placement memorandum for the initial offer, irrespective of the period for which the REIT/InvIT was in existence.

It has been proposed that REITs and InVITs also need to disclose audited consolidated financial statements in the follow-on offer along with a link to the REIT’s or InvIT’s website for accessing separate audited financial statements. The Sebi also said in the consultation paper that the disclosure and principles of preparation of pro forma financial statements for follow-on offers by REITs and InvITs should also be brought in line with the SEBI ICDR Regulations,2018.

Other measures proposed include changes to the framework for calculation of Net Distributable Cash Flows and a revision to the format for disclosure of ‘Statement of Net Assets at Fair Value’. The regulator also proposed that investors should provide clarification on classification of Unit Capital as Equity for the purpose of preparation of financial information and that the projections in the offer document or placement memorandum shall include at least three full financial years.

Measures For Investor Protection

Sebi proposed that the option available to REITs and InvITs to disclose condensed financial statements in the offer document and on continuous basis post listing should be removed.

Additionally, the market regulator has also made some disclosure requirements mandatory for REITs and InvITs such as the disclosure of quarterly results, timelines for disclosure, audit / limited review of financial results, preparation of segment information etc. Sebi has also mandated the applicability of Schedule III of the Companies Act, 2013 (with certain exceptions) for preparation of financial statements as part of continuous disclosure requirements.

Other key Sebi mandates include disclosure of Net Borrowings Ratio with the financial results and disclosure of other financial ratios for REITs and InvITs with outstanding borrowings.