Sebi notifies governance norms for REITs, InvITs similar to listed companies

Markets watchdog Sebi on Wednesday notified governance norms for Real Estate Investment Trusts (REITs) and Infrastructure Investment Trusts (InvITs) on the lines of listed companies.

In two separate notifications, provisions like those related to tenure of auditor, computation of leverage and unclaimed or unpaid distribution have been streamlined by the regulator.

This comes after the board of Sebi approved a proposal in December for introducing governance norms for REITs and InvITs on the lines of corporate governance norms for listed companies.

As part of streamlining the provisions for REITs and InvITs, the regulator said the tenure of an auditor will be made till the conclusion of the fifth annual general meeting of unitholders, and a statutory auditor will undertake a limited audit of all the entities or companies whose accounts are to be consolidated.

REITs or InvITs would not appoint an individual as the auditor for more than one term of five consecutive years, while an audit firm cannot be appointed as the auditor for more than two terms of five consecutive years.

Investment by these investment vehicles in overnight mutual funds would be considered as cash and cash equivalent, for the purpose of computation of leverage. Besides, unclaimed or unpaid distributions for REITs/ InvITs would be transferred to the 'Investor Protection and Education Fund' constituted by Sebi.

Further, certain provisions of Sebi (Listing Obligations and Disclosure Requirements) Regulations that are not directly applicable or are already specified for REITs and InvITs under respective regulations have been amended.

The Board of Directors of REITs or InvITs should comprise at least six directors and have at least one woman independent director. The quorum for every board meeting should be one-third of its total strength or three directors, whichever is higher, including at least one independent director.

Also, they have been asked to formulate a vigil mechanism, including a whistle blower policy for directors and employees to report genuine concerns. REITs and InvITs are relatively new investment instruments in the Indian context but are extremely popular in global markets.

While an REIT comprises a portfolio of commercial real assets, a major portion of which is already leased out, InvITs comprise a portfolio of infrastructure assets, such as highways and power transmission assets.