Since their introduction in the Indian market, Real Estate Investment Trusts (REITs) and Infrastructure Investment Trusts (InvITs) have emerged as dynamic investment avenues in India, attracting substantial public participation. As on date four (4) REITs and five (5) InvITs are publicly listed and eighteen (18) InvITs are privately listed. Over the last three years, RIETs and InvITs have cumulatively raised around INR 64,321.49 crores¹  from the market (including funds raised through public issue, private placement, preferential issue, institutional placement, rights issue).

Recognizing their growing significance, the Securities and Exchange Board of India (“SEBI”) has from time to time introduced required changes in their regulatory framework including but not limited to governance and disclosure frameworks to enhance reporting, promote transparency and strengthen stakeholder confidence.

However, despite prescribing governance and disclosure frameworks for listed REITs and InvITs, there is a noticeable absence of standardized guidelines for determining the materiality of transactions, clear disclosure formats, and standardized reporting timelines . This lead to challenges being faced by  these entities in determining the requirement and timeline of reporting a transaction and for investors in assessing relevant information. This is unlike listed companies, which are governed by SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 (“LODR Regulations”).

Applicability of LODR Regulations to REITs/ InvITs

The LODR Regulations are a set of regulations laid out by SEBI to ensure that entities listed on recognized stock exchanges adhere to comprehensive corporate governance norms and provide timely, accurate, and transparent disclosures to shareholders and other stakeholders. These regulations cover diverse areas, including financial reporting, board composition, shareholder rights, and the disclosure of material events.

A critical provision within the LODR framework is Regulation 30 which mandates listed companies to disclose material events and information impacting investors based on objective criteria’s determination of materiality, along with specific timelines for such disclosures. Para A of Part A of Schedule III lists events that are considered deemed material and must be disclosed whereas Para B of Part A of Schedule III includes events that require disclosure only if they meet the materiality criteria specified in Regulation 30(4) of the LODR Regulations. Furthermore, SEBI’s Master Circular dated November 11, 2024, as amended from time to time, outlines the details that need to be provided while disclosing events, and timeline for disclosing events. Regulation 30 leads to the creation of an effective regulatory regime on the disclosure of material events to ensure transparency and symmetry in availability of information.

However, the regulatory framework for REITs and InvITs diverges significantly from that of listed entities. Their disclosure obligations are primarily governed by their respective regulations, with only limited applicability of LODR Regulations. Since units of REITs/ InvITs listed on a recognized stock exchange are not covered under the definition of specified securities, such entities are not subject to the full scope of LODR Regulations. The restricted applicability of LODR Regulations stems from Regulation 26A and 26G of the SEBI (REITs) Regulations, 2014 and SEBI (InvITs) Regulations, 2014 respectively read in conjunction with clause 4.18 of their respective Master Circulars, both issued on May 15, 2024. These provisions selectively apply certain LODR Regulations to REITs and InvITs while specifically exempting them from Regulation 30, which governs the disclosure of material events.

Challenges in Disclosure Practices

A major regulatory challenge faced by REITs/ InvITs is the absence of standardized criteria for determining materiality, as well as the lack of uniform disclosure formats and specific reporting timelines for transactions.

Unlike Regulation 30(4) of the LODR Regulations, which explicitly defines materiality criteria, the REIT and InvIT Regulations do not prescribe a standardized framework for determining materiality. Consequently, REITs and InvITs have developed their own Materiality Policies, establishing independent criteria to assess the significance of transactions based on various parameters .

Most of these entities have adopted lists of events and transactions similar to those outlined in Paragraph A of Schedule III of the LODR Regulations, which are deemed material without requiring the application of any materiality criteria. Additionally, they have defined individual materiality thresholds to determine whether a transaction qualifies as material. These thresholds, disclosed in their respective materiality policies, vary across entities. For instance, some classify a transaction as material if it impacts 5% or more of the Trust’s total asset value, while others apply a higher threshold of 15% or more.

Additionally, with regard to disclosure timelines, unlike listed entities, which must disclose acquisitions within strict timelines, REITs and InvITs have no prescribed format or timeframe, leading to discretionary practices. But this distinct approach by different REITs and leads to inconsistency in standardization of disclosures. This variability leads to a fragmented disclosure regime, making it difficult for investors to compare information across REITs and InvITs.

Recommendations for strengthening the disclosure framework

To enhance transparency, consistency, and investor confidence, SEBI should establish criteria for defining material events and a standardized disclosure framework for REITs and InvITs, aligning their reporting practices more closely with those of equity listed entities. A structured approach could include:

• defining clear criteria for identifying material events and transactions
• establishing minimum disclosure requirements to ensure comprehensive reporting
• setting specific timelines for event-based disclosures to eliminate uncertainty
• encouraging best practices in investor reporting to enhance market confidence

While some REITs and InvITs voluntarily follow disclosure practices similar to those of listed companies, the absence of formal, tailored regulations creates regulatory uncertainty. Implementing a dedicated disclosure framework would not only streamline compliance but also ensure comparability of information, leading to better investment decisions and improved market efficiency.

Alternatively, industry bodies such as the Indian REITs Association and the Bharat InvITs Association could be authorized to develop and oversee disclosure standards for REITs and InvITs. This approach would allow for sector-specific expertise in defining disclosure requirements while maintaining regulatory oversight.

Conclusion

By addressing these regulatory inconsistencies, SEBI can foster a more transparent and efficient disclosure regime for REITs and InvITs. Establishing clear guidelines will help eliminate uncertainty, enhance investor protection, and contribute to the overall stability and growth of the sector.