In recent months, the Securities and Exchange Board of India (“SEBI”) has carried out inspections of listed Real Estate Investment Trusts (REITs). These inspections culminated in the issuance of administrative warnings, show-cause notices, and deficiency letters, pointing to compliance gaps across the sector.

While these regulatory communications were directed at specific entities, the findings offer broader insights for REIT managers, sponsors, trustees, and other stakeholders. This note distills SEBI’s key observations and outlines compliance strategies that REITs may adopt to mitigate regulatory risk and enhance governance frameworks.

SEBI’s Key Findings and Our Recommendations:

• Warning: Non-disclosure of regulatory communications: One of the most prominent themes emerging from SEBI’s recent actions is the non-disclosure of regulatory communications. In several instances, REITs failed to disclose administrative warnings, show cause notices or deficiency letters received from SEBI to the stock exchanges.

Recommendations:

• Develop a materiality matrix that helps assess the disclosure relevance of any SEBI communication, even if not penal in nature.
• Implement internal SOPs for classification and timely disclosure.
• Integrate regulatory communications into board compliance dashboards with automated escalation for review.
• Disclosures should be formally reviewed by compliance/ legal teams and documented in board-level reporting.
• Conduct regular sessions with leadership and investor relations teams on evolving disclosure norms and SEBI’s interpretation of material information.
• Warning: Inaccuracies in Net Asset Value (NAV) reporting: Another area of concern pertains to inaccuracies in NAV reporting. SEBI observed that certain valuation methodologies deviated from prescribed norms, particularly with respect to the inclusion of goodwill or intangible components not backed by tangible cash flows.

Recommendations:

• Reconcile valuation practices with SEBI regulations and valuation advisor standards.
• Clearly articulate valuation assumptions in investor presentations and financial reports.
• REITs may also consider third-party validation of their valuation approach to reinforce credibility.
• Warning: Deficiencies in regulatory filings: Additionally, SEBI identified deficiencies in regulatory filings, especially with respect to the format, content and timeline of submissions. In such cases, the failure to comply with the prescribed structure or scope of disclosures was viewed as a lapse in compliance.

Recommendations:

• Develop internal checklists tied to specific SEBI norms.
• Conduct periodic compliance audits focused on disclosures.
• Create a periodical compliance calendar with legal oversight of critical submissions and regularly monitor it.
• Prepare annotated templates of regular filings like quarterly updates, financial results, and investor disclosures aligned with SEBI formats.
• Non-compliance with Minimum Net Worth requirement by the Manager
  SEBI observed instances of non-compliance with the requirement to maintain the prescribed minimum net worth by the REIT Manager, as mandated under Regulation 4(2) read with Regulations 7(b) and 7(c) of the REIT Regulations. This also included failure to intimate SEBI regarding compliance as of the relevant reporting date.

Recommendations:

• REIT Managers must proactively monitor their financial standing against regulatory thresholds, particularly the minimum net worth requirement under the REIT Regulations.
• Timely certification of compliance and formal intimation to SEBI should be integrated into the year-end compliance calendar.
• Where applicable, financial adjustments or capital infusion plans should be considered well in advance to ensure compliance and avoid regulatory action.
• Use dashboards to track real-time deviations from net worth norms, with internal red flags and escalation protocols.
• Include minimum net worth status as a recurring agenda item in quarterly board meetings of the REIT Manager.
• Warning: Oversight gaps on the part of trustees: The inspections also revealed oversight gaps on the part of trustees, highlighting the need for greater diligence and active supervision. Trustees are not merely passive overseers—they are expected to play an affirmative role in ensuring that REITs comply with the applicable laws.

Recommendations:

• Institutionalize quarterly trustee–manager meetings with formal minutes.
• Ensure trustees receive timely access to operational and compliance updates.
• Maintain documentation evidencing trustee involvement in material matters.
• Conduct periodical evaluations of trustee performance, including review of meeting attendance, inputs, and oversight effectiveness.
• Warning: Escalation of Informal Observations: Finally, SEBI’s actions illustrate that advisories and informal observations may escalate into formal enforcement proceedings if not addressed promptly and effectively. Entities that failed to act on earlier advisories were later issued show-cause notices. This reinforces the importance of treating even informal SEBI feedback with seriousness.

Recommendations:

• Treat advisories as early-stage enforcement triggers.
• Formulate written responses and internal corrective and preventive actions.
• Track implementation and closure of remedial actions.
• Advisory: Compliance with listed NCD obligations: Inspections highlighted non-compliance with certain provisions relating to listed non-convertible debentures, including failure to share soft copies of the annual report with debenture holders.

Recommendation:

REITs must ensure complete and timely compliance with all applicable provisions of the Listing Regulations and SEBI’s circulars related to listed debt securities. This includes procedural aspects such as communication with debenture holders and disclosures through debenture trustees.

• Advisory: Participation in Board and Committee Meetings: SEBI advised that only respective members should attend meetings of the board, audit committee, or other committees, and that special invitees must attend only those agenda items relevant to them and their participation must also be properly recorded.

Recommendations:

• Review and update cue sheet of Board and committee meetings to clearly delineate participation norms and special invitee roles.
• Require members and invitees to sign off on attendance sheets reflecting specific agenda items discussed related to them.
• Maintain detailed documentation of meeting attendance, decisions, dissent (if any), and invitee remarks for future audits or SEBI inspections.