SECP Issues New Investment Policy for REIT Schemes

The Securities and Exchange Commission of Pakistan (SECP) has issued new investment policy for the real estate investment trust (REIT) schemes under which they would be entitled to invest in real estate/REIT Project/shares of limited liability companies, government debt securities or keep such funds as deposit with scheduled banks.

The SECP issued Real Estate Investment Trust Regulations, 2022 through S.R.O. 2067(I)/2022 notified on Saturday.

Under the new investment policy, a REIT Scheme shall primarily invest in Real Estate/REIT Project/shares of SPV and may invest any surplus funds in government debt securities or keep such funds as deposit with scheduled banks having not less than ‘AA’ long term rating or invest in money market fund.

The “REIT Project” would cover real estate projects with revenue generating capability executed under the REIT Scheme. The project types included residential, commercial, industrial, agriculture, healthcare, transport and communication, power, energy, telecommunication, water and sanitation, social, culture and commercial, mining, Real Estate forming part of Investment based REIT Scheme, or any other type as allowed by the Commission.

The SECP has also allowed the investors to execute projects of the real estate investment trusts (REITs) under two categories/structures i.e. Direct Investment Structure and Special Purpose Vehicle (SPV) Structure.

According to the new regulations, a REIT Scheme can be executed under two types of structures. Under the Direct Investment Structure, the REIT Scheme shall directly invest in the REIT Project.

As per Special Purpose Vehicle (SPV) Structure, the REIT Scheme, shall invest in the SPV, for execution/undertaking of the REIT Project or investment in REIT Project. The “Special Purpose Vehicle” or “SPV” means a limited liability company that is used as a conduit by a REIT Scheme for investment in REIT Project.

The new regulations revealed that  a company proposing to commence business as a Special Purpose Vehicle (the “SPV”) shall submit an application for registration along with documents as per Schedule-I. The company must have a paid-up capital of not less than one million rupees. The company ensures that its promoters or sponsors, directors, chief executive, officer or employee fulfils the fit and proper criteria and provide affidavits/undertakings duly attested by Oath Commissioner.

A Special purpose Vehicle may offer debt securities under securitization transaction, either by way of public offer or by way of private placement. Before making any public offer of debt securities, the Special purpose Vehicle shall seek prior approval of the Commission and for private placement of debt securities, it shall fulfil the requirements of private placement of Securities Rules, 2017.

A Special purpose Vehicle shall be obliged to manage its assets in the interest of the investors in good faith and to the best of its ability and without gaining any undue advantage for itself or any of its related parties, associates or its officers, SECP said.

An RMC shall hold or arrange through Strategic Investor(s), a minimum twenty-five (25) per cent Units of the initial size of the REIT Fund (equity only), till revocation of the fund or listing of REIT Scheme, whichever is earlier and the same shall be kept in an account marked as blocked and shall not be sold, transferred or encumbered. (2) In case, there is more than one Strategic Investor, each one of them shall hold not less than five percent (5%) Units of the REIT Scheme:

For public offering and listing of REIT Units, the REIT Scheme shall be listed subject to issuance or sale of Units to the public, through an Offering Document/Prospectus, as approved by the Commission, within a maximum period of three years from the date of Transfer of Real Estate or financial close whichever is later, SECP added.