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ALTERNATIVE INVESTMENT FUND (AIF), REAL ESTATE INVESTMENT TRUST (REITS)

&INFRASTRUCTURE INVESTMENT TRUST (INVITS)

NEW KIDS ON THE HORIZON

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Pooling vehicles – Existing & New

Major influencer(s) to new reforms

Alternative Investment Funds (AIF)Why AIF?AIF - StructureKey features Investment Conditions Benefits

Real Estate Investment Trusts (REITs) & Infrastructure Investment trusts (InvITs)Why REITs & InvITs?REITs & InvITs - StructureKey Features & Investment Conditions REITs & InvITs: Distinguishing FactorsBenefits Difference b/w AIF & REITs & InvITs

How these instruments may help you?

Conclusion

Outline

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Elevated Investment horizon for Industry, Investors & Economy

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Existing Pooling Vehicles

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New Pooling Vehicles

1. Not a pool 2. Account of each

investor maintained separately

VCF subsumed by

AIF

FII subsumed by

FPI

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Major Influencers to new reforms?

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Alternative Investment Fund (AIF)

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Why Alternative Investment Funds?

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Basic Structure of AIF

Investors

AIF (Fund) (in Trust from)(Fund Manager)

Trustee

SPV 1

SPV 2

SPV 3

SPV 4

Advisory

Services

Fee +

Carry

Investments ReturnsServices

Fee

Investments Returns

Sponsor

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AIF- Key Features & General Investment Conditions

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AIF - General Investment Conditions

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Categories of Funds and Coverage thereunder

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Alternative Investment Funds (AIF) – CATEGORY - I

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Alternative Investment Funds (AIF) – CATEGORY – I – Angel FundsRaising of funds only from “Angel Investors”

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Existing VCF AIF

SEBI VCF regulations are replaced by the SEBI AIF regulation which provides much wider horizon

in depicted below are the do and don’ts for existing VCFs:

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Alternative Investment Funds (AIF) – CATEGORY – II The Category is most broad with minimum restrictions

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Alternative Investment Funds (AIF) – CATEGORY - III

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Basic Structure of AIF

Investors

AIF (Fund) (in Trust from)(Fund Manager)

Trustee

SPV 1

SPV 2

SPV 3

SPV 4

Advisory

Services

Fee +

Carry

Investments ReturnsServices

Fee

Investments Returns

Sponsor

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AIF - Benefits

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Real Estate Investment Trust (REITs)&

Infrastructure Investment Trust (InvITs)

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Why REITs/InvITs?

The share of real estate sector in national GDP is expected to increase from 6.3 per cent in 2013 to 13 per cent by 2028.

Regulated through SEBI (REITs) Regulation, 2014 and SEBI (INVITs) Regulations, 2014

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REITs / InvITs – Understanding the Concept

In simplest terms:

REITS = Real Estate Mutual Funds

REITs

Investors

ReturnsTo Investor

Income Generating Properties

(i.e. completed projects)

Rental Income distributed regularly

Sale proceeds of property (sold at end of tenure) distributed to investors on liquidation

SPVs

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REITs/ InvITs Structure

REITsREITs

Lender(s)Lender(s)

Promoter(s)/Sponsor(s)Promoter(s)/Sponsor(s)

Investor(s)/Unit Holder(s)Investor(s)/Unit Holder(s)

Investment Manager(s) Investment Manager(s)

Asset Manager(s) Asset Manager(s) SPVSPV

Trustee(s)Trustee(s)

Contribution

ContributionReturnsDebt

Return in form of interest and

principal amount

Management services

Fees

Delegation of powers

Manages assets

Asset Management

FeeInvestment /Ownership Income

/Revenue

Trustee services

Fees

Assets/Property (ies)Assets/Property (ies)

Investment /Ownership

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Key features : REITs / InvITs

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Contd… Key features :REITs / InvITs

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Analogous elements of REITs / InvITsContd… Key features :REITs / InvITs

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Basic Distinguishing Factors between REITs / InvITs

PARTICULARS REITs INVITs

Min. Trading lot size

INR. 1 lakh • In case of initial Pvt . placement INR 1Cr.• In case of IPO and follow on offer INR 5 lakh

Fund raising Only through Initial public offer or follow on offer(s)

• Through pvt. placement if more 10% of asset value invested in under construction project .

• In any other case through IPO or follow on offer(s)

Min. acceptable investment

INR 2 lakhs • In case of initial Pvt . placement INR 1Cr.• In case of IPO and follow on offer INR 10 lakh

Min. number of unit holder(s)

Not specified • In pvt placed InvITs – 5 each holding not more than 20% units

• In publically placed – 20 each holding not more than 25%

Max. number of unit holder(s)

No limit • In pvt placed InvITs – 1000• In publically placed – No limit

Deployment of Funds

In Real Estate (i.e. land and any permanently attached improvements to it whether leasehold or freehold and includes buildings, sheds, garages, fences, fittings, fixtures, warehouses, car parks, etc. and any other assets incidental to the ownership of real estate but does not include mortgage)

In Infrastructure (i.e. asset falling under the purview of 'infrastructure' as defined vide Notification of Ministry of Finance dated October 07, 2013 and including any amendments or additions made thereof)

Income Generation

75% of the revenues to arise out of renting and leasing of real estate assets.

• No such condition

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REITs/ InvITs Structure

REITsREITs

Lender(s)Lender(s)

Promoter(s)/Sponsor(s)Promoter(s)/Sponsor(s)

Investor(s)/Unit Holder(s)Investor(s)/Unit Holder(s)

Investment Manager(s) Investment Manager(s)

Asset Manager(s) Asset Manager(s) SPVSPV

Trustee(s)Trustee(s)

Contribution

ContributionReturnsDebt

Return in form of interest and

principal amount

Management services

Fees

Delegation of powers

Manages assets

Asset Management

FeeInvestment /Ownership Income

/Revenue

Trustee services

Fees

Assets/Property (ies)Assets/Property (ies)

Investment /Ownership

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REITs / InvITs – How different from Mutual Funds?

PARTICULARS MUTUAL FUND REITs/ InvITs

Investment Securities of listed entities Real estate properties or infrastructure project

Stock Securities Income Generating Properties / Projects

Investment Period

Continuous buy and sale of securities in market

Investment for long term period of 10-15 years

Return to investors

From buying and selling of securities in listed market and appreciation of their value

From rent of these propertiesSale proceeds at end of tenure

Exit largely open ended so can redeemed anytime

close ended – on closure of scheme or can be sold on stock exchange at quoted value

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REITs/ InvITs – Benefits

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Differentiation between AIF and REITs / InvITs

Basis AIF REIT/InvITs

Legal Structure Provides flexibility of registering the fund as Trust, LLP or even a Company.

Can be set up only as a Trust & mandatorily to be registered with SEBI.

Fund Size and Asset base

AIF can start deployment with a minimum fund Corpus of INR 20 Crores

There is no minimum corpus though REIT to have minimum Assets (owned ) of INR 500 cr.

Fund Raising Only through Private Placement Only through IPO & FPO/ Right Issue /QIB/ Minimum Investor

Contribution

Only HNI investment – Minimum investment to be INR 1 Cr. (can be divided into two, i.e. close family members joint holding)

Retail investment allowed

Min. INR 2 lakhs (REITs)

Min. INR 10 lakhs (InvITs)Listing Optional (for close ended funds) Since fund to be raised only through IPO,

mandatory listingDeployment of

Fund

Much Flexibility, in accordance to the Scheme and/or Information memorandum.

Not more than 25% investment (of the fund corpus) in one project.

Not Direct investment in projects but in securities of the project companies either Debt, Equity or mezzanine.

Minimum 80% of investment to be in completed revenue generating properties.

Only in commercial real estate assets/ infra projects

Investments either directly in properties or through SPVs (no step down investment by SPV in another SPV)

Controlling interest in the SPVs

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How these instruments may help you?

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AIF - Statistics?

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Conclusion

Corporate Professionals D-28, South Extension –I, New Delhi-110 049

Ph: +91.11.40622200; Fax: +91.11.40622201; E: pkvijay@indiacp.com

Pavan Kumar Vijay

Thank You

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