Sebi issues guidelines on financial disclosures in REIT offer document
27 December 2016
The Securities and Exchange Board of India (Sebi) has released guidelines on the disclosure of financial information in the offer document by a real estate investment trust (REIT), which, according to the regulator, should contain financial information for the previous three completed financial years immediately preceding the date of offer document.
Sebi (Real Estate Investment Trusts) Regulations, 2014 (REIT Regulations) prescribe that these disclosures, inter-alia, should include disclosures of financial information of the REIT as well as the manager and the sponsor of the trust.
Under the Sebi rules, if the closing date of the last completed financial year falls more than six months before the date of offer document, then the REIT should also disclose interim financial information, in addition to the three-year financial information.
The interim financial information should not be more than six months old from the date of offer document. REIT should disclose the financial information depending upon the history of the trust.
If the REIT has been in existence for the last three completed financial years immediately preceding the date of offer document, then the historical financial statements of the REIT (on both standalone as well as consolidated basis) for last three years, and the interim period, if any, should be disclosed.
If the REIT has been in existence for less than the last three completed financial years and the historical financial statements of REIT are not available for some portion or the entire portion of the reporting period of three years and interim period, then the combined financial statements need to be disclosed for the periods when such historical financial statements are not available.
The financial information should be prepared in accordance with Indian Accounting Standards (Ind AS) and/or any addendum thereto as defined in Rule 2 (1) (a) of the Companies (Indian Accounting Standards) Rules, 2015.
The financial information presented by the REIT can be in the form of condensed financial statements. Such financial information ould with the minimum requirements for condensed financial statements as described in Ind AS 34 on 'Interim Financial Reporting', to the extent applicable.
The financial information should, inter-alia, disclose the following financial statements:
- Balance Sheet;
- Statement of profit and loss/Income and expenditure;
- Statement of changes in unit holders' equity;
- Statement of cash flows / receipts and payments;
- Statement of net assets at fair value;
- Statement of total returns at fair value; and
- Explanatory notes annexed to, or forming part of, any statements referred above.
The financial information should be disclosed after making adjustments / rectifications for all erroneous accounting practices or failures to make provisions or other matters which resulted in modified opinion(s) or modification(s) to the opinion in the auditor's report.
Modified opinion(s), where quantification is not possible and which have not been adjusted, should be highlighted along with the management comments. If the impact of above adjustments / rectifications is not considered ascertainable, then a statement to that effect shall be given by the auditors.
Financial statements should disclose all 'material' items, ie, the items if they can, individually or collectively, influence the decisions made on the basis of the financial statements. Materiality will be judged and determined by the manager depending upon pertinent facts and circumstances, including the size or nature of the item or a combination of both.
In addition to the consideration of 'materiality' as specified above, any item of income or expenditure, which exceeds one per cent of the revenue from operations or Rs10 lakh, whichever is higher, should be disclosed separately either on the face of financial statements or in the schedules/notes.
In addition to the financial statements referred to above, the REIT should also include property wise rental/operating income as a part of the audited financial information and shall also be subjected to audit.
A statement of REIT's Contingent liabilities, if any, as on the date of latest financial information disclosed in the offer document, shall be disclosed.
If there are any material changes in the contingent liabilities from the aforementioned date of latest financial information to the date of the offer document, the details of such changes shall be disclosed in the offer document.
A statement of REIT's Commitments, if any, as on the date of latest financial information disclosed in the offer document, shall be disclosed.
If there are any material changes in the commitments from the aforementioned date of latest financial information to the date of the offer document, the details of such changes shall be disclosed in the offer document.
For the related parties as defined in the REIT regulations, the REIT should provide relevant disclosures of all related party transactions in compliance with the requirements of ''Ind AS 24 - Related Party Disclosures'' and the REIT Regulations.
Further, these should also, wherever applicable, include details of related party and its relationship with REIT, nature of the transaction, value of the transaction, transaction involving acquisition or disposal of an real estate asset / property, etc.