Sebi releases standard framework for calculating Net Distributable Cash Flows for REITs and InvITs

According to earlier circulars, every investment manager of REITs or InvITs could define the NDCFs for themselves, subject to certain other regulations

The market regulator has issued a standard framework to compute net distributable cash flows (NDCFs) for Infrastructure Investment Trusts (InvITs) and Real-estate Investment Trusts (REITs).

Earlier, every investment manager of these trusts could decide how to define the NDCFs.

Through the latest two circulars issued on December 6, the Securities and Exchange Board of India (Sebi) has standardised the computation of NDCFs and informed that this was being done to promote the ease of doing business. It has given the particulars for the computation of NDCFs at the holding company/special purpose vehicle level and for the computation of the same at the trust level.

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REITs and InvITs are structured as trusts over a holding company, which sits over many special purpose vehicles (SPVs). The trusts are required to distribute a minimum of 90 percent of the NDCFs at the level of the trusts and the level of the HoldCo/SPVs.

The revised framework for both InvITs and REITs will become applicable from April 1, 2024.

The frameworks supersede the framework for the calculation of NDCF given in Paragraph F of Chapter 3 of the Master Circulars for InvITs and REITs, which were issued on July 6, 2023.

The master circulars had cited the provisions given in circulars issued in 2016.

According to these earlier circulars, every investment manager of REITs or InvITs could define the NDCFs for themselves, subject to compliance with the Companies Act or Limited Liability Partnership Act, 2008, or any Central Government Act, and provided that the definition is disclosed in the offer document.

According to a 2020 article written by experts at SR Batliboi & Co, "Leaving the decision of defining NDCF to the Investment Manager whose prime most objective is to distribute dividends is akin to leaving NDCF unregulated."

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Written by Paul Alvares, Partner of the firm and a Chartered Accountant, and by Mustafa Saleem, Director of the firm, the requirement for compliance with the Companies Act was "ineffective because these regulations do not define what is NDCF".