Explained | What REITs are and why they have come up in SEBI-Hindenburg row

Hindenburg questioned SEBI's decision to amend REIT regulations, suggesting that these alterations led to the benefit of some entities, especially Blackstone.

The new Hindenburg report has taken potshots at SEBI chief Madhabi Puri Buch, alleging that she had stakes in off-shore companies involved in the Adani 'scam'.

In its report, Hindenburg also questioned the watchdog's decision to amend REIT regulations, suggesting that these alterations led to the benefit of some entities, especially Blackstone.

SEBI, in a statement, has vehemently refuted these claims.

Here we take a look at what REITs are and how they're exactly connected to the fracas.

What are REITs?

REIT or Real Estate Investment Trust is a trust that is registered with the SEBI to carry out whatever activity is prescribed under the SEBI (Real Estate Investment Trusts) Regulations, 2014. A REIT raises funds by issuing units to investors and then invests the funds mainly in assets in the real estate sector.

Investments in such assets can be made through SPV/Holding Company. Investors who have units in a REIT are unit holders. The income tax generated from the REIT's underlying assets are distributed among unit holders regularly.

These work like shares or mutual funds. REITs have to be listed on exchanges and traded like securities. Small investors can buy REIT units from primary and secondary markets, much like they buy shares or units of mutual funds.

What was India's first REIT?

India's first REIT was Embassy and it was sponsored by Blackstone. It got SEBI's approval in April 2019, the Hindenburg report said.

Thus far, Blackstone has sponsored the Mindspace REIT, which was India's second publicly traded REIT, in August 2020, and the Nexus Select Trust, which was listed in May 2023, as per the report.

Hindustan Times, citing sources, said that in December 2023, Blackstone sold its 23.5 per cent stake in the Embassy Office Parks REIT for around Rs 7,100 crore.

What Hindenburg report says about Blackstone-REITs connection

As per the report from the US-based short-seller, Madhabi's husband, Dhaval Buch was appointed senior advisor to Blackstone in 2019, despite having "never worked for a fund, in real estate or at a capital markets firm". He was the chief procurement officer at Unilever.

The report said, "Despite the lack of experience in these areas, he joined Blackstone, a global private equity firm and large investor in India, as a 'Senior Advisor' in July 2019, as per his LinkedIn."

Blackstone is one of the largest investors and sponsors of REITs -- which is a nascent asset class in India, the report claimed.

As per the report, during Dhaval's time as Blackstone advisor, SEBI proposed, approved, and facilitated major REIT regulation changes.

Among them were seven consultation papers, three consolidated updates, nomination rights and two new regulatory frameworks for units, which the report alleges, specifically helped private equity firms like Blackstone.

The report also noted that during conferences, Madhabi touted REITs as her "favourite product for the future", urging investors to look "positively' upon the asset class.

She didn't mention, at this time, that Blackstone, who her husband advises, also stands to gain significantly from the asset class, as per Hindenburg's report.

The Buchs have said that Dhaval was not associated with the real estate side of Blackstone, and that his appointment came ahead of Madhabi's elevation to SEBI chief. The couple also noted that Blackstone was added to Madhabi's 'recusal list' with the watchdog backing the two, adding that decisions there are approved by the Board, not the chairperson.

SEBI labelled the allegations "malicious and motivated".

Moneycontrol reported that Blackstone might issue a statement in the coming days to clarify Dhaval's role and address any potential misconceptions.