REIT is a company that owns and operates income generating real estate. Like Mutual Funds, REITs pool capital from numerous investors to invest in commercial properties. In return investors receive Income in the form of dividend & interest at regular intervals
| Name | Last Traded Price (₹) |
Market Cap (₹ In Crs.) |
FY23 Distribution (₹/Unit) | FY23 Yield (%) | FY24 Projected Distribution*(₹/Unit) | FY24 Projected Yield* (%) | Action |
|---|---|---|---|---|---|---|---|
| Brookfield India Real Estate Trust | 274 | 13,151 | 20.10 | 7.30 | 20.6 | 7.52 | BUY |
| Embassy Office Parks REIT | 370 | 34,925 | 21.71 | 6.70 | 21.8 | 5.9 | BUY |
| Mindspace Business Parks REIT | 379 | 22,545 | 19.10 | 6.90 | 19.2 | 5.07 | BUY |
| Nexus Select Trust | 143 | 21,531 | NA | NA | 7.6 | 5.33 | BUY |
Access to income generating real estate with as low as Rs. 300
SEBI regulations require REITs to payout 90% of distributable cash flow
Arising from increase in value of underlying real estate over time
Across geographies & tenants. Eliminates concentration risk
Compared to physical real estate, REITs are listed & traded on exchanges
Ensures optimal return on investment, transparency & accountability
Usually a real estate company that sets up and transfers properties to REIT
Money left to distribute to the unit holders. SEBI requires 90% of NDCF to be paid to unitholders
Annual income payments made to unitholders as a percentage of its unit price. Higher the better
Time left for the property to go vacant. Higher the better
Estimated market value of properties minus all liabilities, divided by number of units outstanding
Percentage of available space occupied by tenants. Higher the better.
Average in-place rent compared to estimated market rent. Higher the better
Debt borrowed compared to underlying asset value. Lower the better.
| Key Performance Metric | Brookfield | Embassy | Mindspace | Nexus |
|---|---|---|---|---|
| Issue Date | Feb-21 | Apr-19 | Aug-20 | May-23 |
| Issue Price | 275 | 300 | 275 | 100 |
| Current Price | ||||
| NAV as of March ’24 | 332.6 | 401.59 | 380.5 | 145 |
| Distribution till date | 64.55 | 116.27 | 71.34 | 9.217 |
| (-) Dividend income | 1.47 | 32.12 | 63.59 | 5.205 |
| (-) Interest Income | 34.69 | 29.6 | 6.09 | 2.797 |
| (-) Capital Repayment | 28.39 | 54.55 | 1.66 | 1.215 |
| Indicative XIRR since listing | ||||
| Distribution Update - Q1 FY 2025 | ||||
| FY25 Distribution per Unit - | 4.50 | 5.60 | 5.04 | 2.15 |
| (-) Dividend income | 0.51 | 1.56 | 3.03 | 1.245 |
| (-) Interest Income | 1.86 | 0.85 | 0.35 | 0.707 |
| (-) Capital Repayment | 2.13 | 3.19 | 1.66 | 0.195 |
| Projected Distribution for the year | 18.20 | 22.50 | 21.30 | 8.70 |
| Portfolio Update | ||||
| Total Portfolio (msf) | 28.8 | 51 | 33.6 | NA |
| Completed Area (msf) | 24.2 | 37.7 | 26.3 | 11.2 |
| Q1 FY 2025 Net Opertating Income (NOI) | 474.8 Cr | 757.5 Cr | 496.4 Cr | 236 Cr |
| Occupancy Rate | 88% | 85% | 91% | 95% |
| Rent psf | 94 | 87 | 70 | NA |
| MTM Potential | 16% | 9% | 7.50% | 20% |
| Weighted Average Lease Expiry (WALE) | 7.1 Years | 7.6 Years | 6.9 Years | 3.3 Years |
| Area coming under expiry in FY 24 (msf) | 1.2 | 2.2 | 2 | 0.7 |
| Net Debt to value | 39% | 32% | 22% | 14% |
| Top 10 Tenants (% of total presence) | 35% | 36.20% | 27.50% | NA |
| Particulars | REITs | Real Estate |
|---|---|---|
| Low Capital Requirement | Invest as low as Rs. 300-400 | Usually High capital amount |
| Liquidity | Tradable on Exchange | Liquidity takes longer time |
| Low Transaction Cost | Very Low | On the higher side |
| Diversification | Widespread Investments | Concentration risk |
| Control | Professionally managed | Direct control |
| Nature of Income | Tax Liability for Unit Holders |
|---|---|
| Dividend Income* | Exempt in the hands of unitholders |
| Interest Income | As per marginal tax slabs |
| Other Income (If any) | As per marginal tax slabs |
| Capital Repayment(till the cost at which unit was issued) | Treated as return of capital,i.e reduction from cost ofacquisition |
| Sale of Units (Long Term Capital Gains – Holding Period > 1 Year) | Gains up to ₹1.25 lakhs are exempted u/s 112A. Above ₹1.25 lakhs, taxable at 12.5% |
| Sale of Units (Short Term Capital Gains – Holding Period < 1 Year) | Gains taxed at 20% |
A Real Estate Investment Trust (“REIT”) is an entity that owns & operates income-producing real estate. REITs pool capital of numerous investors (just like a mutual fund) to invest in large-scale, high-value income producing real estate. This makes it possible for individual investors to earn income/dividends from real estate investments without having to buy, manage or finance any properties themselves. REITs invest in a wide range on properties including office building, apartments, cell towers, hotels, data centers, warehouses, malls, cold storage, etc.
A REIT is set up in the form of a trust registered with Securities and Exchange Board of India (SEBI). The sponsor or the investor who creates the trust, transfers ownership of the properties to the REIT in exchange for units. The sponsor holds a certain minimum percentage of the total units and makes an Initial Public Offer (IPO) of remaining units within three years to get REIT listed on the stock exchange. Post issuance, investors hold the REIT units just like mutual fund units.
REITs have a three tier structure which includes Sponsor, Trustee and Manager.
Sponsor: The sponsor is the entity who forms the REIT. They set up the REIT and transfer the properties/real estate owned by them to the trust. A real estate developer desiring of raising funds plays the role of a sponsor in a REIT
Trustee: The trustee is a person appointed by the sponsor, who holds the assets on behalf of the unitholders.
Manager: The trustee appoints a manager who manages the REIT assets and is responsible for making investment decisions. The manager is typically a private company closely held by the sponsor
REITs generate returns for investors in three ways –
Dividend Income: REITs are required to distribute at least 90% of its net distributable cash flow i.e. rents minus the expenses to manage the properties, as dividends at least twice a year. The dividend payouts can rise if rental rates rise or if the REIT builds additional properties and leases them out. Higher the rent, higher the dividends.
Interest Income: REITs can distribute interest income that it earns on loans given out to its subsidiaries. Most REITs do not own properties directly. Instead, they hold stakes in Special Purpose Vehicles (SPVs) which, in turn, directly hold the properties. REITs lend money to these SPVs for constructing or managing a building and the SPVs in turn repay those loans back with interest to the REIT over time.
Capital Appreciation: The price of an REIT’s units can rise or fall over time just like stock prices and result in capital gains or losses for the investor. Higher incomes due to rent escalation clauses and on-boarding of new properties lead to a re-rating of an REIT unit’s price.
Investors have multiple ways to invest in REITs. You can buy / sell the units through ICICI Direct platform as the REITs are listed on the stock exchanges.
Also, an investor can apply to the Initial Public Offering (IPO) of the REIT. The minimum application value will range between Rs. 10,000 – Rs. 15,000.
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