Real Estate Investment Trust (REITs)
Is a hybrid product between Equity and Fixed Income which generates regular & growing cash yields & also gives capital appreciation due to increase in value of commercial properties (Offices, hotels, retail, industrial, healthcare)
(thread)
Is a hybrid product between Equity and Fixed Income which generates regular & growing cash yields & also gives capital appreciation due to increase in value of commercial properties (Offices, hotels, retail, industrial, healthcare)
(thread)
1/ History:
REITs were first introduced in the US in the early 1960s and have since then been adopted as a preferred investment mode across the world in at least 30 countries.
In India, SEBI introduced its draft REIT regulations in 2007, which were enacted in India on 26Sep'2014.
REITs were first introduced in the US in the early 1960s and have since then been adopted as a preferred investment mode across the world in at least 30 countries.
In India, SEBI introduced its draft REIT regulations in 2007, which were enacted in India on 26Sep'2014.
2/ Conditions for REITs in India:
- Sponsor >5 yrs experience in RE
- >80% of the value of a REIT to be completed and rent-generating RE, with a lock-in 3 yrs from purchase
- Value of REIT assets >500cr.
- REIT’s revenues >51% from renting RE.
- Leverage <50% of total assets.
- Sponsor >5 yrs experience in RE
- >80% of the value of a REIT to be completed and rent-generating RE, with a lock-in 3 yrs from purchase
- Value of REIT assets >500cr.
- REIT’s revenues >51% from renting RE.
- Leverage <50% of total assets.
3/ Structure of REIT
- Sponsor – sets up REIT and appoints a trustee
- Trustees - holds assets on behalf of and for the benefit of investors
- Manager – undertakes operational responsibility of REIT
- SPVs - Holds assets or projects
- Sponsor – sets up REIT and appoints a trustee
- Trustees - holds assets on behalf of and for the benefit of investors
- Manager – undertakes operational responsibility of REIT
- SPVs - Holds assets or projects
4/ Benefits to Developer/Sponsor
- Increased liquidity
- Lesser cost of capital
- Management & control over the assets
- Continued income through Operations & Maintenance (O&M) contracts
- Increased liquidity
- Lesser cost of capital
- Management & control over the assets
- Continued income through Operations & Maintenance (O&M) contracts
5/ Benefits to Investors
- Access to investments in the CRE sector for retail investors (min.50k)
- Assured Income
- Professional management for comfort on the underlying value
- Regulated by authorities – ensures transparency
- Tax Efficient (Dividend Income is Tax Exempted)
- Access to investments in the CRE sector for retail investors (min.50k)
- Assured Income
- Professional management for comfort on the underlying value
- Regulated by authorities – ensures transparency
- Tax Efficient (Dividend Income is Tax Exempted)
6/ Who all can invest?
1. Any investor (domestic / foreign / retail / institutional) can buy REIT units in India
2. Minimum lot size of 200 units (and multiples thereof)
3. Unit-holders can purchase/sell REIT units through a Demat account, similar to equity shares
1. Any investor (domestic / foreign / retail / institutional) can buy REIT units in India
2. Minimum lot size of 200 units (and multiples thereof)
3. Unit-holders can purchase/sell REIT units through a Demat account, similar to equity shares
7/How REITs distribute returns:
1. Receive rents from the commercial properties they’ve leased out.
2. Receive interest payments from SPVs which they have funded to develop the property.
3. When market prices of properties rises and are captured in NAV -capital appreciation.
1. Receive rents from the commercial properties they’ve leased out.
2. Receive interest payments from SPVs which they have funded to develop the property.
3. When market prices of properties rises and are captured in NAV -capital appreciation.
8/ REITs need to distribute >90% of the cash flows they receive (mandated at least once in every 6 months)
Taxability:
- Distribution: Rents are tax-exempt but Interest is taxable as per slab
- Capital gains: STCG (<3 yrs) - 15% & LTCG (>3 yrs) - 10%
Taxability:
- Distribution: Rents are tax-exempt but Interest is taxable as per slab
- Capital gains: STCG (<3 yrs) - 15% & LTCG (>3 yrs) - 10%
9A/ Short Term Nature of the Pandemic-related Concerns (views)
- Grade-A office space is limited. Quality buildings can ensure that employee health and safety norms are adhered to, both comfortably and conveniently
- Grade-A office space is limited. Quality buildings can ensure that employee health and safety norms are adhered to, both comfortably and conveniently
9B/
-WFH cannot substitute WFO entirely. In India, working conditions at home are not comparable to western countries.
-De-densification of office spaces will mean, return of golden rule (100 sq. ft. per person) of the early 2000s: Space per employee rising 15-20% is a critical.
-WFH cannot substitute WFO entirely. In India, working conditions at home are not comparable to western countries.
-De-densification of office spaces will mean, return of golden rule (100 sq. ft. per person) of the early 2000s: Space per employee rising 15-20% is a critical.
10A/ Factors to be kept in mind while investing:
1. Leasing & Occupancy track record - higher
3. Area coming for expiry in coming years - to be read with the re-leasing trend
4. Upcoming supply - for NAV appreciation
5. The concentration of top tenants - lower the better
1. Leasing & Occupancy track record - higher
3. Area coming for expiry in coming years - to be read with the re-leasing trend
4. Upcoming supply - for NAV appreciation
5. The concentration of top tenants - lower the better
10B/
6. Sector mix - lower the better
7. Geographical presence - Diversified presence with better Infra stories
Below is the comparison of all 3 Listed REITs for FY21, Embassy & Mindspace declaring distributions qtrly (Brookfield will declare its first in starting Q1 FY22).
6. Sector mix - lower the better
7. Geographical presence - Diversified presence with better Infra stories
Below is the comparison of all 3 Listed REITs for FY21, Embassy & Mindspace declaring distributions qtrly (Brookfield will declare its first in starting Q1 FY22).
11/ If you need the above in one place, please go to below link. Thanks for Reading.
#REITs #Embassy #Mindspace #Brookfield #realestateinvesting #commercialrealestate
notion.so
#REITs #Embassy #Mindspace #Brookfield #realestateinvesting #commercialrealestate
notion.so
REITs carry a credit rating of "AAA", which is lowest credit risk, which puts them ahead of other property developers, as a result, they able to raise debentures at much lower rate replacing the existing debt with higher interest rates.
More than 40 countries have REITs,
In 2019, REITs in the United States had a market capitalization of 1.33 trillion U.S. dollars.
In 2019, REITs in the United States had a market capitalization of 1.33 trillion U.S. dollars.
12/ Thread on InvITs
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13/ Updated comparison for Q1 FY22 Results of all 3 REITs 👇
Source: Respective Investor Presentations #embassyreit #mindspacereit #brookfieldreit
Source: Respective Investor Presentations #embassyreit #mindspacereit #brookfieldreit
14/ Updated comparison for Q2 FY22 Results of all 3 REITs 👇
Source: Respective Investor Presentations #embassyreit #mindspacereit #brookfieldreit
Source: Respective Investor Presentations #embassyreit #mindspacereit #brookfieldreit
15/ Updated comparison for Q3 FY22 Results of all 3 REITs 👇
Have added CAGR since IPO (with and w/o distribution)
Source: Respective Investor Presentations #embassyreit #mindspacereit #brookfieldreit
Have added CAGR since IPO (with and w/o distribution)
Source: Respective Investor Presentations #embassyreit #mindspacereit #brookfieldreit
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