REITs or Real Estate Investment Trusts are companies that own, operate, or finance income-generating real estate assets, such as office spaces, malls, hotels, warehouses, etc. REITs offer investors a way to participate in the real estate market by buying units or shares of the REIT, similar to buying shares of a company. REITs distribute most of their income to the unit holders or shareholders as dividends, and also offer capital appreciation potential.
Best REITs to Invest : REITs are a popular instrument globally, but they are relatively new in India. The first REIT in India was launched in 2019, and since then, the REIT market in India has grown steadily, attracting both domestic and foreign investors. However, the availability of REIT stocks in the Indian market is still limited, as there are only a few REITs listed on the stock exchanges, and the REITable stock in India is still under-penetrated.
But how can you find the best REITs to invest in India? What are the criteria and parameters that you should consider while choosing the best REITs to invest in India? What are the benefits and risks of investing in the best REITs to invest in India? In this article, we will answer these questions and provide a comprehensive guide on maximizing returns: exploring the best REITs to invest in India.
How to Find the Best REITs to Invest in India?
To find the best REITs to invest in India, you can follow these steps:
- Do your research: Before investing in any REIT, you should do your research and analysis of the REIT’s portfolio, performance, financials, management, and prospects. You should also compare the REIT with its peers and benchmarks, and check its ratings and reviews from reliable sources. You can use the web search results from my predefined internal tool1 to get some information about the best REITs to invest in India and REITs in general.
- Choose your type of REIT: You should choose the type of REIT that suits your risk appetite, investment objective, and preference. You can choose from different types of REITs, based on the nature of their assets, the way they are traded, and the tax treatment they receive. For example, you can choose from equity REITs, mortgage REITs, or hybrid REITs, and from publicly-traded REITs, non-traded REITs, or private REITs. In India, there are only four publicly-traded REITs available, namely:
- Embassy Office Parks REIT: This is the first and the largest REIT in India, which owns and operates a portfolio of 42.4 million sq ft of office space across seven cities in India. The REIT has a market capitalisation of Rs. 36,000 crore, and a dividend yield of 6.5%. The REIT was launched in March 2019, and has delivered a total return of 25% since its listing2.
- Mindspace Business Parks REIT: This is the second REIT in India, which owns and operates a portfolio of 29.5 million sq ft of office space across five cities in India. The REIT has a market capitalisation of Rs. 18,000 crore, and a dividend yield of 6.8%. The REIT was launched in July 2020, and has delivered a total return of 17% since its listing3.
- Brookfield India Real Estate Trust: This is the third REIT in India, which owns and operates a portfolio of 14 million sq ft of office space across four cities in India. The REIT has a market capitalisation of Rs. 9,000 crore, and a dividend yield of 7.5%. The REIT was launched in February 2021, and has delivered a total return of 10% since its listing4.
- Nexus Select Trust: This is the fourth and the latest REIT in India, which owns and operates a portfolio of 5.4 million sq ft of retail space across four cities in India. The REIT has a market capitalisation of Rs. 3,000 crore, and a dividend yield of 8%. The REIT was launched in June 2021, and has delivered a total return of 5% since its listing5.
- Evaluate the REITs based on various parameters: You should evaluate the REITs based on various parameters that reflect their quality, performance, and potential. Some of the common parameters that you should consider while choosing the best REITs to invest in India are:
- Occupancy rate: This is the ratio of rented or used space to the total amount of available space. A high occupancy rate indicates a strong demand and a stable income for the REIT. The average occupancy rate of the four REITs in India is around 90%, which is higher than the industry average of 85%.
- Weighted average lease expiry (WALE): This is the average time left for the leases of the properties to expire, weighted by the rental income of each lease. A high WALE indicates a low risk of vacancy and a predictable cash flow for the REIT. The average WALE of the four REITs in India is around 7 years, which is higher than the global average of 5 years.
- Net operating income (NOI): This is the income generated by the properties after deducting the operating expenses, such as maintenance, taxes, insurance, etc. A high NOI indicates a high profitability and a strong cash flow for the REIT. The average NOI of the four REITs in India is around Rs. 2,000 crore, which is higher than the average NOI of the Indian real estate sector.
- Distribution yield: This is the annual dividend paid by the REIT as a percentage of its unit price. A high distribution yield indicates a high income and a high return for the investor. The average distribution yield of the four REITs in India is around 7%, which is higher than the average yield of the Nifty 50 index (1.3%).
What are the Benefits and Risks of Investing in the Best REITs to Invest in India?
Investing in the best REITs to invest in India has several benefits and risks, such as:
- Benefits: The benefits of investing in the best REITs to invest in India are:
- Income: The best REITs to invest in India provide a regular and tax-free income stream for the investors, as REITs distribute most of their income as dividends. The dividends are also higher than the average yield of the Nifty 50 index (1.3%).
- Growth: The best REITs to invest in India also offer capital appreciation potential for the investors, as REITs benefit from the increase in the value of the properties and the rental income over time. The best REITs to invest in India have delivered an average total return of 14% since their listing, which is higher than the average total return of the Nifty 50 index (10%).
- Diversification: The best REITs to invest in India also provide diversification benefits for the investors, as REITs have a low correlation with other asset classes, such as equities, bonds, gold, etc. REITs also have a low volatility and a high resilience, as they are backed by tangible assets and long-term leases.
- Liquidity: The best REITs to invest in India also offer liquidity benefits for the investors, as REITs can be easily bought and sold on the stock exchanges. REITs also have a lower minimum investment requirement than physical properties, which makes them more accessible and affordable for the investors.
- Risks: The risks of investing in the best REITs to invest in India are:
- Market risk: The best REITs to invest in India are subject to the fluctuations of the real estate market, which may be affected by various factors such as economic conditions, interest rates, supply-demand dynamics, consumer preferences, competition, etc. The best REITs to invest in India may also face the risk of vacancy, default, or renegotiation of leases by the tenants, which may reduce the rental income and occupancy rate of the properties.
- Regulatory risk: The best REITs to invest in India are subject to the changes in the rules and regulations governing the REITs and the REIT market in India, which may be imposed by SEBI or the government from time to time. For instance, SEBI may impose restrictions on the leverage, diversification, valuation, or distribution policies of the REITs, which may affect their performance and returns. The government may also change the tax treatment of the REITs and their investors, which may affect their attractiveness and profitability.
- Operational risk: The best REITs to invest in India may involve operational risks such as fire, theft, damage, or litigation related to the properties owned or managed by the REITs. The best REITs to invest in India may also incur expenses for maintenance, renovation, or development of the properties, which may reduce their net income