Real Estate Investment Trusts (REITs) are companies that own, operate, and finance income-generating real estate assets. REITs offer investors a way to invest in the real estate sector without having to buy or manage properties themselves. REITs also provide regular income in the form of dividends and capital appreciation in the form of price appreciation.
REITs are relatively new in India, as the first REIT was listed in 2019. Since then, three REITs have been launched in the Indian market: Embassy REIT, Mindspace REIT, and Brookfield REIT. These REITs mainly focus on commercial office spaces, which account for about 80% of their portfolios. The rest of their assets include hotels, retail, and industrial properties.
In this article, we will look at the performance and characteristics of the three REIT companies in India, and how they compare with each other. We will also look at the benefits and risks of investing in REITs, and the factors to consider before investing in REITs.
REIT Companies : Performance and Characteristics of the Three REIT Companies in India
Let us now compare the performance and characteristics of the three REIT companies in India, as of March 31, 2021.
| REIT | Embassy REIT | Mindspace REIT | Brookfield REIT |
| Listing date | April 1, 2019 | August 7, 2020 | February 18, 2021 |
| Portfolio size | 42.4 million sq ft | 30.2 million sq ft | 14.0 million sq ft |
| Portfolio value | Rs 37,460 crore | Rs 23,675 crore | Rs 10,100 crore |
| Occupancy rate | 88.9% | 92.4% | 87.8% |
| Weighted average lease expiry (WALE) | 7.1 years | 5.8 years | 6.8 years |
| Distribution yield | 6.6% | 7.6% | 8.1% |
| Loan to value (LTV) ratio | 22.8% | 16.8% | 49.0% |
| Net distributable cash flow (NDCF) | Rs 2,036 crore | Rs 1,065 crore | Rs 462 crore |
| Total return since listing | 15.6% | 11.2% | 2.4% |
Source: 6, 7, 8, 9 REIT Companies
As we can see from the table, the three REIT companies in India have different portfolio sizes, values, occupancy rates, WALEs, distribution yields, LTV ratios, NDCFs, and total returns. These factors indicate the quality, stability, profitability, and growth potential of the REITs.
Embassy REIT is the largest and oldest REIT in India, with a portfolio size of 42.4 million sq ft and a portfolio value of Rs 37,460 crore. It has a high occupancy rate of 88.9% and a long WALE of 7.1 years, which indicate the demand and attractiveness of its properties. It has a moderate distribution yield of 6.6% and a low LTV ratio of 22.8%, which indicate its efficiency and financial strength. It has a high NDCF of Rs 2,036 crore and a high total return of 15.6% since listing, which indicate its performance and income potential.
Mindspace REIT is the second-largest REIT in India, with a portfolio size of 30.2 million sq ft and a portfolio value of Rs 23,675 crore. It has a very high occupancy rate of 92.4% and a moderate WALE of 5.8 years, which indicate the demand and attractiveness of its properties. It has a high distribution yield of 7.6% and a low LTV ratio of 16.8%, which indicate its efficiency and financial strength. It has a moderate NDCF of Rs 1,065 crore and a moderate total return of 11.2% since listing, which indicate its performance and income potential.
Brookfield REIT is the smallest and newest REIT in India, with a portfolio size of 14.0 million sq ft and a portfolio value of Rs 10,100 crore. It has a high occupancy rate of 87.8% and a long WALE of 6.8 years, which indicate the demand and attractiveness of its properties. It has a very high distribution yield of 8.1% and a high LTV ratio of 49.0%, which indicate its efficiency and financial risk. It has a low NDCF of Rs 462 crore and a low total return of 2.4% since listing, which indicate its performance and income potential.
Benefits and Risks of Investing in REITs in India :REIT Companies
Investing in REITs in India has several benefits and risks, such as: REIT Companies
- Benefits:
- Diversification: REITs allow you to diversify your portfolio across different types of real estate assets, such as office, retail, hotel, industrial, etc. REITs also have low correlation with other asset classes, such as stocks and bonds, which can reduce the overall risk of your portfolio.
- Liquidity: REITs are traded on stock exchanges, which makes them easy to buy and sell. Unlike physical properties, you do not have to deal with the hassle of finding buyers or sellers, paying brokerage fees, or facing legal issues.
- Income: REITs are required to distribute at least 90% of their net distributable cash flow (NDCF) to their unit holders as dividends. This means that you can expect regular and stable income from your REIT investments. The dividend yield of REITs in India ranges from 6% to 8%, which is higher than the average yield of the Nifty 50 index (1.5%).
- Tax efficiency: The dividends paid by REITs are exempt from tax in the hands of the unit holders, as per the current tax laws. This makes REITs more attractive than other income-generating investments, such as fixed deposits or bonds, which are subject to tax as per your income slab.
- Professional management: REITs are managed by experienced and qualified professionals, who have the expertise and resources to acquire, develop, and maintain high-quality real estate assets. They also have the ability to negotiate better lease terms, optimize occupancy rates, and increase rental income.
- Risks:
- Market risk: REITs are subject to the fluctuations of the stock market, which can affect their prices and returns. REITs are also influenced by the demand and supply dynamics of the real estate market, which can vary depending on the location, type, and quality of the properties. REITs may face challenges in finding tenants, renewing leases, or increasing rents in a weak or oversupplied market.
- Interest rate risk: REITs are sensitive to changes in interest rates, as they affect their cost of borrowing and their valuation. Higher interest rates can increase the debt servicing costs of REITs, which can reduce their NDCF and dividends. Higher interest rates can also lower the present value of the future cash flows of REITs, which can reduce their prices and returns.
- Regulatory risk: REITs are subject to various regulations and compliances, which can affect their operations and performance. REITs have to follow the guidelines and norms issued by the Securities and Exchange Board of India (SEBI), the Reserve Bank of India (RBI), the Income Tax Department, and other authorities. Any changes or amendments in these regulations can have a positive or negative impact on REITs.
- Operational risk: REITs are exposed to the operational risks of managing and maintaining their properties, such as fire, theft, vandalism, natural disasters, accidents, etc. These risks can cause damage or loss to the properties, which can affect their income and value. REITs also have to bear the expenses of repairs, maintenance, insurance, taxes, etc., which can reduce their profitability and dividends.
REIT Companies : Factors to Consider Before Investing in REITs in India
Before investing in REITs in India, you should consider the following factors: REIT Companies
- Your investment objectives: You should invest in REITs only if your investment objectives match with the features and benefits of REITs. For instance, if you are looking for regular income, tax efficiency, and exposure to the real estate sector, REITs may be a suitable option for you. However, if you are looking for high growth, low risk, and liquidity, REITs may not be the best option for you.
- Your risk appetite: You should invest in REITs only if you are comfortable with the risks involved in REITs. For instance, if you are willing to accept the market risk, interest rate risk, regulatory risk, and operational risk of REITs, you may consider investing in REITs. However, if you are risk-averse and prefer safer and more stable investments, REITs may not be the best option for you.