Spectacular 1-month return of Embassy REIT post listing: Will it continue?

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Updated: May 03, 2019 5:09 PM

The issue price of Embassy REIT was Rs 300, while the issue got listed at Rs 308 on April 1, 2019.

 Embassy REIT, REIT in India, Embassy REIT IPO, real estate, investment, ICICI Direct, Axis Direct, HDFC Securities, mutual fundREIT is similar to a mutual fund scheme where investors pool funds to invest in real estate as the underlying securities.

Embassy REIT completes 1 month of listing: This is how much return investors have made
Embassy Office Parks REIT, the first Real Estate Investment Trust (REIT) to get listed on the Indian stock exchanges, has completed one month since its listing on April 1, 2019. The units of Embassy REIT in India are listed on the National Stock Exchange of India and BSE.

The issue price of Embassy REIT was Rs 300, while the issue got listed at Rs 308 ( lowest price since listing) on April 1, 2019. During the first day of listing, it touched a high of Rs 324.80 and closed at Rs 314.67. On subsequent days, the price touched a high of Rs 349.20 (16th April). Currently, on 3rd May it is trading at Rs 322, an absolute return of almost 7 per cent in 1 month.

“Initial investor interest was good with monthly average volume of almost 1 lakh traded shares with delivery percentage in the high 90 per cent range. But that has slowly slipped to 20,000 traded volume as the price moved down from Rs. 340 to Rs. 325 levels. It is still early days for the stock.” says Tejas Khoday, CEO and Co-Founder FYERS.

Returns from REIT

Although such high returns may not be sustainable over the long term, one may also expect a dividend income from the sponsors of the Embassy REIT. As per the rules, a REIT has to distribute at least 90 per cent of the net distributable cash flows to its unitholders on a half-yearly basis. The NAV will also reflect the income derived by the REIT from the gains realised on selling any of its properties.

“Although the price appreciation of the Embassy REIT units involves market risk, the rental income due to strong occupancy in the Embassy reduces the risk to certain limits. Investors looking for a mid-term investment within a range of 3-5 years can opt for REITs as an investment as the returns are expected to be around the similar range of 7-9 per cent for the term,” says Samir Jasuja, Managing Director and Founder at PropEquity.

According to JLL’s latest report titled ‘India REITs – Heralding a new era in real estate investments’ released recently, “Apart from the inflation-linked return expectations, REITs returns from rental income are expected to see an upward trend, due to a robust demand-supply scenario in office space markets. The flow of investments in office spaces is expected to drive capital values upwards, providing capital appreciation to REIT valuations. The combined impact is expected to drive higher returns from REITs in India.”

However, the risks cannot be undermined either as the returns over the long term will be largely based on the rental scenario of Embassy properties. “One of the major risks is the rental fluctuations in the regions. Any depreciation in the rentals in the region may not only affect the rental income but also the equity returns for the investors,” says Jasuja.

How to invest in REIT

Investment in REIT is possible for someone holding a demat account. One may invest through any of the brokerage platforms such as ICICI Direct, Axis Direct or HDFC Securities etc. which are also called the Service Brokers. Although SEBI had reduced the minimum investment amount in REITs from the earlier limit of Rs 2 lakh to a minimum subscription amount of Rs 50,000, the Embassy REIT had kept the minimum amount of Rs 2.4 lakh during the IPO.

What is REIT

REIT is similar to a mutual fund scheme where investors pool funds to invest in real estate as the underlying securities. However, the similarity ends there as the structure and the operation of a REIT is very different from an MF. REIT is basically a trust which holds properties through a special purpose vehicle (SPV) and its structure comprises of three entities – A Sponsor, Trustees and the Manager. The REIT rules are framed and monitored by the market regulator SEBI and the listing and its trading has to be according to the guidelines. “India’s future REIT potential is strong as this one of the highest traction investment destination for global investors closing the gaps on markets like Singapore and Hong Kong,” says Gulam Zia, Executive Director-Advisory, Retail and Hospitality, Knight Frank India.

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