Embassy REIT will be the first REIT to get listed on the Indian stock exchanges and thus offer Indian investors an additional investment avenue to choose from.
The Embassy REIT IPO opened on March 18 and the bids were accepted till March 20. It will be the first Real Estate Investment Trust (REIT) to get listed on the Indian stock exchanges and, thus, offers Indian investors an additional investment avenue to choose from.
As on 20 Mar 2019, 5 p.m., the NSE India website was carrying the following numbers about the issue:
Total Issue Size: 7,12,56,400
Total Bids Received: 18,34,76,000
No. of times issue is subscribed: 2.57 times
Being the first-listed REIT, the post issue modification period has been set as 22 March, 2019. The listing of the Embassy REIT units is expected to be on or around April 03, 2019 and the units are proposed to be listed on the National Stock Exchange of India and BSE. “Investors with moderate risk profile may invest in them as REITs have historically provided high dividends, plus they have the potential for moderate, long-term capital appreciation,” says Prakash Pandey, Director, Fairwealth Group.
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 a 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 laid guidelines.
Advantages of REIT
In addition to gold, equity and debt asset class, those investors who wish to diversify their investment portfolio may consider investing in REIT. Also, unlike owning a plot of land or property where liquidity is less, REITs offer partial or full liquidity through exchanges.
With respect to distributions made by the REIT and the SPV, not less than ninety per cent of net distributable cash flows of the SPV shall be distributed to the REIT. Further, not less than ninety per cent of net distributable cash flows of the REIT shall be distributed to the unitholders.
“REITs are a good medium to long term investment as they provide income with the potential for growth in asset value over time. It is a good investment for both institutional investors and retail investors” says Sanjeev Dasgupta, CEO, Ascendas India Trust.
How to invest in REIT
Investment in REIT will require one to have 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. Investing in IPOs is more seamless with Service Brokers as the bank account, trading account and the demat account are in one place, than compared to Discount Brokerages, which are more of a transactional platforms. The price band is Rs 299-Rs 300 and the minimum quantity for the non-institutional category is 800 units, that makes Rs 2.4 lakh as the minimum investment in the Embassy REIT IPO.
How much return from REIT
Real estate has always been considered an illiquid and a big-ticket investment. REITs provide an opportunity to diversify across real estate as an asset class. REITs are primarily a hybrid investment-seeking capital appreciation and even income ( rent) from the underlying securities of the sponsor. “REITs provides an alternative to bonds and fixed deposits by offering a better return, one can expect 8-10 per cent kind of return, depending on time horizon,” says Pandey.
Primarily, the returns for an investor in a REIT will depend largely on the rentals received by the SPV of the REIT from its properties leased across the country. “Well managed REITs have been able to provide 13 to 14% annual returns,” says Dasgupta. The REIT is supposed to declare dividend income 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. “The ideal holding period is 3 years and above. This would help to get the benefit of income growth since most leases have contracted escalation in rents every 3 years,”says Dasgupta.
What to do
Whether the IPO price is fully priced, as the Embassy REIT IPO will be the first of its kind in the Indian market, remains to be seen once it gets listed. Therefore, moderate risk investors may accordingly take a call after considering the fund management cost and the post-tax return and hence may wait for the units to be listed in the stock exchanges to take a buying decision for a long term investment