Skip to main content

Real Estate Investment Trust (REIT) | From Investor's Eye

Brookfield Real Estate Investment Trust (REIT) is here with its ₹ 3,800 crores Initial Public Offer (IPO). Now, Brookfield is not the first REIT in India which is hitting the exchanges but it is one of the few. We have only 2 listed REITs right now in the Indian market (Embassy Office Parks REIT and Mindspace Business Parks REIT) and Brookfield will be third in this list. And hence it is important to understand this REIT concept as it is fairly new in India and whether you as an investor should invest in these or not. 

Embassy Office Park

Let me just briefly touch upon Brookfield's IPO and then I will discuss about REITs in general. Brookfield IPO is closed now and it got oversubscribed 7.94 times which is not very good number considering recent oversubscription of other stocks in the market. 17 February 2020 is the listing date and let's see how market will react to this. 

Now, why we saw only 7.94 times oversubscription even in this kind of roaring bull market, if I may say so. One reason could be higher minimum investment amount ( ₹ 55,000 vs ₹15,000 in normal stocks) and other could be the fact that it is REIT and not just another business running company. And later is a major differentiator. So, let's talk about this in this blog.

In very simple terms, REIT is a trust of property owners and rental is their main source of income. They buy/ develop high rental generating properties, generally prime location commercial properties and then earn rentals. Now, there are various restrictions in India on REITs like how much should be occupied, how much should be completed etc. and I am not going into details here. But these are to protect retail investors interest.

Now, with the IPO of these REITs, even a retail investor can invest and have a share (unit in REIT term as they are not companies) in those properties. Imagine you being a retail investor, wanna buy a piece in a particular listed company, you can buy that from IPO or stock market but if you wanna buy a piece of real estate. That's where retail or small participants are not allowed in a way because ticket prices of these properties are so high and normal retail investor or even a lot of HNIs can't even think of buying these forget about actually buying.

So, with REITs, you can do that. You can have a piece in prime commercial real estate of the country. Look at below to have an idea of Brookfield's initial portfolio of properties.

Brookfield REIT

REIT business model is similar of a mutual fund. Instead of stocks, you have properties in REITs. It's not exact same, however it is very similar. They generate the income from investment properties and then distribute the same with unit holders after deducting their expenses. 

How they reward you? 

They pay you dividend from the rental earned from properties. And other is capital appreciation of properties which will be reflected in listed price of REIT unit. One important catch in REIT is fair value. Unlike in equity stocks, fair valuation is carried out by REIT and disclosed to the investors. This makes it less risky/ speculative as you always know whether unit is overvalued or undervalued and there can be various reasons to that like sudden panic in the market, rumors etc. And you can benefit from these situations.

Who should invest in REITs

I think, everyone. Whether you are a small investor or big, its always better to have a diversified portfolio. You can add small percentage of REIT units also in your investment portfolio. If you have equities, debt, fixed deposits etc. You should consider buying REIT units also for a decent 5-6% rental yield plus 5-6% capital appreciation per annum. I think, it is better than FD for sure considering interest rates these days and these low interest rates are here to stay. 

Let me know your views in comment section below.  


About author: 

Manish Negi is a Chartered Account and an experienced auditor. 

Twitter -  www.twitter.com/camanishnegi


Labels:

Comments

Post a Comment

Popular posts from this blog

IT Services Companies like TCS and Infosys - Must have in your portfolio?

With all the major IT services companies like TCS, Infosys and HCL Tech trading around their All-Time-High, let's discuss key matrices of these companies and see the opportunities in these companies from here for retail investors, if any exist.  Growth prospects Let's start with growth, because in the end, growth will decide the stock price. If company is growing it's revenue, margins are consistent or expanding, net profit is increasing, stock price will have no option but to go up in the long run. As world is moving fast towards digitalization after covid-19, adoption of tech and tech-enabled services are need of the time and is critical for businesses now. And Indian IT services companies have a role to play here, as technology provider and at times technology enabler. Future is looking good from here which we can see in revenue guidance of top companies which is going as high as 20% per annum.   Dividends/ Buybacks/ Bonus Shares These companies are huge cash generatin...
Post a Comment
Read more

IPO frenzy is on | What should you do?

March is going crazy with IPOs. There is a long list of companies coming up with initial public offer. to raise funds. So, you must be wondering, why is it that so many companies are lining up for money at the same time. Let's discuss this. There could be various reason to it but following are also very obvious reasons: 1. Surging retail participation in equity markets - This is really good for companies planning an IPO as this can give easy exit to Private Equity investors and at times gives opportunity of encashing high valuations to the promoters also. 2. Response to recent IPO listing - This is a confidence booster. Almost all the recent IPOs were oversubscribed and listed at bumper price, way above its IPO price, which was already overvalued in most of the cases. Let's have a look at current price of recently listed companies.   Source: StockEdge We can see that most of the companies are trading at a price which is lower than listing price in most of the cases and even b...
6 comments
Read more

New Age IT Businesses | Are you investing in these?

Information technology service sector of India is well known and well established now. Biggest IT service company in the world is now an Indian company and there are total 4 Indian companies in the world top 10 list. These are TCS, Infosys, HCL Tech and Wipro.  However, these companies are traditional IT service providers and are considered as "Old Age" IT service companies. A lot of investors consider these matured and don't expect significant growth in this industry now.  Image source: Economic Times In this digital world, technology is rapidly changing and companies are adapting to newer technologies. With these changes comes new security and technical challenges and there are companies which are converting these challenges into opportunities and working in this highly growing segment. Following are few technologies or areas to name which were not common few years back. New consumer conversions (acquisitions, engagements and transactions) through relevant mobile advert...
2 comments
Read more