A REIT is a company that owns, operates or finances income-producing real estate. Modeled after mutual funds, REITs provide all investors the chance to own valuable real estate, present the opportunity to access dividend-based income and total returns, and help communities grow, thrive and revitalize.
This means REITs are linked to real-estate and can be traded on the stock exchange. Most REITs operate along a straightforward and easily understandable business model: By leasing space and collecting rent on its real estate, the company generates income which is then paid out to shareholders in the form of dividends. REITs must pay out at least 90 percent of their taxable income to shareholders—and most pay out 100 percent.
Real-estate is a high-ticket investment and hence always a deterrent for the retail investors. Now, with the introduction of REIT, these instruments allow investors to invest in high-end commercial real-estate without physically owning it.
The REIT’s portfolio comprises of close to 33 million sq. ft of office space which is spread out across the cities of Pune, Mumbai, Bengaluru, and Noida. It also includes the famous Express Towers ( at Nariman Point) and First International Finance Centre (in the Bandra-Kurla complex).
The trust plans to raise Rs.4,750 crore (making it the largest public offering for this year) through the sale of close to 15.83 crore units at Rs.299–300 per unit, of which 12.9 crore units are assigned for public investors while the rest will be offered to strategic investors.
The minimum lot size is 800 units, after which the investor can buy in multiples of 400. This means that an investor must make a minimum investment of about Rs 2.4 lakh.
On 1st March 2019, the minimum investment criteria was lowered by the SEBI to Rs.50,000 from Rs.2 lakh earlier. Bacause Embassy Office Parks REIT IPO was filed in September last year, it still follows old specifications.
The IPO will remain open till March 20. The funds raised through this IPO will be utilized primarily for repayment of Embassy’s debt, which currently stands at Rs.8554 crores.
What are the pros and cons of investing in this REIT?
This is the first REIT in India and fund houses do not have old data, which is why they are reluctant to suggest this as an investment option for retail investors. But if this REIT is successful, various others may use still option. It would provide a fund-raising option for struggling property companies.
Here are some pros of Embassy Parks REIT
This is the first time retail investors get to enter the real-estate sector and own physical assets.
The returns on commercial properties range between 8–10% and commercial spaces in premier locations provide higher returns. The Embassy Office Parks REIT is expected to provide a return of about 8.25% to 8.28%.
“Investment in commercial real estate is a highly capital-intensive affair. REITs are a very viable addition to investment portfolios as they allow investors to participate in an asset class previously reserved only for the affluent few,”
– Shobhit Agarwal, managing director and chief executive officer, Anarock Property Consultants Pvt. Ltd.
Here are some cons of Embassy Parks REIT
The entry point of Rs. 2.4 lakhs is a big figure. Almost 60% of their properties are in Bangalore alone, which can carry a geographical risk. Returns come to investors who are willing to stay for the long boom/bust cycles that the industry is known for.
“There are likely to be some teething trouble initially; so we would suggest that investors wait before investing in it,”
– Lovaii Navlakhi, managing director and chief executive officer, International Money Matters Pvt. Ltd.
The REIT is a first-of-its-kind investment option and also an innovative way to raise money. If one is willing to stick through 5–7 years and confident about Bangalore’s real-estate scene, this investment may make sense. However, if one is simply looking to make FD beating gains, there other investment options might be better.
Recommended to skip this IPO, you can always invest in it later and there will be other REITs to follow.
