INDIA’S FIRST real estate investment trust will come out next week; yield for unit holders of Embassy REIT could be 9.25% per annum
Embassy Group will launch India’s first real estate investment trust (REIT) next week to raise about ₹4,750 crore, according to two people familiar with the development.
The Embassy Office Parks REIT, a joint venture between the Bangalore-based property developer and private equity firm Blackstone, holds around 33 million square feet of commercial office comprising of seven business parks and four citycentric buildings spread across Mumbai, Bengaluru, Pune and Noida. Embassy did not respond to an email query.
REIT is an investment tool that owns and operates rent-yielding real estate assets. It allows individual investors to make investment in real estate without owning it and earn an income. “REITs as an asset class is a far superior product and well accepted and understood globally where even small investors can invest in real estate without owning a physical asset,” said Nipun Goel, head, investment banking, IIFL. “Unlike InvITs, REITs in India will take off well,” he added.
Bankers said the launch of Embassy REIT was advanced due to demand from foreign portfolio investors and family offices. Many domestic mutual funds have not shown interest, they said.
Indicative yield for unit holders of Embassy REIT is expected at around 9.25% per annum to be paid as premium on redemption. Embassy REIT reported a profit of ₹260 crore for the year ended March 31, 2018 compared to ₹177 crore a year ago.
Currently, the minimum investment in a REIT is ₹2 lakh per investor. Once it gets listed, trading will be for a minimum lot of ₹1 lakh. Income earned by REIT could be through rentals or capital gains or both, and it gets distributed to unit holders. SEBI rules state that REITs shall distribute not less than 90% of the net distributable cash flows to its investors at least on a half yearly basis.
According to industry estimates, the rental yield from a commercial property is in the range of 7-9%, while the capital appreciation can be expected to be between 4-7% over a long term.
Market regulator Sebi had notified REITs norms in September 2014, but it never took off. REITs norms have been modified by five times since then. In September last year, Embassy filed an offer document for the REIT listing.