REITs and InvITs – Who gets what ?
If you have not read the first post, then here is the link
In this post we will talk about who are the parties involved and who get what from the REIT or InvIT by an example. (important to know if you would like to invest in this type of asset)
Lets assume there is a builder who owns 10 Shopping malls, each mall gives him in INR 1 Crore (10M) income every year.
Builder needs some cash to make more malls. So, he transfers 5 malls into a Trust, the price of malls is 30Cr each (total -150Cr) and then creates 10 lakh units (similar to shares) of the trust and sell it to public who is interested in owning the mall and earning income from it.
What builder gets ?
150 crore cash (this in most of the cases will be more than what he would have invested while building the malls). So, builder gets cash for making more malls, that even higher than what he had invested.
What unit holders get ?
Piece of Commercial asset by investing small amount of money, which will earn them regular income (1Cr each for 5 malls in the Trust) and potential increase in value of the malls in future, which in-turn will increase the value of the units.
Who will manage those 5 malls ?
In most of the cases, it will be the same Builder (in some shape or form) who will manage it and take small cut from rental income to do so. He will be called Manager of the Trust.
Who will ensure that Builder does his job properly and Malls are running ?
Trustee. Mostly it will be some agency which is well recognized and known in market to provide Trustee services like Axis Trustee Services Limited. It will be paid small amount of money to be Trustee.
As you can see, the parties involved are structured in such a way that unit holder (investor) does not needs to do anything and the professionals (like Manager, Trustee) run the business.
Now, the obvious question, that this all seems easy and great, but obviously there are some risks involved.
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