What are REITs and InvITs
Trust (T) which has Invested (I) in some of the Real Estate (RE) properties i.e. RE I T.
Trust (T) which has Invested (I) in some of the Infrastructure structure (Inv) properties i.e. Inv I T.
Simple but powerful idea – Take bunch of real estate properties (like Shopping malls, Office buildings etc.) or Infrastructure properties (like roads, Bridges, Power lines), put it in one box (a company), then split the ownership of that box into small prices (i.e. Units) and then sell those small units to public.
Each investors who buys the units will own the small piece of the properties in that box. It will get 2 things in return –
1. Rental income of the property – The income generated from the property will be divided among the unit holders. For the real estate properties like Shopping mall, Offices, income will be rent generated from tenants and for the Infrastructure properties like Roads, Bridges, Highways, it will be income generated from usage like tolls collected, power delivery charges etc.
2. Increase in the price of the units – Over a period of time the assets will increase in the price (it may reduce as well!), with the increase in the price of the properties in the country or addition of the assets to the box, which will give you a price appreciation of the units which you may hold.
Let’s look at one example, which will set things in perspective –
Embassy REIT, It has 42.4M commercial office space under management (refer below quick fact snapshot)
Launched in April 2019, at INR 331 per unit
It gives dividend to the unit holders (rental income) average of INR 16-18 per year.
Price in Sept 2021 is around INR 370
If you would have bought one units in April 2019 for INR 331, then you would have received around INR 40 from rental income (16*2.5 years) and INR 39 from appreciation in the value (370-331).
Total return of INR 79 on investment of INR 331 in 2.5 years i.e. 23.8%. (In the time when office space are highly undervalued).
Just take a moment to think, which commercial (or any other) real estate has given you this much return in last 2 years. Also, when you own a unit in the REITs/ InvITs then you just own it in your demat account without worrying about Legal hassle, maintenance, safety, finding tenants, collecting rent etc. of a physical ownership of property.
If you are interested to know a bit more about REITs/ InvITs then refer to below links
