Real Estate Investment Trust (REIT) IPO Explained

A Real Estate Investment Trust (REIT) is an investment vehicle that owns & operates real estate related assets. REIT allows individual investors to earn income produced through ownership of commercial real estate without actually having to buy any assets.

REIT may own and manage hotels, hospitals and convention centres and even common infrastructure for composite real estate projects such as industrial parks and SEZs.

• REIT is an investment tool that owns and operates rent-yielding real estate assets.
• It allows individual investors to make an investment in real estate without owning it and earn an income.
• REIT's are listed at the stock exchange. They can be traded like stock and NCD's.
• REIT is an alternative investment option for long-term in real estate.
• Income earned by REIT could be through rentals or capital gains or both, and it gets distributed to unitholders.
• SEBI rules state that REITs shall distribute not less than 90 percent of the net distributable cash flows to its investors at least on a half-yearly basis.
• REIT's offer regular and higher distributions compared to dividend on listed equity,
• They offer higher liquidity and transparency than direct investment in real estate
• They offer exposure to well-diversified real estate portfolio thus providing better risk mitigation.
• REITs provide real estate ownership at an affordable ticket size. You could invest as low as Rs 2 Lacs.
• REITs are professionally managed assets. REIT Managers are required to have at least 5 years of experience in property management.
• REITs provide stable income and certain yield as 80% of REIT assets are income generating properties that have long term rental contracts.
• REIT's are better insulated from regulatory/ political risks
• REIT's are more accessible to small investors and likely to have higher liquidity.

Infrastructure investment trusts (InvIT) are investment trusts designed to pool small sums of money from a number of investors to invest in assets that give cash flow over a period of time. They are similar to REIT but invest in infrastructure projects such as roads or highways which take some time to generate steady cash flows.

Real Estate Investment Trust (REIT) is an investment vehicle that owns & manages investment grade and income-producing real estates properties such as offices, malls, industrial parks, warehouses, hospitality, healthcare centers, and almost any asset that can produce an annuity revenue stream.

An investor can invest as low as Rs 2 lakh in REIT.

The projected return on investment in REIT is between 8% to 14% annually with minimum risks. REITs are less volatile than the stock market, FDs, mutual funds and gold because as per regulations 80% of the REITs must be of rent-generating assets.

The rents for properties owned by REIT are very likely to rise steadily over the years. This is similar to owning a property, earn the rentals and enjoy the appreciation in the property prices.

A realistic return on investment expectation would be in the range of 7-8% annually, after adjusting the fund management fee. Investors can earn two types of income from REITs; through capital gains on the sale of REIT units and a dividend income.

• Most REIT's specialize in a certain segment, which you can find in the fund summary. Understand the risks of each sector. For example, REIT's holding undeveloped land carry more risk than REITs investing in high-end apartments in a major metropolis.
• REIT's should pay a dividend from operations. At times, REIT's use the additional capital to fund dividends due to stressed assets.
• Timing the investment in real estate is the key to making money. If REIT was created after a housing market recession; it could own and buy valuable properties at low prices.