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Real Estate Investment Trust

  • Category
    Economy
  • Published
    28th Mar, 2019

The recent initial public offering (IPO) of India’s first Real Estate Investment Trust (Embassy REIT) was subscribed 2.5 times, with the share sale generating a demand of over Rs 5,300 crore.

Context

The recent initial public offering (IPO) of India’s first Real Estate Investment Trust (Embassy REIT) was subscribed 2.5 times, with the share sale generating a demand of over Rs 5,300 crore.

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  • The portion reserved for high net-worth individuals and retail investors was subscribed 3.1 times.
  • REIT had also raised capital by allocating units to institutional investors as part of its anchor book allocation.
  • The anchor book is that part of an IPO which bankers can allot to institutional investors on a discretionary basis.
  • The Embassy Office Parks REIT IPO, backed by global private equity firm Blackstone Group LP and Bengaluru-based developer Embassy Property Developments Pvt. Ltd.

What is Real Estate Investment Trust?

  • REIT is a process to generate funds from a lot of investors, to directly invest in properties like offices, residential units, hotels, shopping centers, warehouses, etc.
  • All REITs will be listed with the stock exchanges, as they would be structured like trusts.
  • Consequently, REIT assets will be held with independent trustees for unit holders/investors.

What is the role of the trustees in a REI?

  • The trustees of REITs have defined duties, which typically involve ensuring compliance and adherence to all applicable laws that protect the rights of the investors.

What are the objective of REITs?

  • It aims to provide the investors with dividends that are generated from the capital gains accruing from the sale of the commercial assets.
  • The trust distributes 90% of the income among its investors via dividends.
  • Apart from minimum entry level, a REIT is supposed to provide diversified and safe investment opportunities with reduced risks and under a professional management, to ensure maximum return on investments.

Advantages:

  • Income dividends: 90% of distributable cash, at least twice in a year.
  • Transparency: REITs will showcase the full valuation on a yearly basis and will also update it on a half-yearly basis.
  • Diversification: According to the guidelines, REITs will have to invest in a minimum of two projects with 60% asset value in a single project.
  • Lower risk: At least 80% of the assets will have to be invested into revenue-generating and completed projects. The remaining 20% include under construction projects, equity shares of the listed properties, mortgage-based securities, equity shares that derive a minimum of 75% of income from government securities or G-secs, money market instruments, cash equivalents and real estate activities.

Background

  • In 2014, the Securities and Exchange Board of India (Sebi) had amended the Sebi (Real Estate Investment Trusts) Regulations, 2014, (REIT Regulations), which allowed them to issue debt securities apart from raising equity.
  • The amendment was part of the government’s move to revamp the real estate sector by allowing more investor participation.
  • The listing of India’s first REITs was one of the most awaited events for the real estate sector as it has taken over a decade and half to come to fruition.
  • The over subscription of REITs is, therefore, a very encouraging sign for the real estate sector at large, and especially for the commercial segment.
  • This is not just India’s first REITs offering, but also the largest in Asia.
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