WHAT IS REITs & InvITs - HOW TO INVEST

Real Estate Infrastructure Trust (REITs) and Infrastructure Investment Trust (InvITs) are investment trusts similar to mutual funds, which enable direct investment of money from individuals/ institutional investors. Let’s find out their features, benefits, what they are, and how you can invest in REITs and InvITs. 

REITs are those trusts which deal with real estate projects such as Malls, Hotels, Rental apartments, etc. They help investors by offering them a liquid way of entering the real estate market while diversifying their portfolios and earn regular income plus long-term capital appreciation.

InvITs are those trusts with infrastructure projects such as Roads, Telecommunications, Electricity Generation, Transmission, distribution infrastructure projects, Bridges, Railways, Shipping, Ports, Renewable Energy Projects, Oil Transmission Pipelines, etc. They offer regular income (via dividends) and long-term capital appreciation.

REITs and InvITs enable the developer to monetize their existing underlying assets and the investors to hold equity into these projects. REITs and InvITs are authorized by SEBI (Security and Exchange Board of India). Both investment trusts are designed as tiered structured with a sponsor setting up the REIT and InvIT, which in turn invest in eligible infrastructure either directly or indirectly through forming a special purpose vehicle(SPV’s). The key feature, they need is to distribute 90% of their income to investors in the form of dividends. If the REIT decides to sell a property, then it can choose to reinvest the sale proceeds into another property or distribute 90% to unit holders. Leverage 70% of the net asset value and a cap on the expenses to the assets under construction for Public REITs and InVITs. The Sponsor who is setting up the REITs/InVITs Trust has to appoint a Trustee and has to hold a minimum of 15% of the shares issued by the trust with a lock-in period of a minimum of 3 yrs. from the date of issuance of the shares.

SEBI (Security & Exchange Board of India), vide its notification dated 29.06.2021 has reduced the minimum subscription amount to Rs. 10000/- and Rs. 15000/1-in REITs and InVIT’s respectively. The trading of shares in the security market has been reduced down to a minimum of 1 share. These steps of reducing down the minimum subscription fee that was as high as Rs.2,00,000 and Rs. 1,00,000 in InVIT’s and Reit’s respectively, which adds to the popularity of these funds and eases the entry Level of these schemes, thus increase the participation in the schemes. Likewise, allowing the sale and purchase of a minimum of 1 unit of these schemes will further enhance the participation, interest & liquidity in these schemes. Therefore, the mentioned steps of SEBI will certainly help in enhancing the participation level and popularity among the people.

The question comes to mind, why would purchase the Units of REITs/InvITs shares. REITs and InvITs, on account of their design, are mandated to share 90% of their net income to their shareholders. Therefore, it provides a constant source of income to its shareholders. It also provides a higher return to the shareholder which is higher than any Bank deposits, bonds, etc. There is a fair chance of appreciation of the underlying assets, thus giving multiple incomes to the unitholders/subscriber. The assets listed in the security market give rapid liquidity to the subscriber. With the increase in time and further developments of the property by the Reit’s or InvIT’s the gross income of the property increases which is reflected in the per unit increase in the income of the Assets resultantly shared with the equity holders. Higher income also gives rise to the Share valuation.

Reit’s and InvIT’s help in the Capital building of the Nation by building the infrastructure. They recycle the Capital locked in long term infrastructure project cycle the Capital locked in long term infrastructure projects such as Office Project, Malls, Retail Housings such as Office Project, Malls, Retail Housing, Rental Apartments, Hotel Chains, Hospital, Roads, Telecommunication, Electricity Generation, Transmission & Distribution Projects, Bridges, Railways, Port, Renewable Energy, Petrochemical Pipelines, etc. Apart from Equities REITs and InvITs permit to raise debt through refinancing by tapping different types of Investors such as Pension Funds, Insurance Companies, Sovereign wealth funds, etc. These are long-term financing institutions and are increasingly looking for safer Assets(Investments) and higher yields.

A CRISIL study says that Reit’s and InVIT’s can potentially raise to 8 Lac Crore Capital for India Infrastructure project build-out in the next 5 financial Yrs. Presently REITs and InvITs combined are lodging a 42% compounded annual growth rate(AGR) since the launch of the first InvITs in the yr.2018 to Rs. 2 lakh crore. 

Currently, there are 11 Reit’s and InVIT’s in India and, a Credit Rating of 10 of these demonstrates the highest safety level of AAA for three reasons,

1. Low debt,

2. Combined debt to AUM <35% and,

3. 90% of debt under management is deployed in operational Assets. IRDA (Insurance Regulatory & Development Agency) has allowed Insurance Companies to Invest in debt securities of Reit’s and InVIT’s provided debt instruments are minimum AA rated.