Cash-strapped Indian Real Estate: Real Estate Investment Trusts Bring Hopes

New Delhi: The launch of India’s first Real Estate Investment Trust (REIT) and its initial public offering last week has come as a positive move for the cash-starved Indian real estate sector.

The IPO of Embassy Office Parks REIT, India’s first REIT to be listed, was fully subscribed on Wednesday, the last day of the three-day initial share sale, according to data on the stock exchanges. Embassy Office Parks is a joint venture between Embassy Group and private equity firm Blackstone Group.

The ‘Embassy REIT’ IPO was oversubscribed on Wednesday after the issue of up to 158 million units at a price of Rs 300 per unit aggregating up to Rs 4,750 crore. The key stakeholders of the ‘Embassy REIT’ includes Axis Bank, as the trustee, Embassy Office Parks, the manager, and Embassy and Blackstone as the sponsors.

A REIT by definition is “any corporation, trust or association that acts as an investment agent specializing in real estate and real estate mortgages” under the US Internal Revenue Code. REITs are securities that are traded on stock exchanges.

Rushabh Vora, Director of SILA, a real eastate management firm said: “For someone new to investing, a REIT works like a mutual fund. The underlying asset in the REIT is real estate, such as a building or commercial property, whereas the underlying asset for a mutual fund is the share of a company.”

REITs use the money that is collected from investors to buy real estate instead of using it to buy bonds or shares of company and a REIT receives rental income, known as yield from the operations or leasing of asset or development.

The net income generated from renting out the underlying assets after deduction of the cost of operating all the assets for during a given period would be the profit from the REIT. The costs typically include those of running the facilities, utilities, leasing, marketing, the fees paid to the REIT managers and and trustees. (IANS)

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