Mindspace from Raheja group is the second company to come up with a REIT after the Embassy.
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A fresh perspective is placed below in the REITs
- Issue Opens on July 25
- Priced at Rs 275
- FY21 Yield of 7.1%
- FY22E Yield of 7.5%
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A fresh perspective is placed below in the REITs
WHAT IS REIT?
REIT is Real Estate Investment Trust, is similar to Mutual
Funds wherein the money is pooled and invested in Commercial Real Estate
Assets. REITs earn rental income from their properties, which is distributed to
the Unitholders. So, while MF invest in
Stocks, gold, bonds, etc, the underlying asset in REITs gets invested in actual
physical Real Estate.
Exactly similar to a Mutual Fund, REIT too will have a
Sponsor which establishes a Trust.
SO, HOW EXACTLY DOES A REIT WORK :
1. A REIT (like a Mutual fund) collects money from
Investors.
2. These monies are invested across Rent Generating
Properties.
3. The REIT collects the Rent
4. The REIT distributes the Rent to Investors via periodical
Dividend.
5. The Capital Value is reflected in the NAV
Regulations in India mandate that these REITs have to pay
out 90% of the distributable Cash Flows to the unit holders. And REITs are
supposed to have minimum 80% in COMPLETED AND INCOME GENERATING real estate
properties.
So, REITs allow lay investors to have exposure to
High-Quality Rent Yielding properties which would otherwise be unaffordable.
Yes, REITs are also listed in Stock Markets and traded like
any other Equity Shares and hence have no liquidity issues which a typical Real
Estate will face.
SEBI came out with list of DOs and DONTs for REITs way back
in 2014 and in US, REITs are in vogue for quite a long time and more than 300
are registered and about 40,000 commercial Properties in the US are owned by
REITs!!
This is the 2nd REIT issue to hit the Indian Markets after
Embassy Office Parks. BTW, Blackstone is the investor even in Embassy REITs.
Despite subdued equity markets, Embassy REIT fetched a
return of 25% over the last one year
“Embassy REIT distributed ₹18.8 billion to investors for its
first year as a listed REIT. That is a dividend yield of 8.1%," said a
person close to Blackstone.
MINDSPACE BACKGROUND:
Mindspace Business Parks REIT is backed by the K.Raheja Corp
group and Blackstone.
It owns top quality office space portfolio located across
Mumbai, Hyderabad, Pune, Chennai, etc.
The Total Leasable Area of Mindspace Business Parks is 29.5
million sq feet, easily one of the largest Grade-A office portfolios in India.
Company Portfolio has 5 integrated business parks with
superior infrastructure and amenities (such as restaurants, crèches and outdoor
sports arenas) and 5 quality independent offices. Some of its properties
include Mindspace, Inorbit Mall, The Square, Commerzone.
Of these 29million sq feet, already 23 million sq ft are
completed, leased out and yielding rent.
Approx. 85% of its Gross Contracted Rentals are derived from
Multinational companies and nearly 40% from Fortune 500 Companies. Some of the tenants of the company include
mix of top class multinational and Indian companies namely Accenture, Qualcomm,
Barclays, JP Morgan, UBS, Facebook, Capgemini and Amazon.
Mindspace Business Parks REITs counts IT services firm
Accenture as its biggest tenant.
Accenture accounts for 8.7% of Mindspace Business Parks’ annual rental income,
occupying 1.9 million sq. ft of office space
WHATS GOOD ABOUT THE ISSUE
1. Owning a Real Estate is a challenge both financially and
legal hassles, REITS is an easy simplified asset class to own the same without
owning it Physically.
2. No Lock-In: You as Investor can enter or exit the REIT as
per your wish and convenience unlike an actual Real Estate which has its own
problems. You can even sell the REITS in the Stock Markets making it very
liquid. The REITs will be listed on both the NSE AND BSE
3. Best way to have exposure to Real Estate. Affordable as
you can buy a fraction of the property by buying just a few units
4. In addition to the Dividend returns, there is scope for
Capital Appreciation which will be captured in the price of the listed unit of
the REIT.
5 . Since REITs are mandated to distribute 90% of the
surplus distributable Cash Flow, in form of dividends there is a good scope for
Regular Income.
6. Real Estate is one of the Most non-transparent asset
class and REIT aims to reduce that as it is regulated by SEBI and will be
managed by Professional Managers (just like Mutual Funds)
7. DEBT ALTERNATIVE: A good alternative to Fixed Deposits
and Bonds as the returns in REITS are more or less assured due to regular
rents.
8. GEOGRAPHICAL DIVERSIFICATION TOO: Since REITS will be
investing in Different Geographical locations and mostly in Rental generating
assets, it offers Investors a Good Diversification Option.
WHAT EXPERTS SAY:
REITs attractive that
in addition to the 7% dividend returns, there is good scope for Capital growth
giving a potential DOUBLE DIGIT returns over 3-5 years period
Once the reduction in Interest rates playing out, an
investor can expect up to 11-14% returns over three-five years,"
Mindspace has indicated that it is expecting a good 10.6%
growth in Revenue this fiscal (and this is post Covid pandemic disruption)
“Typically, commercial leases are six to nine years long or
more, with a rent escalation clause. This makes REITs less volatile than other
investment avenues,"
SHOULD YOU INVEST?
Investing in REIT is like investing in a combo of Equity and
Fixed income.
Though it has more or less a stable return in form of
regular dividends, it also has price volatility in stock markets too.
In fact, in the US, the REITs have been MORE CONSISTENT in
delivering top performance than even the S&P 500.
The records show that in the US and other developed markets,
investors invest in REITs not to beat the Stock Market but for regular income
as by Law, REITs have to mandatorily pay out at least 90% of their net earnings
as Dividends.
REITs, although listed, do not always move in the same
direction as the stock market as the under lying asset is Commercial Real
Estate and thus provides Good Diversification.
The FTSE NAREIT All Equity REITs index has outperformed the
S&P 500 by more than 1% per year over 47 year period of May 1972 to Dec
2019.
In fact, post lockdown, Mindspace has actually leased out
FRESH 0.7msf area across various properties and the weighted average rent
achieved was ACTUALLY HIGHER than the Market rents in the area.
According to a July 6 report by property consultant firm
Anarock, at 14% return on investment (ROI), India REITs outperformed BSE Realty
Index.
Investors need to treat REITs as income-generating assets,
which can deliver slightly higher returns than fixed deposits over the long
term.
Mindspace REITs unit's NAV as on 31.03.20 stood at Rs.
319.50. On this basis, the issue is priced at a P/BV of 0.86 and the issue is
offered at 275 levels.
Analysts say the offer is a good bet for investors who are
looking for a safer investment option as compared to equities and an assured
return over a two-three year period.
Investors looking at REITS for a longer time frame of 5-7
year plus and more as a Diversification tool can consider going for it.
TAX ANGLE:
1. Dividends were supposed to be TAXED IN THE HANDS OF THE
INVESTORS but later a change in the Finance Bill 2020 was announced post COVID
outbreak wherein DIVIDENDS EARNED FROM REITs WILL BE EXEMPT IN THE HANDS OF THE
UNITHOLDERS.
2. Short Term Tax (sold within 3 years) is 15% of Gains
3. Long term tax (sold AFTER 3 years) will be at 10% of
Gains.
4. Dividends received will be ADDED TO THE INCOME OF
INVESTOR AND SHALL BE CHARGED TO TAXED AS INTEREST INCOME
Point No. 1 The amendment, however, clarifies that the DDT the exemption will be given only for the companies which have not migrated to the
new corporate tax regime.
