If you are seeking an investment product with notable returns and a steady cash flow, look no further. In this regard, REITs, also known as Real Estate Investment Trusts, stand as a notable option for the savvy investors. These trusts are like a backstage pass to the real estate domain—without the fuss of actually purchasing, owning, or managing properties.
A significant appeal of REITs is in their capability to equip investors with diversification of portfolios. This diversification is due to the distinct nature of real estate assets, which often behave differently from stocks or bonds. Moreover, REITs also churn out hearty dividends that make income-focused investors eager.
So how can you snag a share from this lucrative arena? You can either go for publicly traded REIT stocks, find a niche with mutual funds that are REIT die-hards, or take the route of exchange-traded funds (ETFs) that put prime real estate in your portfolio’s basket.
In this article, we will explore the best REITs to invest in India for 2023, highlighting how they put forward remarkable opportunities for interested participants.
1. Embassy REIT
Embassy REIT stands as India’s pioneering publicly listed Real Estate Investment Trust (REIT). It offers a remarkable blend of infrastructure – like office parks and centrally-located office buildings, making it a powerhouse in India’s real estate arena.
Key Portfolio Attributes
- Size and Scale: Embassy REIT boasts a colossal 45.0 msf portfolio, segmented into eight office parks and four city-center office buildings.
- Prime Locations: The portfolio graces India’s most lucrative office markets – Bengaluru, Mumbai, Pune, and the National Capital Region (NCR).
- Diverse Base: Housing 234 of the globe’s top-notch companies, it stands as an emblem of trust and quality.
- Added Amenities: Beyond office spaces, the REIT integrates business hotels (both operational and under construction) and a commendable 100 MW solar park that channels renewable energy to its tenants.
- Green Credentials: Recognized as the planet’s most expansive ‘USGBC LEED Platinum-Certified’ office portfolio, it showcases its commitment to sustainability. This commitment has also been lauded with a 5-star rating from both the British Safety Council and GRESB.
Recently, Embassy Office Parks announced their Q1 results at the end of July, revealing a 31% surge in profit and a 10% increase in revenue. The company’s net operating income also saw a notable growth of 9% year-on-year, reaching Rs. 738 crore, with the commercial-office segment boasting a margin of 85%.”
Moreover, as the best REIT to invest in India, Embassy REIT integrates several key strengths, ranging from prime market presence and stellar tenant base to reliable sponsors. It also harnesses varied growth engines, from on-campus development, and rental revisions, to low leverage and potential inorganic growth prospects. Further, its pillars are its world-class sponsors, known for their unparalleled footprint in both Indian and global commercial real estate.
That said, note some crucial statistics of this REIT as of June 2023.
- Occupancy: 85%
- Weighted Average Lease Expiry (WALE): 6.6 years
- Financial Highlights: ₹9,136 million from operations and ₹5,100 million in distributions
- Debt Profile: A healthy debt ratio with net debt standing at 29% of GAV.
- Market Value by Asset: Predominantly commercial at 93%, followed by hospitality (5%), and others (2%).
- Geographical Asset Distribution: Bengaluru takes the lion’s share at 75%, trailed by Mumbai (10%), Pune (9%), and NCR (6%).
2. Brookfield REIT
Brookfield India Real Estate Investment Trust, commonly known as Brookfield REIT, stands as a testament to institutional management in the real estate sector. Backed by an affiliate of the globally renowned Brookfield Asset Management Inc., the trust boasts of strong backing and deep-rooted expertise.
Brookfield Asset Management Inc. is no small player in the global arena. As one of the largest asset management companies worldwide, it has a presence in over 30 countries, a robust workforce of approximately 200,000 operating employees, and a staggering US$825+ billion in assets under its management.
Given such prowess, this trust is empowered with extensive expertise and a wide-reaching network. It manages five Grade-A campus-style office parks. These office parks are strategically located in key gateway cities across India. This strategic positioning combined with the Grade-A facilities makes Brookfield India REIT a ‘landlord of choice’ for many.
Brookfield India REIT’s first quarter of the financial year 2024 demonstrated commendable growth:
- There was a Rs 231 million (7.9%) YoY increase in revenue. Rs 79 million (2.7%) of this increase stemmed from new leasing and contractual escalations. Rs 151 million (5.2%) was attributed to a surge in physical attendance and some occupiers extending their operation hours, which subsequently led to a rise in Common Area Maintenance (CAM) revenues.
- There was A YoY growth of Rs 107 million (4.5%) in adjusted net operating income. Rs 79 million (3.4%) from the surge in OLR (Operating Lease Revenue) whereas Rs 27 million (1.2%) attributed to an escalation in CAM margin.
Ultimately, Brookfield India REIT positions itself as the best REIT to invest in India, with its unparalleled management, strategic properties, and impressive financial performance. With the sponsorship of Brookfield Asset Management Inc., the trust is poised for further growth and expansion in the future.
Here are some key highlights of this REIT:
- Total Leasable Area: 18.7 msf.
- Completed Office Space: 14.3 msf.
- Under Construction: 0.6msf.
- Future Development Potential: 3.9 msf.
- Effective Economic Occupancy: 89%
Wrapping things up, it is pertinent to highlight that the REITs we have discussed are dual-listed, finding their place on both the Bombay Stock Exchange and the National Stock Exchange. For those eyeing future returns, these investment products hold promising potential. Their allure lies not just in returns but also in diversification, featuring a mosaic of real estate pieces – a splash of residential, a dab of commercial, and a touch of retail. And the cherry on top, REITs are pretty much obliged to share at least 90% of their taxable income with shareholders, making them an attractive prospect for dividend income.
But while the advantages are clear, prudent investing demands a careful evaluation of potential pitfalls. It is essential for investors to acquaint themselves with the intricate features of REITs, including their tax implications and the risk-return framework. If you fancy a steady income, REITs might serenade you with their dividends, but these dividends often come with a higher tax burden compared to traditional stock dividends. And let’s not forget, like every other star in the financial galaxy, REITs too are susceptible to market swings and global economic blues.
In this great financial orchestra where investors are actively seeking higher yields, a deep understanding of inherent risks and market volatility becomes indispensable. Balance the highs with the lows, weigh the cheers with the woes, and only then step onto the floor of REIT investing.