Stocks

Which is the best REIT in India?

Sep 26, 2024

This article has been updated as of September 2024, authored by Krishna Appala and Sidhanth Paul.

What is a REIT?

India saw its first REIT (Real Estate Investment Trust) in 2019. Five years later there are now four (Mindspace REIT, Brookfield REIT, Embassy REIT and Nexus Select Trust). REITs as an investment option have gained significant popularity among institutions & retail investors.

Real Estate Investment Trust (REIT) is a tax-efficient vehicle that owns a portfolio of income-generating real estate assets. A REIT is created by a sponsor, who transfers ownership of assets to the trust in exchange for its units.

Think of it like a mutual fund, where money is pooled from investors. In return, they were offered mutual fund units. Instead of shares of public companies, REIT units represent ownership of real estate assets.

Profits are generated in the form of dividends & capital appreciation.

SEBI regulations require REITs to payout 90% of distributable cash flows to unit-holders.
REITs must have at least 80% of their assets to be completed & income-generating. This decreases the execution risk.
The sponsor is obligated to hold certain units of the REIT & remaining are issued to investors in the form of an IPO.
Once listed, they serve as a permanent vehicle to raise debt and equity in the capital markets to acquire new assets & grow.

NSE also launched an index back in April 2023, tracking the performance of REITs and InvITs that are publicly listed on the Indian bourses. The index is called Nifty REITs & InvITs and the following are its InvIT constituents:

*Source: NSE_InvIT_REIT_Factsheet

What should you look for in REIT?

The traditional valuation metrics like PE, EPS growth, Margin expansion, etc do not apply here. There are certain parameters to consider while evaluating REITs. Let’s understand each of them.

Weighted Average Lease Expiry

The biggest risk of running a commercial property is a vacancy. WALE is used to calculate the time left for the property to go vacant. It is measured in years. The higher the better.

Distribution Yield

By law, REITs have to pay 90% of distributable cash flows to the investors. Distribution yield is a metric to measure these payments. However, this is not a guaranteed payout. It depends on the trust performance. Again the higher the better.

Loan To Value

Loan to Value (LTV) measures how much debt was borrowed compared to the underlying asset value. Just like any other business, the low leverage the better.

Net Distributable Cash Flow

NDCF is a key metric to show how much money is left to distribute to the unit holders. Usually, all REITs have a two-layered structure.

- SPVs are owned by the Holding Company.
- The holding company is owned by the Trust.

As per SEBI guidelines,

- 90% of NDCF of the SPV must be mandatorily distributed to the REIT.
- 90% of the NDCF of the REIT should be distributed to the Unitholders.

The consistency of NDCF is an important metric to keep an eye on.

High occupancy

The occupancy rate is the percentage of the square foot available in the portfolio of REIT. This is an important metric of its performance. This ensures consistency in payouts, increasing rental & dividend income. The higher the occupancy, the more stable the cash flows. Having said that, it is unlikely to have 100% occupancy always.

Diversified portfolio

A well-managed property in a prime location will have the highest occupancy rate. On the other side, an oversupply of properties can reduce occupancy rates & rental income. REITs having diversified portfolios across geographies & tenants are less prone to oversupply & concentration risk.

Net Asset Value

NAV is one of the best ways to assess REITs. Think of it like a Book value per share. It is calculated as the estimated market value of the properties minus all liabilities. This is divided by the number of shares outstanding. NAV is a more accurate way to determine the share price of REIT.

Many times, REITs tend to trade below or above NAV. This happens because of the supply & demand of the traded units. In such cases, we have to keep an eye on the share price distance from NAV.

Sponsor

A strong sponsor will have many advantages like brand recognition, trust factor, on time delivery etc. REITs will also have Right of first offer (ROFO) on properties owned by the sponsors.

Taxation

The cash distributed to the unit holders is a combination of three parameters – Interest income, Dividend income & Repayment of debt. After the finance bill 2023, all the three above mentioned parameter comes under ‘Income from Other Sources’. This effectively made all the components of income distributed by a REIT to its investors taxable at slab rate.

However, not the total income from ‘repayment of debt or other sources‘ is taxed but ‘specified sums‘ received by unitholders would be subject to tax at slab rates.

The specified sum can be calculated by:

Start by summing up all the income distributed by the REIT/InvIT from sources other than dividend-interest or rent up to the current year (the year for which tax is being calculated).
Next, deduct the original issue price of the REIT/InvIT units (this would be the IPO price for public investors).
Only the amount remaining after this deduction is taxed as “income from other sources.
Note: Before the finance bill led to the above mentioned changes, taxation was an important metric to analyze REITs considering the tax free distribution. However, its not the case anymore.

How to invest in REITs in India

You can buy units of REITs just like shares through regular trading accounts on BSE and NSE, the major exchanges.

The image below shows BSE and NSE codes for all the four REITs.

Embassy REIT

Sponsored by Embassy & Blackstone, Embassy REIT is the first listed REIT in India & the largest in Asia (by area). The company owns & operates 51 MSF (million square feet). It has a portfolio of 14 office parks, 6 hotels & a 100 MW solar power plant. It comprises 37.7 MSF completed operating area with an occupancy of 85% as of Q1 FY25.

*Source: Embassy REIT Investor Presentation.

Bangalore is their biggest market with 75% of the asset value, followed by Mumbai (9%) & Pune (8%). The company currently has a WALE (Weighted Average Lease Expiry) of 7.6 years.

In the last 5Y the company has grown its revenue at a CAGR of 14.5% to 3848 Cr. EBITDA grew by 13.7% CAGR during the same period to 2964 Cr as of FY24.

NOI grew by 7.8% YoY, with margins of 81%. As of Q1 FY25, the leverage (Net debt to Gross asset value) is at 29%. The cost of debt is currently at 7.8%.

*Source: Embassy REIT Investor Presentation.

In Q1, it successfully leased 1.9 million square feet across 22 deals. This includes 0.6 million square feet of pre-commitments in Bangalore, 0.6 million square feet of renewed leases, and 0.7 million square feet of new leases. The goal is to reach 5.6 million square feet by the end of this financial year, with occupancy levels expected to stabilize at pre-COVID levels of mid-90% from the current 85%.

Mindspace REIT

Mindspace REIT is sponsored by K Raheja Corp Group. It has a strong portfolio of office spaces across Mumbai, Pune, Hyderabad & Chennai with a total leasable area of 33.2 MSF.

*Source: Mindspace REIT Investor Presentation.

As of Q1 FY25, its top 10 tenants contributed 27.5% of rentals. They are at 91% occupancy with a WALE of 6.8 years.

In the last 5Y, the company had grown its revenue by 5% CAGR to 2462 Cr. Out of its total leasable area, 26.3 MSF is completed area, 4.4 MSF is under construction and 2.8 MSF is future development area. Mumbai and Hyderabad both contribute about 40% of its total asset value.

*Source: Mindspace REIT Investor Presentation.

All its SPVs are 100% owned by REIT except for Mindspace Hyderabad (11% is owned by the Government of AP).

As of Q4 FY24, the Net Operating Income grew by 9% YoY to 477 Cr. The Loan to Value is at ~22%, while cost of debt is at 7.9%.

Brookfield India REIT

Brookfield India REIT is sponsored by Brookfield AMC & is India’s only institutionally managed commercial real estate vehicle. They have commercial properties in Mumbai, Gurugram, Noida & Kolkata. Their total portfolio comprises of 24.2 MSF.

*Source: Brookfield India REIT Investor Presentation.

As of Q1 FY25, the company has an occupancy of 84% & WALE of 7.6 years. Its top 10 tenants contributes 35% of the leased area, which has come down from 41% in the last quarter.

In June 2025, the company acquired 3.3 MSF of commercial assets in Delhi-NCR. Going forward, the company has a robust inorganic growth pipeline as sponsor owns another 26 MSF, out of which 16.3 MSF is operating area while 9.4 MSF is future development area.

Its Loan to value stands at 39.4% while the cost of borrowing is relatively high at 8.3% when compared to its peers.

*Source: Brookfield India REIT Investor Presentation.

Nexus Select Trust

Nexus select trust is the new kid on the block and is also India’s first publicly listed consumption center REIT. Its portfolio comprises of 17 consumption centers spread across 14 cities in India with a leasable area of ~9.9 MSF, two hotels (354 keys) and three offices with a leasable area of ~1.3 MSF.

*Source: Nexus Select Trust Investor Presentation.

As of Q1 FY25, its occupancy for retail portfolio is at 97.4%, majority of its malls are close to 100% occupied with healthy waitlist of tenants. The companies loan to value is 14% with average debt cost around 8.1%, showcasing headroom for raising further debt on the back of a comparatively lowly leveraged balanced sheet.

WALE for its retail portfolio is at 5 years. In terms of geographical diversification, 41% of its asset value is in north, followed by ~30% in west ~25% in south and the remaining in east.

*Source: Nexus Select Trust Investor Presentation.

Nexus Select Trust clocked revenues of 1917 Cr in FY24, first financial year after getting listed. It’s EBITDA for the same year was 1291 Cr.

Which is the best REIT to invest in?

All of them are well-managed trusts with strong balance sheets. They have similar growth opportunities for the long term.

However, some exhibit better performance than the others in a few parameters.

Brookfield REIT has the highest dividend yield whereas Nexus Trust has the highest occupancy rate. However, we must remember that Nexus is the only consumption REIT out of the lot.
Nexus Select Trust also has the lowest LTV at 14%, followed by Mindspace whose LTV is at 22%.
Brookfield & Embassy are more focused on North (71% of GAV) & South (77% of GAV) respectively, while Mindspace and Nexus stand more diversified.

In the chart below, click REIT name to see their exposure by geography

The top tenants for the first 3 REITs (Embassy, Mindspace & Brookfield) are from the Technology domain. However, it is prudent to have sector-level diversification as well. This helps to navigate any sectorial uncertainties.

In case of Nexus Select Trust, its tenants cannot be classified into sector as 90% of its portfolio comes from retail and not from office spaces like the other three.

In the chart below, click REIT name to see exposure by sector

The growth prospects of REIT depends on the visibility of proposed future developments or to acquire new assets from the sponsor. The table below is a glimpse of the same-

Here, the proposed development tab for both Brookfield and Nexus are empty as both of them majorly depend on acquisition. Brookfield has a robust inorganic growth pipeline as also discussed above with its sponsor group owning another 26 MSF across India. Whereas, in the case of Nexus Select Trust, it plans to add 2-3 malls every year going forward which is an addition of 1.5 MSF/year.

The Verdict

The answer varies depending on your context as an investor.

If you are a growth investor looking for capital appreciation, Nexus Select Trust & Brookfield REIT are the two we think, you should look at.

Considering factors like the nexus planning to add 2-3 malls (1.5 MSF) each year, while Brookfield having a robust inorganic growth pipeline. Also looking at important metrics like mark-to-market, dividend yield, WALE, occupancy, etc., Brookfield and Nexus either leads the pack or is at par with others.

Taking a holistic view, Nexus Select Trust, followed by Brookfield REIT seem better placed to capture growth & provide decent stability in the cash flows.

*click to enlarge

In the order of preference, we like

Nexus Select Trust >Brookfield India REIT > Mindspace REIT > Embassy REIT

REITs and Interest Rates: A Cyclical Connection ?

REITs are indeed interest rate sensitive. On an upward rate cycle, their cost of borrowing increases as they have to raise debt at a higher rate, which impacts their leverage profile & overall profits. They will go slow on debt-financed acquisitions.

RBI gradually increased the Repo rate from 4% in Apr 2022 to 6.50% by June 2023 and has kept it unchanged since then. The yields REITs were offering (5-7%), here becomes unattractive for the investors as the banks are offering above 7%. Hence investors usually shy away from REITs.

However, this can be a short-term phenomenon. Once the interest rate starts to go down, we can see a bump-up in REITs. If you have a long-term horizon and looking to build a REIT basket, this can be a good opportunity to accumulate slowly.

Here’s an old video of us talking about REITs & INVITs.

REIT stocks has been in a free fall in the last couple of months. @deepakshenoy shares his views on REITs & INVITs pic.twitter.com/lNYwarF0SA

— Capitalmind (@capitalmind_in) November 21, 2022

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