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Please see below for some basic information on what a REIT is, and how you can know more about the structure and the prevalence of the asset class.
REIT stands for Real Estate Investment Trust. A REIT is a tax-efficient vehicle that enables owners of real estate to pool income generating assets together in a portfolio, and allows investors to buy ownership in real estate assets in the form of equity.
No. The first REIT started in the US in the 1960s, and was designed to allow small investors to participate in the benefits of owning commercial real estate.
REITs globally are a US$2 trillion (publicly-listed) asset class. Please refer to resources section for more information on REITs around the world.
In fact, listed real estate is such an integral part of US stock market that the S&P Index committee moved Real Estate out of financials and into its own Global Industry Classification Standard (GICS).
REITs exist in a number of different subsectors of the economy including office, industrial, apartments, hotels, logistics, shopping centers, malls and data centers, among others.
REITs are universally accepted by global institutions and individual investors as a safe and transparent way to play invest in income producing real estate
Real estate has always played an important role in a global asset allocation strategy. REITs enable investors to participate in the capital appreciation that the real estate has provided.
REITs are liquid, allow investors to invest and trade in small amounts, and represent ownership in a real estate vehicle while leaving the management to professionals.
REITs are highly governed and transparent. Please refer to the SEBI REIT regulations under the governance tab for rules that govern Embassy Office Parks REIT.
In India, the regulations mandate that REITs have to pay out at least 90% of net distributable cash flow to unitholders on a semi-annual basis.
REITs must have at least 80% of their assets (by value) invested in income-producing assets. A low level of development (20% or less) means less risk to the cash flows.
The unitholder does NOT pay dividend distribution tax on the dividend portion of the distributions they receive.
Conceptually, REITs are a mix of both. The distributions give the REITs the regularity of a fixed-income coupon, but an investor also gets the underlying growth of the business backing the REIT (much like an equity instrument). This growth could be through rental growth or through the macroeconomic drivers leading to higher rates of employment and hence, demand for Class A Office space.
REITs trade on equity exchanges like stock. In developed markets, there are ETFs and Mutual funds that focus entirely on REITs. In certain markets, the number of listed REITs outweighs that of Real Estate Operating Companies