REITs, InvITs get more attractive; should you invest now? A performance check of listed REITs, InvITs

The Union Budget provoked more investor interest in real estate and infrastructure funding by opening up more investment avenues for REIT and InvIT firms. Brookfield REIT IPO, which opened for subscription later that week, got subscribed nearly eight times the issue size. More REITs and InvITs could soon make stock market debuts. Analysts say the outlook for REIT and InvIT investments is bright. However, a look at the share price performance of the four listed REITs and InvITs gives a mixed picture, with mostly subdued returns. IRB InvIT Fund shares are at half the issue price, but IndiGrid returns have shot up. Here’s a share price performance recap of all the listed REITs and InvITs so far.

Performance recap

Embassy Office Parks REIT made Dalal Street debut in April 2019 at a listing price of Rs 300, vs the IPO issue price of Rs 300. Now, a little less than two years after listing, it’s trading at Rs 350, a gain of 16% over the issue/listing price. Embassy REIT share price surged to an all-time high of Rs 518 in March of 2020, a 72% gain over the listing price. But then, it got battered during the March 2020 sell-off, and fell 32%. Embassy REIT shares have traded mostly sideways since then.

Mindspace Business Parks REIT is the youngest of the two REITs listed on the bourses. Mindspace began trading in August 2020, dodging the global sell-off in March. The REIT listed on the bourses at Rs 304 vs the IPO price of Rs 275 per share. Now nearly six months later, Mindspace REIT is trading at Rs 329, up 19.6% from its issue price. It reached an all-time high of Rs 348 last month. 

IRB InvIT Fund had an issue price of Rs 100-102 per unit during its public issue back in 2017. After having listed flat in May 2017, IRB InvIT was in a constant downfall till March last year, falling 75% since listing to reach a price of 25. Since then the InvIT has surged 92% to now trade at Rs 48, however, that is still half the issue price. The highest IRB InvIT Fund has scaled in the last 52-weeks is Rs 53.28 in February last year.

IndiGrid Trust InvIT, on the other hand, has continued to go higher. After listing at Rs 100 apiece, flat from the issue price of Rs 100, IndiGrid InvIT remained flat till March of 2020, never crossing the Rs 100 mark. During the pandemic aided sell-off, IndiGrid fell merely 10% to hit a low of Rs 85.7 per share. Since then the InvIT has surged a massive 64% to hit a price of Rs 140 per unit earlier this month.

Dividend yields

The attraction of REIT and InvIT investments also is in dividend payouts, in addition to the share price gains (or losses). Embassy REIT has distributed on an average Rs 5.95/unit every quarter, according to  Deepak Jasani, Head of Retail Research, HDFC Securities. “IPO allottees of Embassy REIT have seen total returns (XIRR) of 15.8% since inception,” he added. Investors entering now could expect pre-tax annual distribution yields of ~6.7%, assuming similar distributable cash flows going forward. Mindspace REIT, being a rather new REIT has not just distributed a dividend to date.

On the other hand, among the infrastructure investment trusts, at current levels, pre-tax annual distribution yield is quite attractive at ~21% for IRB InvIT Fund. For IndiGrid Trust, the distribution yield remains at 8.1%, which is better than yields of AAA-rated paper, Jasani added.

Outlook

Embassy Office Parks might have fallen sharply from its peak, but its portfolio assets, its collection efficiency and the management commentary continues to remain positive. Deepak Jasani said. “Green shoots of the demand recovery are now visible with both multinational and Indian corporates showing interest in select new Grade A space across various office markets,” he added.

For IRB InvIT, the worst for the toll operating business seems to be over and the bottom seen in these times is less likely to be tested again, according to Jasani. “However one has to be aware that road assets are inherently riskier than transmission assets as the assumptions of traffic growth and toll growth have seldom been met in the past due to economic slowdown, competition from other modes of transport and also competing roads/expressways being built,” he added.

Further, Deepak Jasani said that investing in these instruments comes with risks that may stem from regulations in respective fields and economic growth. “From a trading price gain perspective, investors should take a note these instruments are likely to behave like very low beta stocks. Investors should be prepared to withstand some volatility in these instruments,” he added.

(The stock recommendations in this story are by the respective research and brokerage firms. The Outlooker Online does not bear any responsibility for their investment advice. Please consult your investment advisor before investing.)