Why are Reits and InvITs important?

Reits and InvITs function like mutual funds—a sponsor raises capital and invests it in real estate or infrastructure projects. Both are investment pooling vehicles. A Reit portfolio could comprise office parks or shopping malls, where a major portion is already leased out, while an InvIT could include transport, energy or communication projects. Reits allow smaller retail investors to own a portion of income-generating real estate properties that would otherwise be unaffordable. Similarly, InviTs enable direct investment from individual and institutional investors in infra projects.

How have they performed so far?

Since their launch in 2019, Reits have gained popularity. Despite challenges in the commercial office market, Reits garnered steady rental income during the pandemic. For InviTs, the playing field is much larger. While IRB InvIT Fund was the first InvIT listed on the stock markets in  2017, Embassy Office Parks Reit was the first real estate investment trust to make a debut in 2019. So far, there have been four Reit listings, and roughly 21 listed and unlisted InvITs. At the beginning of 2023, InvITs and Reits registered with Sebi had total assets under management of over ₹3.5 trillion.

What are these Sebi amendments?

Sebi has given board nomination rights to unit holders of InvITs and Reits; changed the minimum unit holding requirement for sponsors of these trusts and introduced the concept of “self-sponsored investment managers”. It’s weighing follow-on offers by Reits and InvITs and has cut the time taken for public listing of such investment vehicles to six working days from 12.

Why are these changes important?

They are aimed at boosting corporate governance and smooth operation of InvITs and Reits. The move on retail unit holder rights gives them a chance to get their views across. The principles of “Stewardship Code” will now be applicable to all unit holders (with 10% or more units), making them accountable. Sponsors now have to hold a minimum number of units for the entire life of the Reit or InvIT. Self-sponsored investment managers can take on the responsibility of a Reit sponsor and provide the latter an exit.

What’s the outlook on Reits and InvITs?

InvITs and Reits have gained global acceptance as an asset class offering long-term yields. Having performed well in the past, investor interest is likely to be high. Going forward, many more Reits and InvITs are expected to come in. These could be larger in size, potentially have a diverse asset mix and will not be limited to tried and tested segments such as highways and commercial real estate. As Sebi continues to make the governance framework more robust, upcoming issues could see higher investor interest.

Updated: 24 Aug 2023, 11:31 PM IST