Real Estate Investment Trust
Also written REIT · Real Estate Investment Trust (REIT) · REITs
A SEBI-registered trust that pools investors' money into commercial real estate and lists its units on a stock exchange, so rent-yielding property can be bought in small lots and sold in a day.
In plain language
Commercial property is a good asset and a terrible investment for most people. A floor in a Bengaluru office park costs crores, cannot be divided, takes months to sell, and has to be managed.
A REIT fixes each of those problems at once. It is a trust registered with SEBI that buys commercial real estate, collects the rent, and issues units to the investors who funded it. Those units are listed on a stock exchange, so an investor can buy Rs 15,000 of an office portfolio in the morning and sell it in the afternoon at a screen price.
The workbook places REITs under Investment Trusts — vehicles that pool the funds of their investors and invest them in a diversified portfolio, typically close ended and traded on an exchange.
How it works
SEBI sets the size thresholds that decide whether a REIT can come to market at all:
| Requirement | REIT | InvIT |
|---|---|---|
| Value of assets owned or proposed to be owned, on an initial offer | not less than Rs 500 crore | not less than Rs 500 crore |
| Minimum offer size | not less than Rs 250 crore | not less than Rs 250 crore |
| Minimum subscription, initial and follow-on offer | Rs 10,000 to Rs 15,000 | Rs 10,000 to Rs 15,000 |
| Asset class | Commercial real estate | Infrastructure |
| Units listed | Yes | Yes |
After the initial offer a REIT can raise more through follow-on offers, rights issues and institutional placements.
The registrar's work on a REIT looks like the registrar's work on a company: a unit holder register, a record date, a beneficial owner download from the depository, and a distribution run — except that the payout is rental income passed through rather than a dividend out of profits.
A worked example
A REIT comes to market owning Rs 6,200 crore of leased office assets — comfortably above the Rs 500 crore floor — and makes an initial offer of Rs 1,200 crore, well above the Rs 250 crore minimum.
Units are priced at Rs 300, and the lot is set at 50 units so that one lot costs Rs 15,000, sitting at the top of the permitted Rs 10,000 to Rs 15,000 band.
An investor applies for 4 lots = 200 units = Rs 60,000.
The REIT distributes Rs 24 per unit over the year:
Annual distribution = 200 × Rs 24 = Rs 4,800
Yield on cost = 4,800 ÷ 60,000 = 8.0%
Eighteen months later the units trade at Rs 341. The investor sells on the exchange for 200 × Rs 341 = Rs 68,200 — settling on the normal T+1 cycle, like any listed security.
The same Rs 60,000 in physical commercial property buys nothing at all. That is the entire proposition.
Why NISM asks about it
Chapter 4.6 (Investment Trusts), which introduces REITs and InvITs side by side. The examinable content is almost entirely numerical: the Rs 500 crore asset floor, the Rs 250 crore minimum offer, and the Rs 10,000 to Rs 15,000 minimum subscription range. Expect a REIT-versus-InvIT identification question and a "which regulator registers them" question (SEBI).
Common exam traps
- The REIT and InvIT thresholds are the same numbers, not different ones. Rs 500 crore of assets and Rs 250 crore of offer size apply to both; only the asset class differs — commercial real estate versus infrastructure.
- Units, not shares. Holders are unit holders, and the payout is a distribution, not a dividend.
- The Rs 500 crore test covers assets "owned or proposed to be owned" — the assets need not already be in the trust when the offer is made.
- The minimum subscription is a range, Rs 10,000 to Rs 15,000, set by the 2021 amendment; quoting the older lakh-level figure is the most common stale answer on this section.
- Investment trusts are typically close ended — liquidity comes from the stock exchange, not from the trust redeeming units.
- A REIT is not an AIF and not a mutual fund, even though all three pool money; each is registered under its own SEBI regulations.
Check yourself
1.What are the minimum asset value and offer size for a REIT or an InvIT coming out with an initial offer?
- a)Assets Rs. 250 crore, offer Rs. 500 crore
- b)Assets not less than Rs. 500 crore, offer not less than Rs. 250 crore, with minimum subscription of Rs. 10,000 to Rs. 15,000
- c)Assets Rs. 100 crore, offer Rs. 50 crore, subscription Rs. 1,000
- d)There are no prescribed minimums
Show the answer
Answer: (b) Assets not less than Rs. 500 crore, offer not less than Rs. 250 crore, with minimum subscription of Rs. 10,000 to Rs. 15,000
The value of the assets owned or proposed to be owned by a REIT, coming out with an initial offer, will not be less than Rs. 500 crore and the minimum offer size will not be less than Rs.250 crore. The minimum subscription amount in an initial and follow-on offer shall be in the range of Rs. 10,000 to Rs. 15,000.
And an InvIT is identical: the offer shall be for not less than Rs. 250 crores and the value of the proposed assets of the InvIT shall not be less than Rs. 500 crores. The minimum subscription amount in an initial and follow-on offer shall be in the range of Rs. 10,000 to Rs. 15,000.
Option A reverses the two figures, which is the natural trap — the asset base is the larger of the two, at twice the minimum offer.
What distinguishes the two vehicles is only the asset class. REITs are trusts registered with SEBI that invest in commercial real estate assets; InvITs are trusts registered with SEBI that invest in the infrastructure sector.
Both list their units — the units are listed on the stock exchange — which matters because Investment Trusts are typically close ended funds which can be traded on a stock exchange. Without listing, holders of a close-ended vehicle would have no exit.
**An investment trust generally pools the funds of its investors/ shareholders and invests them in a diversified portfolio of securities, and in Indian markets, 2 types of investment trusts are operational under the appropriate SEBI Regulations.
A REIT has several ways to raise money: the REIT will raise funds through an initial offer and subsequently through follow-on offers, rights issue and institutional placements.
The figures come from 2021 amendments, both effective 30.07.2021.
Where this is taught
- Series X-A · Chapter 7: Introduction to Investmentsintroduced here
- Series II-A · Chapter 4: Characteristics of Other Securitiesintroduced here
- Series X-B · Chapter 12: Taxation of Other Productsintroduced here
Related terms
- Net Asset ValueThe net assets of a mutual fund scheme divided by the number of units outstanding — what one unit of the scheme is worth on a given day, after every liability except the unitholders' own.
- Alternative Investment FundA privately pooled investment vehicle registered with SEBI that raises money from select Indian or foreign investors under a defined investment policy — never from the public at large.
- Exchange Traded FundA mutual fund scheme whose units are listed and traded on a stock exchange like a share, so you transact at live prices through the day instead of at one end-of-day NAV.
- Infrastructure Investment TrustA trust registered with SEBI investing in the infrastructure sector, raising funds through an initial offer of units of not less than Rs.
- Secondary marketThe market where securities already issued are traded between investors — the money goes to the selling investor, not to the company, and the issuer's capital is unchanged.
- Real estate mutual fund schemesA mutual fund scheme holding actual property: at least 35% of net assets directly in completed, unencumbered Indian real estate, and at least 75% in real estate assets and related securities.
- Infrastructure FundA Category I AIF investing primarily in the unlisted securities, partnership interest or listed and securitised debt of companies and SPVs that operate, develop or hold infrastructure projects.