NEW DELHI: If you were to look at the recent news on India’s only two Real Estate Investment Trusts (REIT), you could be forgiven for thinking that this is a pandemic that is forcing people to huddle together, rather than stay as far apart as possible.
The past week not only saw Embassy Office Parks REIT record significantly better-than-expected results for the first quarter (Q1 FY20) despite the lockdown, it also witnessed Mindspace Business Parks REIT list on the stock markets at a 10 per cent premium on its issue price.
A REIT, by the way, is simply a company that owns, operates or invests in rent-generating real estate.
The rush to subscribe to Mindspace scrip can be explained by Embassy’s performance so far, especially in Q1. Despite a large scale shutdown of commercial and office activity during the period, it managed to record one per cent year-on-year growth in net income at Rs 457 crore. Revenues declined just 0.9 per cent, and company officials say that rentals have remained largely steady.
India’s first REIT, Embassy had seen its stock prices rise 42 per cent since its listing in April last year until March 6, 2020, before the pandemic sent the indices reeling over the next month. It is currently trading at around 18 per cent lower than its March 6 peak of Rs 467. But as an investor, do REIT scrips make sense at a time when work-from-home policies are ascendent and office space, at least, is expected to have a rough few quarters? Financial experts note that it is still unclear how, and for how long, the pandemic is going to disrupt activity.
“Office realty may tank, but it will depend largely on the tenant. Large, IT-sector clients have been less impacted and still require space. Portfolios with high-quality tenants can actually do well. On the other hand, many may be badly affected as clients shut down or downsize,” noted a realty sector insider. It may be wise to exercise caution and avoid high exposure here.