Showing posts with label Mindspace. Show all posts
Showing posts with label Mindspace. Show all posts

Monday, 27 September 2021

Real Estate Stocks and REITs - vrk100 - 27Sep2021

Real Estate Stocks and REITs  

 

 

(An update dated 21May2023 is available)

 

Disclaimer: The analysis is purely for information purposes. This should not be construed as investment advice. The author has a vested interest in financial markets.

 

Reams and reams have been written about the vicissitudes of stock prices. Financial markets are inherently volatile depending on the mood swings of investors-cum-speculators. 

Now, the narrative in Indian stock markets is that real estate (realty) stocks are going to have their place in the sun once again. Realty stocks caught investors' fancy in the boom years of 2006 and 2007. In recent months, Indian real estate stocks have attracted market attention.

Nifty Realty index has risen by 140 per cent in the past one year while Nifty 50 delivered a comparatively 'modest' return of 65 per cent in the same period. Nifty Realty index is dominated by stocks of DLF Ltd, Godrej Properties, Oberoi Realty, Phoenix Mills and Prestige Estate Projects. 


(article continues below)

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Read more on REITs:

DLF versus Embassy Office Parks REIT

What are REITs?

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Two years ago, investors were extremely excited about REITs or real estate investment trusts but real estate stocks were down in the dumps at that time. (REITs trade on stock exchanges, having characteristics of both stocks and bonds, holding commercial properties as the underlying ).  

Now the enthusiasm is reversed with investors flocking in droves to real estate stocks and neglecting REIT stocks. 

The following table (courtesy Margin Value) provides a glimpse of price action of realty stocks and REITs in the past one year:


Two years ago, I made the following observation:  

"DLF & Embassy Office Park REIT have a market cap of Rs 35,600 crore & Rs 33,150 crore respectively. 🥺 Market fancy or irrationality? Investors seem to be erring on the side of caution based on perceived corporate governance. Of course, there's no penalty for erring on caution."

After two years, DLF Ltd's market capitalisation is Rs 101,600 crore while that of Embassy Office Parks REIT is Rs 31,600 crore (values as at close of last Friday)--which means, DLF's market cap surged by 185 per cent while Embassy's market cap fell by 5 per cent nearly.

The momentum now seems to be in favour of realty stocks as compared to REITs. Investors seem to be betting on demand for individual housing (reflected partly in higher realty stock prices) while discounting the commercial real estate space (partly reflected in subdued market prices of REITs). 

This divergence between investors' outlook appears strange to me considering the fact  that real estate stocks' fortunes are a function of both the demand for individual housing and commercial real estate. I don't know how long this  infatuation for realty stocks continues. However, it's safe to assume that at some point in future the fortunes are likely to be reversed. Once again.

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References:

My Tweet thread dated 08Oct2019



Disclosure:  I've vested interested in Indian stocks and other investments. It's safe to assume I've interest in the financial products discussed, if any.

Disclaimer: The analysis and opinion provided here are only for information purposes and should not be construed as investment advice. Investors should consult their own financial advisers before making any investments. The author is a CFA Charterholder with a vested interest in financial markets. 

CFA Charter credentials  - CFA Member Profile

CFA Badge

 

He blogs at:

https://ramakrishnavadlamudi.blogspot.com/

https://www.scribd.com/vrk100

Twitter @vrk100
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Monday, 8 February 2021

Real Estate Investment Trusts (REITs) - My Tweets - vrk100 - 08Feb2021

Real Estate Investment Trusts (REITs) - My Tweets

 

 

(Update 27Sep2021 on REITs is available) 

 

 

India is no stranger to REITs or Real  Estate Investment Trusts. REITs first caught my attention back in June 2006 when I wrote an article on them. The article can be accessed at: REITs - What Are They?
 
Since then, many things have happened though belatedly. India's capital market regulator was slow to introduce them to financial markets. The lethargy can be gauged from the fact that India's first REIT went public only in March 2019, with Embassy Office Parks REIT coming out with an initial public offer (IPO). The REIT's units were listed on BSE (formerly Bombay Stock Exchange) and NSE (National Stock Exchange of India) on 1st of April 2019.

The second REIT in India is Mindspace Business Parks REIT, which was listed on 07Aug2020.

A third REIT will be listed this week. It is Brookfield India Real Estate Trust, whose IPO was closed on 05Feb2021.

The details, as of today, are:

 

As can be seen from the below chart, the interest in the two listed REITs is subdued now even though initially investor interest was high in them. Embassy REIT's issue price was Rs 300 and it closed on first day of its listing (01Apr2019) at Rs 315. On 05Mar2020, it touched all-time-high of Rs 480, but as of now it slipped to Rs 355.

And Mindspace REIT is now quoting at Rs 330, a gain of 20 per cent from its issue in August 2020.  

In comparison, the stock of DLF Ltd is now quoting at Rs 313 with a market cap of Rs 77,600 crore. 

You can read the story of REITs in India through the following tweets: 

1) As more players are likely to join the space, we may see more REITs in public markets going forward. For example, DLF Limited has expressed its interest in launching a REIT. My tweet dated 01Nov2020 (click on the tweet thread for more details):

2) My tweet dated 08Oct2019 commenting on the market fancy for Embassy Office Parks REIT as compared to DLF stock (click on the tweet thread for more details). In Oct2019, DLF's market capitalisation was Rs 35,600 crore and that of Embassy REIT was Rs 33,150 crore. As of now, DLF's market cap is Rs 77,600 crore, a gain of 118 per cent in the past 16 months. 

Whereas, Embassy REIT's market cap is now Rs 33,600 crore, a gain of just one per cent in the same period. It's obvious that the initial euphoria surrounding the REIT's IPO died down, which is natural. In the past 16 months, the pendulum has swung to the other side, with investors turning euphoric about real estate stocks, while showing little interest in the two listed REITs.

Actually, there is a flaw in comparing unit prices of REITs with share prices of real estate companies. Most of the income of REITs comes from dividends paid by the underlying SPVs.

These SPVs receive cash flows mainly through rental income from income-generating properties, either residential or commercial. As per SEBI mandate, REITs have to pay out at least 90 per cent of their net distributable cash flows to unitholders on a half-yearly basis.

Whereas, distributions to shareholders from listed companies comprise of dividends and share buybacks.  And companies are not mandated to compulsorily pay dividends or undertake share buybacks; unlike REITs which have to distribute 90 per cent of their cash flows. 

  

3) My tweet dated 01Nov2020 about Embassy REIT joining S&P Global Property Index (click on the tweet thread for more details):

 

 

4) My tweet dated 19May2019 with details of Embassy REIT's offer document: 

 

5) DLF expressed its intention to float a REIT back in November 2014. Even after six years, the REIT has still been in the pipeline. It is hoped that its REIT may see the light of the day in 2021. My tweet dated 15Nov2014 about DLF's intention:

 

 6) My tweet dated 16Aug2014 about REITs' potential if implemented and regulated properly: 

 

 7) My tweet dated 13Aug2014 about hurdles to REITs:

 

  8) My tweet dated 10Aug2014 about SEBI approving REIT norms:

 

9) My tweet dated 11Jul2014 about tax clarity: 

 

10) My tweet dated 11Jul2014 about diversification benefits of REITs: 

 

 For more on REITs and my tweets, you can check this: weblink

 

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Disclosure:  I've vested interested in Indian stocks. It's safe to assume I've interest in the stocks discussed, if any.

Disclaimer: The analysis and opinion provided here are only for information purposes and should not be construed as investment advice. Investors should consult their own financial advisers before making any investments. The author is a CFA Charterholder with a vested interest in financial markets. He blogs at:

https://ramakrishnavadlamudi.blogspot.com/

https://www.scribd.com/vrk100

Twitter @vrk100    
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