25 Lakh Crore Industry Nobody Talks About Reits 14 Percent Returns Paisa Vaisa

TITLE: ₹2.5 Lakh Crore Industry Nobody Talks About: REITs, 14% Returns | Paisa Vaisa | Anupam Gupta CHANNEL: Smart Up DATE: 2026-03-16 ---TRANSCRIPT--- Real estate is is like the oldest investment for Indians. So even during COVID, we received 99% of our contracted income. Anybody who sold real estate knows that it is a thankless job. Correct. Today, you have liquidity. In the morning, if you decide that I want cash in my hand, you just go sell on the exchange and you get [music] your money. If you had a real estate, it’s not that in the morning you wake up and say, “Okay, now let me just go and dispose.” And the government can actually retain the control of that asset and at the same time monetize part of value. And it can actually use and recycle that capital to create further infrastructure, upgrade the existing infrastructure.

I just want to give a small reality check out that this is not guaranteed. Folks, welcome to Paisa Paisa. I’m your Anupam Gupta and on today’s episode, we are talking with Preeti Chheda, executive committee member of the Indian REITs Association. This entire episode is a deep dive into a fascinating and very interesting product that gives you an exposure to real estate. In this episode, we’re going to go into everything about REITs. What they are, what is the income you can get, what is the taxation that’s there. How these are a much better alternative to real estate ownership in terms of land, right? They give you liquidity, they give you returns. They are easy to buy and easy to sell. All of these aspects on this episode of Paisa Paisa, let’s go. REITs, real estate investment trust. After a very long time, I think it was, I don’t know, 2021 or something during the lockdown online we had done episodes with Embassy, we had done episodes with Mindspace and our current guest is also the CFO of Mindspace. But let me welcome her. Preeti Chheda, executive committee member of the Indian REITs Association and also the CFO of Mindspace Business Parks REIT. Preeti, welcome to Paisa Paisa. Thank you so much for doing this for our audience. Thank you so much, Anupam. It is great to have you here and talk about REITs after a very long time. But before that, I want to first get into two things, your own background Right. having done all commercial Okay, I shouldn’t call it commercial. [laughter] educational degrees that I can think of and the background of India REITs Association. First, I want to start with you. Fascinating. Please, you know, um before the episode, we just listed them down, right? CA, CS, um CFA, CPA inter ICWAI. Please, tell us about yourself. Uh so, of course, uh my journey dates back dates back 25 years. So, um similar to you, a chartered accountant. And it stops there. My my journey stops there. Yours went on quite longer. So, um I did my articles from Price Waterhouse, and then Marico was my first job way back in 2000. And that’s where my career started. And then, of course, on the academic side, um as you rightly said, CA, CS, CPA, CFA. And as I moved along in my career, from Marico, I moved to Shell. Um I spent a couple of years with Shell. Then, I moved to a Scottish oil and gas company called Cairn Energy, which is now uh Vedanta has taken over. And then, I came to the real estate sector way back in 2006-7, when real estate was at its boom. Very hot. And yeah, absolutely. And then, for the last 19 years, I’ve been with the K Raheja Corp Group and now head finance for Mindspace. I think your career choices can make me do an entire episode on its own, right? Because you start with FMCG, went to oil and gas. and then real estate for a really long time. then you know, you were there for the longest time out there. Okay. Indian REITs Association, very interesting because when I did the episodes with Vikas and Vinod back then with That was Embassy and Mindspace. I don’t think it was around at that time. Tell us about the history of Indian REITs Association. Right. So, uh the journey started with uh SEBI uh nudging us to actually form an association because what was otherwise happening is and they’ve done this format across all products of similar types, whether it’s mutual fund or investment advice. Yeah, exactly. So, that’s when SEBI nudged us into forming an association, and by then we were about four of us. SEBI said this was time right for you to go ahead and do an association. Now, the debate was should you do one association which encompasses both REITs and InvITs, or do we do two separate associations? We were keen that we do one association, but SEBI said no, the nature of the products are very different. Nature of the product the regulation is very similar, but one is infra and one is real estate, and let us give due focus to both the asset classes, and therefore let’s have because your compulsions or your outlook or the growth path will be very different than infra. And since both government also looks at it very differently, so let’s have two different associations, and that’s how we landed being Indian REIT Association, which is for real estate, and then they have Bharat InvIT Association, which is for infrastructure. And now, of course, we have SM REITs also, and I’m assuming at some point in time you’re going to have an association for SM REITs. So, it was in somewhere around June 2023 when we incorporated the Indian REIT Association with four members to start with. It was formally launched in September 2023, and then of course, we have five REITs who are the members, and as we have more REITs coming in, they will also join the membership. But I think it’s been an amazing journey. Let me tell you the three key reasons why we actually have this association. The first and foremost is, of course, how do you create awareness of the product? Because obviously, not everybody is well aware of the product. The second most important thing is how do you grow this instrument in the country, whether in terms of policy changes or whatever else needs to be done to grow the product. And third is how do you better the governance for this product. This product, I would say, it’s an extremely tightly governed instrument, but obviously, there’s no end to that. It’s always uh always scope to do better. So, that’s a third thing why we are here for. And exactly in the last 2 years, we have done that. So, we worked on education, we worked on a lot of policy reforms to help the product grow, and we’ve done various things to strengthen governance for the product. Yeah, it took the longest time. I mean, REITs came in what, ‘16? So, the first InvIT happened in 2016, so I think Oh, the first was an InvIT. InvIT. Oh, okay. And the first REIT happened in ‘19. ‘19. Yes. It was in ‘19 is when the first REIT, which is Embassy, came in. I cannot get over this. Real estate is is like the oldest investment for Indians. Correct. Investment bolo, kharcha bolo, jo bolna hai bolo. Correct. And they can relate to this instrument. And it went all the way till I mean, jo ho gaya to ho gaya, it’s fine. As as long it’s, you know, as long as it’s there for everyone to Yeah, so I I still remember, so I’ve been associated with this instrument all the way So, this discussion started way back in 2008. that’s why So, the first REIT regulation for people who don’t know, actually uh SEBI came up with the regulation in

2008. But I think the form and shape in which it came, it was not really um I would say conducive for somebody to do a REIT. And then again, they revisited the position in 2010. That should be therefore do something like an AIF or a mutual fund uh for REITs. And then I think the stakeholders came back saying that you need to have a dedicated regulation similar to what you see abroad. Yeah. And then they started working on it in 2012. And 2014 is when the regulation came in the country.

And it took another 5 years for the first one to list. Yes. I mean, you know, folks, if you want, you can just do a global do a Google search on REITs all across the world, and you’ll see that some of them are like really old. 1960 is when it came in uh US. And early 2000 is when it came in Singapore. Yeah, I mean, Sing- Asia’s got like tons and tons of And our regulation actually mirrors Singapore REIT regulation for to a large extent. Okay. This is a good place to actually introduce REIT as a concept for our audience because, you know, you know, there is real estate as investment and trust. So, it doesn’t take much of imagination to know what the product is. But still, a quick description of what what the product is. Right. So, the way the best way to look at this product is it’s a pool vehicle and we call it a pool vehicle because it is a bundle of assets. Whether it’s a real estate asset class or whether it’s infra, but it’s a bundle of assets which are put together. The structure is very similar to that of a mutual fund where you pool all the assets together. You actually then create units of this and similar to mutual funds you have a manager which is managing the trust and this is in form of a trust. We’ll come to why a trust and so on, but it’s form of a trust. All the assets are held through SPVs which are in a way you can call them subsidiaries of the REIT. And then of course, the REIT which is a trust is listed. Now, what is this product all about? It is nothing but in a way you are creating a liquid instrument out of commercial real estate which is giving you a combination of both recurring income as well as growth. So, this is one product. That’s why we call it’s a combination of yield and growth. If you tomorrow I’m just saying if you own say a real estate today, you have to take the trouble of managing leasing, chasing revenue, all of that. Maintenance is again a challenge. Here you have a professionally managed REIT which is giving you exactly the same thing, giving you diversification across pan-India basis, and it’s giving you the same benefit as you would have derived had you held office space for example. So, in effect, it is very similar and we I always say it’s a combination of equity Uh, some bit of fixed income because you are getting recurring income. So, it has a best of both worlds. Okay. You were saying about the trust. Let’s talk about that, right? Because the trust is, you know, like the word trust. It gives you most It gives me as a unit holder more security. Let’s get into that. Right. Uh, so internationally, they are both corporations and trusts. Uh, in terms of the structure of uh, the REIT. Uh, in Singapore, it is in form of a trust. In US, it’s corporation. And because, as I said earlier, we have in a way mirrored the Singapore regulation, so we’ve actually used the trust model. Trust. And also, what happens is trust from a tax perspective also, it’s a pass-through uh, vehicle. So, whatever you give to the trust actually goes without tax. It either gets taxed in the hands of the SPVs or it gets taxed in the hands of the unit holder, depending on the income. We’ll come to that. Sure. But, that’s how we got uh, the trust structure in India because that was very similar to Singapore. Okay. The incomes, I mean, because there are So, if I remember correctly, there are two or three types of income that you as a unit holder, if you, you know, you buy a a REIT today and you hold it over the long term, what are the streams of income that accrue to you? Right. So, it’s very similar to the streams of income that accrue to any um, investors investing in, say, an office real estate. Uh, the first and foremost, obviously, you are getting rent. So, do the REITs get The REITs also receive rent, which are all sitting at the SPV, which are held by the REIT. Now, the question is, how do you upstream this income to the unit holders, all the way to the unit holders? Uh, so, when you start upstreaming, there are three ways in which the unit holder receives the income. Uh, people, of course, find it complex, but I I’ll just simplify for everybody’s uh, sake. Now, first is you get dividend. So, to the extent you have profits available in the SPVs, you send across those profits to the REIT, and from the REIT it goes to the unit holder. So, dividend is the first stream of income that any unit holder of a REIT would get. Got it. The second one is interest. So, together with dividend, if say for example, the REIT has lent money to the SPVs, the SPVs actually pay interest to the REIT. Okay. And that interest is then distributed to the unit holder. So, that’s the second form of income that the unit holders get. And now there is a third form which we call as say return of capital to keep it simple. Uh so, what happens is under the REIT regulation, you’re supposed to distribute at least 90% of your net distributable cash flows. NDCF, yeah. Yeah, so the important word is cash flow. So, you distribute 90% of your cash flows. Under the Companies Act, you can’t pay dividends more than your profit after tax. I see. So, now there is a dichotomy here. So, you have a reg which tells you distribute 90% of cash flows, and then you have Companies Act which allows you to distribute only 90% of PAT, which is actually accounting profits and not cash flows. So, at all times you have money which is locked into the SPVs, like depreciation to give a simple example. It’s a non-cash item. So, there is cash available in your bank account, but you don’t have profits because you have kept a provision for depreciation. Depreciation, yeah. Now, the REIT regulations require you to upstream that money, so you have to take it out. So, that is given by way of So, if there are loans which are given by the REIT to the SPVs, those loans are repaid. And those loans in the repayment which the REIT gets is in turn given to the unit holders by way of something which we loosely call return of capital. So, [snorts] that’s the other form of income. So, essentially there are three. One is dividend, interest, and return of capital. Ma’am, I’m getting the feeling you’re a ranker also. Let me, you know, let me just get that out of Yes, [laughter] I have. There, see. The confidence with which you’re saying about all this P&L and balance sheet. [laughter] What rank? Boli do, matlab. I was 12th all India in inter and 42nd in final. Kind of explains so you didn’t have to really search for a job did you? Okay, [laughter] um, taxation. The first thing that people will you know wonder because taxation is something that’s very important. Uh, from a unit holders perspective, what am I paying? So I think the USP of this instrument is taxation. Uh, the first component as I mentioned was dividend. Dividend if distributed by the REIT to the unit holders is completely tax free in hands of every form of investor. Okay. Today if you receive dividend from a non REIT entity, say any company where you’ve invested and is paying dividend, it’s fully taxable in the hands of the receiver. But in case of REITs if the income which is distributed by way of dividend is fully tax exempt. And almost all REITs have dividend also as one of the components. So that is completely tax exempt. So that’s the USP of this instrument. Second, interest. To the extent you get interest, that’s fully taxable at your marginal rate of tax depending on who’s in which tax bracket. And then comes the third one which is return of capital. That again is not taxed in your hands when you receive it. All that you need to do is reduce your cost of acquisition to the extent of the money which you received in form of return of capital. return of capital. It’s not return on capital. it is return of capital. So effectively you land up capital paying capital gain tax when you sell the units and not when you receive the return of capital. So it’s as simple as that. Yeah, and that’s as good as it can get. I mean there’s no else and I think uh, in unit holders don’t really need to get confused because how much each REIT is paying by way of dividend or interest or return of capital, that’s clearly spelled out in a form called 64B which gets to every unit holder at the end of the year. So they don’t really need to figure out how much have you received in what form. It’s all given in the Yeah, yeah, so I’m sure that you know by now people are just waiting for that number. Let’s look at it at past trends, you know, in so far indicative yields only for the stuff that’s that that we are talking about the REITs not the InvITs. What has been the indicative yields so far? So it’s been anywhere between I would say when it started off the yields were closer to 7%. Now obviously they are I would say anywhere between around on an average if I were to take will be about 6% and that’s also because and I’ll explain that in the initial years all of us almost got listed during COVID and obviously a lot of noise which happened we went through occupancy declines and all of that. So you didn’t really see the growth. In the last if you look at the last six quarters almost all REITs have given double digit growth in distributions even in the net operating income is as we benchmark ourselves. Now when you see growth together with the dividend which we have given it’s actually a total return which is on an average anywhere between 14 to 16% for an instrument which is I would say moderate risk moderate return instrument. Anything up of 14% I think it’s a very good return. So therefore now you actually in terms of the overall return which you’ve got I would say about 6% has come by way of distribution and another by way of capital gain. Oh not bad. Yeah I mean and liquidity has been good. There are quite a few things which the regulator has now done to improve liquidity and of course as association we keep doing more and more education so that we have more investors coming into the product. Okay now that we’ve done with the basics of REITs folks that’s you know that’s that’s like a real primer up primer out there on how REITs function. What’s been happening? That is a landscape of REITs today. I know that the first of the lot were obviously Embassy Mindspace Brookfield I don’t know if I’ve got the order right and then there were Knowledge and Nexus. I think Nexus was first and then Knowledge was second. So we’ve got a bunch of five which is pretty good. What’s the landscape look like? I mean what are these properties uh these REITs what are the underlying assets if you could just explain to our audience? Uh so, out of the five REITs that are existing today, we have four REITs which are office focused REITs, and one which is a shopping center REIT. Uh in India, if you see office market in terms of the inventory available, uh would be somewhere around 800 million square feet. Of course, a lot of it is strata sold. Uh so, if you really look at real REITable stock, will be anywhere between 400 to 500 million square feet. Out of that, 175 million square feet has already come within the REITs amongst the four office REITs. Okay. So, you still see there’s huge potential for more office to actually come and sit in the REITs, which will have it happen eventually. Similar thing is even on the shopping center side. You have about 70 80 million stock. You have about between 10 and 15 million in Nexus. So, there again, there is enough scope for it to grow and all of those assets to eventually start coming into this space. So, I think and it’s grown substantially. So, today in terms of the assets under management, we have almost close to I would say about 2.5 lakh crore of assets which are under management between the five REITs. And if I were to add InvITs to it, we’re talking about almost 10 lakh crore of assets under management within a period of almost eight years. So, that’s I think a very significant achievement for a product which has been relatively nascent in the country. Okay. One major change that had happened recently was REITs are now classified as equity for mutual funds. So, for a retail investor, you know, what does this actually change? I don’t know. Um like in in terms of liquidity, volatility, participating in a mutual fund, long-term returns, what has changed now with this? Yeah. So, I think this is a very very good reform that SEBI has permitted for this instrument. So, just let me explain. Now, what happens in India, uh while REITs are in a way, I would say, classified as hybrids. So, because they demonstrate the characteristics of both fixed income as well as equity. So, we fall under the hybrid category. Now, what happens because of that, we don’t find a place in the indices. Though the market caps of most of the REITs, almost all REITs are way beyond some of the ones in say a Nifty 500, but we’ve still not found ourselves a place in the indices. And that’s because we are not equity. Okay, we were rather not equity for such a long time. Now, interestingly, all of us have been or most of us are in the indices globally. Okay. So, like for example, if I were to talk of Mindspace REIT, we are in 100 plus indices globally. Whether it’s FTSE, S&P, MSCI, so on so forth. Mindspace India REIT is there in all of them. 100 plus global indices. Wow. Now, the question is we are finding ourselves in global indices, why not the home indices? So, that’s how we started talking to SEBI. And and of course, we’ve been talking to mutual funds, AMFI, SEBI, what do we do for us to get into indices? I think the biggest roadblock was the way the instrument is classified. And so, finally, after I mean, a good 2 years, now we’ve got to a stage where SEBI has said specifically for mutual funds because if you were not equity, then mutual funds would have had an issue if you were to mirror the benchmarks. Because in the benchmarks, it has to be only equity or equity-linked instruments. Correct. So, if we are not classified as equity, we can’t enter indices. And if we entered also, they will have an issue because they get a trading error there. So, that’s how this whole discussion on equity inclusion started. And fortunately, now we have already been classified for mutual fund investments. So, effective 1st July 2026, whoever qualifies will hopefully find a place in the indices. And then you’ll have a lot of passive money which will start coming into these products, which will further help liquidity. So, if liquidity has been kind of a concern in these instruments because we’ve not seen too much of uh liquidity. And also because the instrument is new, you need a lot of investment still to come into these products. So, this is I think one very important step in that direction. I’m going to come to that liquidity part because I find it interesting. But now I want to get to the like center of this because our Indian investors, Indian families think of “Ghar kharido, ghar kharido.” Yeah, whatever. I self-use is okay, that’s a different thing. But this whole thing about owning an asset because uh what the two favorite things were? God is not making any more real estate. Okay? [laughter] And second was real estate prices don’t fall. Okay, whatever. Appreciating asset. And I know the first one is true, obviously because you know, there’s God really isn’t making more real estate. I don’t know about the second and I don’t want to get into that. But the financial equation for investing in real estate from a retail perspective, HNI perspective, whatever. It takes a lot lot of money to buy. Used to be simple, like you know, 5 6% rent, 2 3% whatever, capital appreciation year year after year. So, 10 12% year after year year after year mil jayega real estate se. Correct. Stock market chahe yahan jaye, wahan jaye. Okay, I don’t know what reality was. I don’t you know, honestly, that’s a totally different ballgame. And now comes this REIT product. [snorts] Kind of gives you the same thing, right? Correct. What’s been happening so far, right? Is this Have Do you think that that has made some headway in breaking this myth, practice, accepted truth that one cannot lose money in real estate? To me, REITs looks like the ideal product of doing exactly the same thing and getting a better outcome. What do you think? Absolutely. So, that’s exactly our so to say, um when we do awareness programs, this is exactly a theme which we are trying to explain. So, I think the first and foremost thing is today if you were to buy real estate, uh the ticket sizes are large enough wherein not everybody is able to participate in the story. And if you look at metro cities or the larger cities, real estate is not something which anyone and everyone can afford. People spend their years and years paying EMIs, right? First house is fine, understandable, but when it starts coming to investments, then for you to invest also you need large ticket sizes to put your money in. Now here comes a product which is giving you the same benefit of holding real estate, but with just investment of less than 500 rupees or 500 rupees. That’s about it because you can actually go ahead and buy a single unit. So that’s one big advantage. So you get the option to do a REIT and still get the same exposure, the same returns as you would have got had you held a real estate. Number one. Second, I think which is equally important is today you have liquidity. Today tomorrow in the morning if you decide that I want cash in my hand, you just go sell on the exchange and you get your money. If you had a real estate, it’s not that in the morning you wake up and say, “Okay, now let me just go and dispose of it.” It doesn’t happen that way. Third, if you have a real estate, you are supposed to as I said earlier, you’re going to manage that, make sure the rentals are coming, you keep maintaining it because after a point in time obviously there will be wear and tear. So you as the owner are supposed to take care of all of this. Today you have a professional manager who’s taking care of this. You don’t really need to worry. And the fourth important thing is diversification. So when you’re investing in a REIT, they are holding assets on a pan India or maybe with couple of cities. So there is a diversification, but if you are going to hold an asset, you’ll at best buy in one micro market in one particular locality. Whereas here you are getting the benefit across and not just that. Say today Mindspace is present across say three cities, another REIT is present across another three cities, you have the option to own both the REITs and get all India diversification. So, these are some of the benefits which can be easily realized through this instrument. Yeah, I I’ll recap that for you guys. Uh First and foremost, obviously, is the fact that you can go in with a low ticket size. Okay, you can as low as 500 rupees. Second, my personal favorite, liquidity. We’ll come to that. Third, facilities management. Okay, anybody who’s seen Khosla Ka Ghosla knows what I’m talking about. And fourth, diversification, right? So, you know, you are not just buying that one house in some random place where your somebody in your friend said ki boss airport aa raha hai wahan kharidne ka. You’re getting a pool of assets. So, four reasons why REITs make more sense than buying physical land or real estate or whatever. But, I I want to get to the that liquidity part. To me, that that’s To me, that’s a killer. Okay, anybody who’s sold real estate knows that it is a thankless job. Correct. Okay, only like, you know, it’s like the stock market. Top The blue chips have liquidity. And when you go down, down, down, you have less liquidity. Right. In real estate, it’s even worse. Do you Just explain this liquidity part, how what you would have to What’s the, for lack of a better better word, magajmari that you have to do to sell land versus to sell a REIT. Right. So, if you were, say, owning a piece of real estate, say, an office building or say, an office floor anywhere or a unit anywhere. Today, if you want to sell, first thing, obviously, you need to find a buyer who’s actually going to buy. You do all your documentation. Then, you pay your stamp duties. Uh obviously, capital gain will come in both the cases from a tax. It’s not very different. But, today, you can’t do anything overnight. So, if you have to sell anything, you have to actually plan. You’ll have a broker involved. Uh he’ll help you find some buyers, and you’ll sit to negotiate with them, and then you’ll take 2-3 months to finish your documentation. 2-3 months is, yeah, and and you’re being realistic, by the way. Yeah, assuming, you know, you know, you have so many portals assuming you are able to quickly dispose off. Even then it’s like a good two three month process and not necessary that tomorrow even after the two three months you are getting what you want because if you are in a rush to liquidate then you are you know, in a way your negotiate negotiation capabilities go down. Whereas in a REIT whenever you want you just go on the exchange and buy and you can as I said just buy or sell one unit. So that way it’s actually creating liquid real estate which otherwise was not the case. So from a retail perspective I think it’s a very big positive because you actually are getting a liquid real estate in hand to buy and sell when you wish. Liquidity folks remember you’re going to feel the need for it the day that you want to sell and have access to your own money. Remember that you used your own money to buy that house or land or whatever and if you have to wait for long to get access to it back. REITs gives you that like you would sell a stock or a mutual fund in 48 hours or whatever the cycle is and you’re done. Okay, but Preeti then they will say that you know, things like I’m getting rent directly in my bank account. You’re giving me some funky stuff. I don’t understand that net distributable cash flow NCF. You know, so demystify that like you know, here also you’re getting everything. You’re getting it about once a quarter or whatever what what are the payment? Please explain that to us. Okay. So as I said under the REIT regulations you need to distribute 90% of your cash flows. So let’s not complicate with the definition net distributable cash flow. It’s basically all the cash flows which you are left with after paying off all your obligations like your expenses, interest, tax, everything. Whatever is left that’s what you can distribute. So that’s nothing but the distri cash flows which are available and you need to distribute at least 90% of that. You can even distribute 100% but 90 is the minimum that you need to distribute. Now what this is exactly nothing but the rent which we are collecting from these assets. Just because they are sitting in the SPV, when you upstream, it changes the I would say the nomenclature changes. It’s otherwise the same rent which is flowing upstream. It’s just that because the method of distribution is different, therefore the same rent takes the color of dividend, return of capital, and interest. Otherwise, at the end of it in a bank account, it’s the same rent net of expenses that is sitting in a bank account which is flowing to the unit holders. So, there’s nothing to complicate. It’s just simply cash flows and you distribute 90% of that. Amazing. I mean, you know, it’s it’s it’s the same thing that’s coming to you, but it’s just coming once in a quarter, right? Yeah, and in fact, the REIT regulations require once in 6 months. All the REITs are doing once in a quarter. Ah, okay. So, once in 6 months is required, but you’re doing once in a quarter. So, annually it comes to the same thing any which way. Amazing. Chalo, theek hai, fine. Folks, we’re going to take a small break out here. On the other side, we’re going to talk about how um rental yields move with interest rates, what exactly has been the price performance of REITs on the exchanges because that also makes a very big difference in, you know, for for your capital gains and much more. Do not go anywhere. We will be right back. Did you know Indians report nearly 800 cases of online financial fraud every day, which has resulted in losses exceeding 1,000 crores in the last 5 years? To keep you safe from such fraud, I am starting my newest podcast series, Conversation with Vigilante, an initiative by HDFC Bank. In every episode, I will feature special guests who can share expert insights on the different types of fraud, their modus operandi, and how you can protect your money. Stay safe, stay vigilant, and don’t forget to tune into Conversation with Vigilante. Catch the episodes on all audio streaming platforms and V for Vigilante YouTube channel. And welcome back. Okay, Preeti, explain the you know, the linkage between rental yields and interest interest rate cycle to our audience because there is a linkage out there. Theoretically, how how does it work? Prac- Practically, how has it worked? Right. So, today, as I said, because the instrument is a combination of income plus growth, anytime an investor is investing in this product, that’s the way people have looked at this instrument. Uh everybody tries to compare this with other forms of income-generating products, be it fixed deposits or be it any mutual funds uh and so on bonds and so on and so forth. And then there is a comparison that uh if I’m, for example, getting X percentage from fixed deposits, why should I put the money into the REITs? REITs should give me recurring income which is better than uh a fixed deposit instrument or anything else. Now, there uh is a difference between these products and the REIT because REIT is not just about income, it is income plus growth. Yeah. And as I said, if you look at the 7-year, 8-year history that we have, REITs, collectively, on an average, have given almost 14% plus and some of us have even given 16 odd percent uh return, which is a combination of, say, 6 to 7% distribution yield and the balance is growth. Now, effectively, what does that mean? Say this year, if you have bought my unit, just for the sake of discussion, 100 bucks, and you got, say, 6 rupees or 7 rupees as income. Now, next year, that actually starts growing. The six will become, say, 6 and 1/2, then, say, 7, I’m just giving an example, and so on and so forth. Yes. You don’t see that in any other fixed uh income instrument. Once your coupon is fixed, that’s exactly what you get. But your your income starts growing. So, either that happens or it’s reflected in the price of the unit which you’re holding. Either of them, collectively, will give you the returns that I’ve been talking in the historically, that’s what we’ve given. Yes. Now, that is what I think the unit holders need to understand that therefore this is a product which actually differentiates, it has the qualities of both, but this is the way you need to look at this instrument and not compare it with just a fixed income product because it’s giving you growth which is nowhere close to what the you get from a fixed product. 14% is 14% sounds really good. I mean stock market’s not giving that much. And whatever it gives it gives you with volatility. You know, it’s not like a very straight forward kind of a Since you spoke of volatility, I think that’s a very important thing which we mentioned. These are considered as low volatile products. Even when the markets go up and down, you will see them very range bound. So, that’s the beauty. And in fact now a lot of uh people have actually even if you look at some of the mutual funds have started taking because they believe that this is actually an hedge against volatility, the product. So, that way also it plays well. Yeah. How have the unit prices been on the exchanges, right? Because admittedly, you know, 2019 to 2026 is just 7 years. It’s not a very um very long trading history for people to understand the standard deviations or volatility or liquidity and all that. But how have unit prices been broadly? So, I’ll tell you if I were to just quote one example of Mind Space, we listed at 275 bucks. Today the price is 490. We listed in August 2020. Huh. We are in Feb 2026. Price has moved from 275 to 490 plus. 6 years. 6 years. So, this is the kind of price appreciation 50% plus. which we have. Exactly. And over and above that we’ve continued to pay our distributions also. That’s why I say if you look at the combined return, we’ve delivered more than 16% return. So, the price growth has happened and it has to happen because as I said, we get our How do we get our growth? One is first and foremost we have inbuilt escalations in all our contracts. So, you generally it’s about say 5% ballpark on a annual basis. Also, what happens generally inflation in the country is more than historically also if you’ve seen you’ve actually got rental appreciation which is anywhere around between say 7% 7 to 8%. Whereas the escalation is only 5%. So there is at the end of the lease term there is the I would say reversion which is happening where you actually tending to that 7 8% so you get a big pop in your re-leasing. So that’s a second way you are growing. So one is the escalation then it’s a rent reversion which happens at the end of the lease term. Then of course we have things like for example we keep acquiring. We have the ability to do development to the extent of 20% of a portfolio value which is enabled under the REIT regulation. So within our parks we have ability to do little more wherever we have FSI which is not utilized. So we can actually do as far as part of the same asset. So these are ways in which we have been growing and all of these are then of course acquisitions. We acquire from our sponsors. We do third party acquisitions. All of that has actually led to the growth in terms of the prices also because unit holders do get the benefit of all of this. I just want to give a small reality check out that this is not guaranteed. No. That’s why we say we are equity like. We are not debt instruments. So because folks you know unit prices that are traded every day in the stock markets are a function of demand and supply on that given day. Okay. So you should not look at REIT prices in the short term. It’s better if you look at it in the longer term because of the transparent structure if a REIT has on average 5% escalation that 5% which should flow to the unit price also eventually. If I’ve got that right. Whether it does or does not happen is a function of a lot of things that you know True. just because Mindspace has a appreciated 50% in you know six years it doesn’t mean that that will either go on forever or will happen in other REITs. So like for example all of us did go through COVID, wherein we saw occupancies moving down. Obviously, we are again back closer to our core I mean COVID uh pre-COVID levels. So, these are business risks which will be a part and parcel of every REIT or InvIT, as the case may be. Yeah. So, you know, it’s good if you approach the investments as investments. Each investment carries risk, you know that. Okay. So, whatever happened to work from home killing, you know, office real estate supposed to Supposedly, you know, there was one key movies car theaters will shut down, offices will shut down, everybody will work from home. I don’t know if they have, but at least I think in a few industries it’s come down to a couple of days from home, which is fine. But, looking at actual, you know, occupancy data today, what do you think? You know, are we seeing some flight to quality or what? Yeah. So, two trends we’ve actually seen during COVID. We saw our occupancies, physical occupancies I’m talking about. Uh we actually saw them going to single digits. Okay, we went down to even 6, 7%. Wow. Those were the only people who are coming to offices because of the lockdowns. And then everybody thought that, okay, we now learned how to work from home, so we’ll continue. But, I think over a period people realized that that’s not the most optimal way. Productivity losses, confidentiality uh being questioned because you had moonlighting happening, people working for more than one organization at the same time, uh data sharing was becoming an issue. So, those were the issues which I would say uh people realized, you know, as it uh kept unfolding. And then eventually, now we have a situation where we have a occupancies in our parks almost 85-90%. Wow. They’ve almost gone to pre-COVID levels, both in terms of physical occupancy and even our committed occupancies. So, I think the entire uh noise about work from home has now died down. We don’t even get asked questions on work from home anymore, which otherwise would have been the most important question 2 years back. Okay. There’s one, you know, I I kind of I was alluding to this in the in in the first half of the episode is real estate and trust. Okay, because and I mentioned Goswami out out there. So, what structural protections do REIT investors have? As someone buying a plot, you know, or whatever piece of land does not have. Okay. Multiple. Not one. Yeah. Um I can keep talking, but at least let me talk about the few of them. I think the first and foremost thing which we should first understand is SEBI should get all the credit for the kind of regulation they’ve built around REITs and InvITs. One big reason for success of REITs and InvITs in the country is the robustness of the regulation. Because when when the product started, it was more an FPI product because obviously Indian investors were still understanding the new product which has come in the market. And very easily FPIs lapped on to this product because they realized that this regulation was so robust and very much similar to REIT regulations worldwide. So, it was it gained acceptability very quickly. And sooner the institutional investors here also realized that it’s a very well packed in terms of the governance framework. Some of the quick things. One, 80% of your assets have to be completed and rent generating, reducing the risk. Not more than 49% leverage can be done. So, and if you go beyond 25%, you need uh rating as well as unit holder approval. All related party transactions go through different levels of governance right from audit committee approvals, board approvals, unit holders approvals in some of the instances. Reporting. It’s a very strict reporting. Like for example, you do annual report once a year, here you do twice. Yeah. Oh, okay. You do valuations. Uh real estate companies don’t give valuations, whereas REITs give valuation every half year. So, every investors knows what is the worth of the unit which is trading because we disclose something called net asset value per unit. So, anyone can closely compare them to okay, the NAV of this REIT is X, the trading price is Y. So, those are the kind of safeguards which they have, all the disclosures which are there which can give a [clears throat] lot of comfort to the unit holders. So, today you have underlying assets, the contracts are 9 years, 10 years, and those are with lock-ins of 3 to 5 years. So, those are the income streams. So, even during COVID, just to make a point here, we received 99% of our contracted income. I think this was This are one of the few asset classes which actually received 99% of our income contracted income. So, even the worst of things like COVID did not actually see us deviate from our NAV. I mean, you’ve been you’ve been in the markets and in your job long enough to know that generally with financial products, there’s been a bit of, you know, there’s been a there’s been a bit of a trust deficit that’s been out there that people have either not understood the product really well or, you know, figured that when the T literally stands for trust, there are built-in structures within the product itself to ensure that nobody will take your money and run. Same way it works in mutual fund, you know, so even in the And in fact, this product is actually bridging that gap. The trust gap which you’re talking about, the product’s actually doing that. I don’t I I just, you know, I I had Shobhit Agarwal of Anarock here sitting in the same chair, and he told me this very interesting thing because I asked him the same thing, right? I said, “Should you invest He said that you just look at the transaction cost it takes to buy and sell a real estate asset.” Absolutely. like, I didn’t think of it that way. You know, you put in brokerage. Okay, stock markets also have brokerage. Yeah, it’s not similar to Okay. Stamp duty, registration, maintenance fees, that entire list. He said that it can go up to 10 to 11% of your buying price. And if that’s the case, it means that each and every year your property needs to be increasing by that much amount just for you to cut your cost like that. And this I think this kind of takes care of all of that. Okay. Now, last few questions. Preeti, help us in maybe making a checklist of how someone who’s listening to this now says that I want to buy REITs. Yeah. Okay. How should he go about doing it? How should he compare one REIT to another REIT? You know, obviously as per his own risk return. That’s fine. I’m just saying that objectively, what’s a good way to compare REITs? Any red flags if possible? Okay. So, a couple of things on this. First and foremost, when you’re looking at any REIT for that matter, uh you need access to information. So, our websites have enough and more. Um the IRA website also has enough and more. Uh we find come to what are the parameters that you should look at, but at least in terms of access of information. And SEBI has also launched something called like the data benchmarking institutes. These are platforms which actually gather information about all REITs in one place, and it’s available for anyone to go and access that. So, they actually compare every REIT alongside each other on various parameters. So, that’s again Where is So, there are So, there are institutes like for example, KFintech, which is an RTA, which offers I think CARE offers that. Uh so, there are a couple of these platforms which are actually offering those. So, you can any of your unit holders can actually go and do that. I think the key parameters on which we actually measure ourselves is one is the net operating income. Uh it’s very akin to EBITDA, but it’s before fees. So, we call it net operating income. How has the REIT performed in terms of the net operating income in terms of growth? Uh also NDCF, which is obviously the distribution, how have we distributed over years, quality of the portfolio Uh almost all of us have very AAA portfolio. So, you don’t really need to worry about those assets because these are all very large assets which are you know leased out to MNCs and large Indian conglomerates. So, that’s another important consideration for you to look for when you are take you know taking exposure to any read and of course things like whether you like this city or you like exposure to that city, the mix etc. All of that is disclosed in very lot of details in our websites on the read association website which you can look at. And past performance is any which is here to speak for itself. You can put it up on the phone couple of seconds to get this. Okay, my last part is you know my my favorite part of the day. Okay, first of all I’ve got the CFO of Mind Space sitting here next to me. Right? On on this episode please tell us what’s what’s generally the outlook on you know your product on commercial real estate going forward on reads your own read what’s what’s the outlook like? Right. As I said first and foremost the whole work from home is no longer. If you see this year especially in terms of the absorption on the office side, it’s actually gone above even the pre-COVID level. So, this time you’re actually staring at 55 million square feet of net absorption which has been one of the highest ever that we’ve done. So, that’s the kind of growth which you’ve seen. I think the second which is one of the very critical things for Indian context is the GCC demand. So, you have actually seen if more than 50% of each of the read portfolio is leased out to GCCs and GCC demand has been extremely robust. More than 50% of the portfolio is leased out to GCCs? Yes, each of us. It’s not just Mind Space is an exception. I’m just saying that you know 10 20 years ago that was what zero? Yeah, so exactly. So, now we are seeing more and more GCCs coming here taking spaces and reads are the largest providers of infrastructure to these GCCs And that demand has been extremely strong and that’s why you see if you look at the last six quarters, the distributions and the NOI as we call the rentals or so, they’ve actually grown double digit year-on-year. And that’s actually reflective of what you see in terms of the demand strengthening. Going forward as I said, we have a huge chunk of office assets which can actually find place in the REIT. And as far as the India growth story remains intact, you will need to create infrastructure to support that growth whether in form of offices, whether it malls, infra, whatever. So and I think REITs offer the best solution to that in terms of giving those spaces which are so professionally managed and especially for a country like India which actually needs to get more and more organized. You know, governance has to get better better. This I think it gives a very good space within the Indian right from an economic standpoint, employment standpoint and from an investor return standpoint. You going forward because we are expecting So I think the RBI cut rates over the last year for what 125 bps odd. I mean you know, transmission is you know is a separate issue but I think the repo is at 5.25 somewhere around there. Yeah. For REITs, indicative yields kind of looking forward 5-10 years. What do you think? For a country like India where we are in the real estate cycle? Right. So I think from a long-term standpoint, today you’ve seen the yields broadly I am not saying exactly which are closely hovering to your policy rates at least now better than that a little. In So there’s just one nuance which I want to bring to table here. If you look at global REITs, generally the yields which are given by the by the REITs are generally 100-200 bps over the treasury yields. Treasury yields. Okay. they have very limited growth. In India it’s not been that way. In India has been the reverse situation because you are giving a huge chunk of your return by way of growth. So I think that combination of return by way of yield plus growth yield somewhere closer to your policy rates or your tenure plus minus. I think that trend will keep continuing. And then of course in short term obviously I don’t know whether we are seeing further softening or not, but I think we are now at a good space where another important thing is most of the REITs have locked in fixed cost debt. At the REIT level. And now of course you heard RBI also letting the REITs borrow at the REIT REIT level. So now it actually helps us you know for I would say short medium long term at different maturities. It actually helps us lock fixed cost debt. So to that extent the volatility of returns also reduces. It’s more predictable cash flows. Very interesting. There was one thing that I found interesting in this latest budget was the proposal to get the CPSEs, central public sector enterprises, all all RPSEs and the massive massive massive land banks. They have to monetize that. Do you think that it’ll ever happen? And B, if it does then what could that look like? Okay, from a possibility perspective yes definitely because I think government undertakings are sitting on huge real estate. Which can actually find its way into REIT. And I think it actually supports the government’s plan of monetizing some of these assets you know under the larger disinvestment umbrella. And I think this product actually offers a very good solution because you can the government can actually retain the control of that asset and at the same time monetize part value. And you can actually use and recycle that capital to create further infrastructure, upgrade the existing infrastructure. I think the only thing will be important is you’ll need to make sure that these assets are working efficiently because any investor which is wanting to put money in REITs would expect more optimization of returns. So, I think the challenge will be how do you run these assets in the most efficient manner so that you can optimize returns, but otherwise I think they can actually be very very good instruments for the government also to access. And we’ve seen NHAI as one very good example of that. The NHAI was very long time ago. I mean, the kind of land bank things that they have, I’m sure that they can accelerate the process and Yeah, there’s enough to do. Okay, last two both these questions have got nothing to do with REITs, but they are the last two questions. This one too is my favorite, okay? Considering the amount of education degrees that you’ve got you know, our our audience out there maybe there may be some kids out there who are doing their B.Com. And most of your most of your, you know, education degrees are in the area of B.Com. What’s your advice to them out there? You know, should they also have like five five 10 10 degrees to So, first someone who’s out there doing his B.Com. him or her, whoever it is, what’s your advice to them? You know, what how should they look at studies? What are some possible options for them? Okay. I think we are now in an age where I don’t think I deserve the right to even say that everybody should have so many degrees. The degrees that you have got gives you the right to say anything you want, huh? Please. Well, I think kids have done wonders even without degrees. So, I think it’s not about degrees, it’s I think your passion which you should pursue. I have in my own family my niece who of course has secured a degree, but she’s saying I want to go my my myself. I want to go down the entrepreneur way. I think it’s all about your calling. I personally believe it’s all about your calling. Degrees support, but I don’t think degrees alone decide your career path. You think your kids are watching this? Huh, you’re taking the safe way out and saying all this. So [clears throat] it’s not about that but I think I know what you’re saying. I just want to know you know the relevance of the degrees in today’s day and age for someone who’s doing his or her become wanting a career. You know So I think if you want if you don’t go if you don’t want to go down the entrepreneurial way and if you want to stick to being a professional you know working in corporates or so then of course degree matters because otherwise your growth is limited. [snorts] So to that extent I think first it’s a career choice and I think education does give you a different perspective. Your degrees do give you different perspective. I’m not saying they are alone that are important but at the same time they do it is in terms of the technical skill set it aids you and if you want to remain in corporate sector then obviously you can’t really do without a degree. So to that extent it’s important but if you’re going to say okay my degree is therefore going to only land me a job in corporate I can’t thereafter or rather I should therefore be doing a corporate job then that’s not the limitation anymore. You can just do whatever you wish to yeah and every single thing is you know making a difference. I mean you yourself are making such a big difference Thank you. Thank you. No to the world of capital markets The guests who I get out here they are the real people but I’m going to just you know approach that question in a different way. You know you you take interviews for jobs from candidates. Would you give you know would you prefer someone with degrees as many as yours versus someone who’s you know maybe has one or two degrees less but shows that you know calling spark passion. What would you think? Always going for the calling. Yeah but Because at the end of it the results will come from that calling. Nice. Degrees are good to start your base but at the end of it, I think it’s your calling. You know, that fire in you which will actually get you the best results. I that I kind of yeah, I get that. So, we live in that kind of world today where you need to bring probably a little bit more than your degree to the table. Yeah, and I think it the world has become extremely dynamic. You don’t know next morning what is in store for you. And your businesses also have to start getting dynamic. And for your business to show that dynamism, you need to have the set of dynamic people also running those organizations. Outstanding. That is the advice you’d expect from a CFO with what 20 plus years, 25 years plus. Okay, um favorite book, you know, because you deal with cap rates, square footage all day. Maybe you have time for a book. What are your favorite book? Something that you’re reading now? No, so I to be honest, I mean it may sound a little unbelievable, but actually I spend a lot of my time not on books, rather I spend my time on a lot of social stuff. So, I spend a lot of my time on streets and animal lover. Uh so, I spend a lot of my time with animals. Favorite experiences, you know, anything at all out there that you someone who loves animals watching this tells you know wants to go more Yeah, so I literally take care of lot of animals in the locality. Feed them, nurse them, and I do that almost every single day. So, I invest lot of my time outside of work, books into this because that gives me like real peace of mind. I kind of like though, you know, it’s it’s actually very good advice there folks. You know, if you’re looking for something for a I wouldn’t want to call it detox or a destresser. Absolutely. This gives you that, right? the amount of love they shower on you that makes you so good at the end of the day. Humans versus animals, huh? [laughter] Not something a blind choice straight away. On that very positive note on how to destress, that is a wrap on this episode of Paisa Paisa with my guest Preeti Chadda, executive committee member of the Indian REITs Association and CFO of Mindspace Business Parks REIT. Preeti, thank you so much for taking the time and coming over and explaining something that, you know, is a little bit complex, but is actually very useful to our audience. Thank you so much, Anupam, for having me here. It’s been a fantastic uh conversation. Thank you so much. [music]