(Thread) Understanding Real Estate Investment Trust (REITs) – This is for education purpose and the story is made up to simplify the concept, don’t take it at face value (1/n)
Lets say I am a RE developer, K Raheja. I like a land in Mumbai & Hyderabad 4 some commercial development. I decide to buy it. Where will I get the monies 2 buy & construct it? (1) Self (2) Bank, NBFC, MF - Debt (3) Partner – someone else investing as Equity (2/n)
So I invest some monies, got some 4m banks & MF’s & I also got Blackrock to invest 2 buy the land & make the business park called Mindspace. I constructed around 23-mn sq ft with multiple building & I started leasing them out to companies who wanted rented office premises (3/n)
There comes a point where I needed more monies to build new building (6.4 mn sq ft), pay off the loans etc., where do I get the monies? So I decide to do an IPO. Not of the entire company K Raheja but only this project called Mindspace. So I formed a trust or corporation (4/n)
I committed to payout 90% of my rent income to the shareholders proportionately as dividends & I will use this money to invest a minimum 80% in completed real estate, which is generating rent and will use 20% in constructing new Real Estate (5/n)
Is the IPO a win-win?
a. K Raheja gets more money 2 pay off debt, investment in more commercial real estate
b. Investors will receive dividends semi annually (from the rent income) which is tax free + as its listed on the exchange the stock prices can go up (6/n)
Why will the stock price go up?
(a) Rents increase year after year
(b) The value of the land increases
(c) New construction means more business (7/n)
Why invest in a REIT?
(a) G-Sec is at 6% and the rent yield in commercial RE is 7.5%-8%
(b) Diversification – It’s a combination of Debt (rent income) & Equity (listed so prices can move)
(c) Investment in RE with just 50K (8/n)
Tax Structure?
There are 3 types of income,
a. Rent–Tax-free
b. Interest – REIT’s can also loan money to another developer (maximum 20%) & receive interest. If u receive interest 4m the REIT, It will be taxed at the slab rate. Practically this is very less or zero (9/n)
(c) Capital Gain on the stock exchange – 15% Short Term Capital Gains Tax if you sell the REIT before 3 years and 10% Long Term Capital Gains Tax if you sell the REIT units after 3 years (10/n)
What to look for before investing in a REIT?
(a) Weighted Average Lease Expiry – Higher the better
(b) Vacancy Rate – Lower the better
(c) Concentration of top 10 tenants – Lower the better
(d) Sector Concentration – Lower the better (11/n)
REITs operate exactly like MF’s
(a) Sponsor – K Raheja and Blackstone
(b) Manager – K Raheja (receives AMC fees for managing the properties)
(c) Trustee
but
REITs and real estate mutual funds are not the same (End)
• • •
Missing some Tweet in this thread? You can try to
force a refresh
Continuing our Mutual Fund Education Series, here’s the 3rd thread; this will demystify the Hybrid Mutual Fund categories for you.
Do ‘re-tweet’ & help us educate more investors to make the right investing decisions (1/9)
(Q1) What are Hybrid Funds?
Hybrid funds are funds, which invest in multiple asset classes like
- Equity
- Debt
- Gold
- Preference Shares
- REITs & InvITs
With an objective to reduce volatility (vs pure equity funds) & try an generate better risk adjusted returns (2/9)
(Q2) Types of Hybrid Funds?
- Conservative Hybrid Fund
- Balanced Hybrid Fund
- Aggressive Hybrid Fund
- Dynamic Asset Allocation (DAAF) or Balanced Advantage Fund (BAF)
- Multi Asset Allocation Fund
- Arbitrage Fund
- Equity Savings Fund (3/9)
Continuing our Mutual Fund series, this thread will focus on ‘Demystifying the Debt Mutual Fund Categories’
Do ‘re-tweet’ & help us educate more investors (1/10)
Debt Mutual Funds have 16 different categories & these categories are differentiated on 3 major parameters,
(1) Average Maturity (2) Mac Duration (3) Credit Risk (2/10)
What’s Average Maturity?
Average maturity is similar to your tenure in FD. If your FD has a 3-year tenure, you expect the FD to mature in 3 years. Similarly, if the average maturity of a debt fund is 3 years, it means that all the bonds in which the scheme has invested, their weighted average maturity is 3 years. Open ended mutual funds do not mature as such but Average Maturity gives you an idea that 3 years is atleast what you should have as a time horizon if you want to invest in this scheme with a 3 years of average maturity. (3/10)
"Should we invest or wait now that the markets are at an all time high?" - an investor asked.
I dint want to sound technical & hence told him about India's liquidity story. Do 're-tweet' this quick small 🧵, retail will benefit I think (1/8)
- I remember in the early days of my career, I was told markets fell ~60% during Lehman crises because FII's withdrew $2B
- Go back 10-15 years & FII's were a major reason markets moved in India
- Not any more
- Today FII's have only 16.5% holding in India, a decadal low (2/8)
The biggest reason market falls in India are shallow is the domestic money now,
- $2B is the monthly SIP book of the MF industry (remember Lehman?)
- Plus lumpsum investments in MF
- Plus Insurance & pension money
There are 1500+ schemes in mutual funds spread across multiple categories. To build the right portfolio, you need to understand the categories well. It’s less about the scheme & more about the category you choose in Mutual Funds.
This 🧵 is all about the Equity Category. Do ‘re-tweet’ & help us educate more investors (1/11)
As per SEBI guidelines, mutual fund schemes are classified as,
(1) Equity Schemes - Investing in Large, Mid & Small Cap Equities (2) Debt Schemes - Investing in Bonds (3) Hybrid Schemes - Investing in a mixture of Equity & Debt (4) Solution oriented Schemes - For retirement & Children planning (5) Other Schemes - Index Funds, ETF’s & Fund of Fund (2/11)
In this post, we will focus on Equity Schemes. In Mutual Funds there is a clear definition of what is called a large cap, mid cap & small cap.
- Large Cap Stocks are the top 100 stocks by market capitalization
- Mid Cap Stocks are stocks from 101 to 250 by market capitalization
- Small Cap Stocks are 251 & below in market capitalization (3/11)
RBI's new guidelines on Default Loss Guarantee (DLG) explained below in this 🧵
Do 're-tweet' :) (1/7)
If I want to take a loan, the cheapest always is the Bank & if I dont get it at the bank, I will approach an NBFCs.
Banks & NBFC's are good with Home Loans, Car Loans etc but the penetration of personal loans is not that large & is growing in demand (2/7)
Banks with all their network are still not able to create the reach that FinTech has been able too & hence if Banks / NBFC's partner with FinTech lenders, this is solvable.
- Banks will get the required reach
- FinTech will be able to lend at lower rates (14-17% vs 22-24%) (3/7)