REITs & InvITs Raise $9.7 bn in India

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Real estate investment trusts (REITs) and Infrastructure investment trusts (InvITs) have raised a capital of over $9.7 billion in India, a report by EY titled REITs and InvITs – financing urbanisation and infrastructure in India stated. With favourable government policies and a long-term investment outlook, many marquee investors including sovereign and pension funds are continuing to invest in such vehicles. “Investors are benefiting from receiving regular cash distributions, stable yield and provides the opportunity for sponsor(s) to expand their asset base,” it said. The National Infrastructure Pipeline announced by the government has estimated a funding requirement of over $1.4 trillion by 2025. The early trends of performance of REITs/InvITs in India are encouraging with the combined market cap of the three listed REITs in India currently at over $7 billion and over $10 billion for InvITs. REITs and InvITs can be used to attract private investments in the infrastructure and real estate sectors by mitigating challenges such as funding requirement, more long term capital, optimal leverage, limited exit options and corporate governance issues. According to the report, InvITs are expected to play a key role in the monetisation of existing projects in some sectors namely roads and highways, conventional power, renewable energy, airports, railways, and digital infrastructure. This is against the backdrop of conducive regulatory frameworks and cash flow profiles with taxation advantages for such vehicles. For REITs, despite the near to medium term headwinds from COVID-19, the long-term drivers for real estate demand are strong and likely to withstand adversities in the sector. REITs/InvITs are primarily governed by the SEBI Infrastructure Investment Trusts Regulations, 2014 and SEBI Real Estate Investment Trusts Regulations, 2014 and various circulars issued under these regulations. While InvITs can be public listed, private listed or private unlisted, REITs are required to be publicly listed. Under SEBI regulations, three years of audited combined financial information under IndAS need to be presented. Some of the practical challenges that arise include availability of financial information, different auditors of the investment trust and those of SPVs before acquisition, GAAP conversion from Indian GAAP to Ind AS and the need to have uniform accounting policies. In addition, there are other complex areas related to asset acquisition or business combination, classification of unit capital and appropriate accounting for distributions. REITs and InvITs are pass-through vehicles under Income tax and hence distributions made by the investment trusts are taxed directly in the hands of investors depending on the nature of such distributions i.e. dividend, interest or capital repayment. There is a beneficial tax regime for dividends received from REITs/ InvITs subject to certain conditions.