REIT Investing in India: Everything You Need to Know Before the Bagmane IPO
- May 5
- 7 min read
Investing in REITs in India has become increasingly accessible since SEBI introduced REIT regulations in 2014. With the Bagmane Prime Office REIT IPO on the horizon, many retail investors are asking: what exactly is a REIT, and is it right for my portfolio? This guide covers everything - from the basics of how REITs work to the key metrics you need to evaluate them.
For those who know the basics, you can directly jump to How to Evaluate a REIT: Key Metrics Explained
What is a REIT? (Real Estate Investment Trust Explained)
REIT stands for Real Estate Investment Trust
REITs own, operate and/or manage income or rent generating real estate assets
REITs are tax efficient vehicles that are required to distribute at least 90% of their cash flows to the unitholders, atleast semi-annually.
How Does a REIT Work? Understanding the Structure
Let us try to understand the sturtcure using Bagmane Prime Office REIT as an example
This looks complicated but it is very similar to how a mutual fund operates in India. Let us understand it step by step:
Who are the Key Entities in this REIT?
Trust – Bagmane Prime Office (REIT) – Sponsors as well as investors will get units of this trust; similar to units of a mutual fund scheme
Hold Co – Bagmane Developers Private Limited – REIT holds shares of this Hold Co and this Hold Co, in turn, holds shares in SPVs (who are the owners of the real estate assets); in simple terms REIT is the ultimate owner of the real estate assets
Sponsor - Bagmane Realty and Infrastructure LLP – Owned by Bagmane group (commercial real estate developers) and they will be part owners of the units of the REIT. A sponsor is responsible to set up the REIT and appoint a trustee and a manager
Manager - Bagmane Realty Investment Manager Private Limited – Owned by Bagmane group and assigned the responsibility of managing the commercial real estate assets of the REIT as well as the operations of the REIT
Trustee – Axis Trustee Services Limited – Owned by Axis Bank Limited and acts as trustee for all the unitholders / investors of the REIT
How are the Initial Transactions Undertaken?
Sponsor (Bagmane group) and Trustee (Axis) enter into a Trust deed
Trustee (Axis) appoints the Manager (Bagmane group) to manage the REIT operations and underlying assets
Trust (Bagmane Prime Office REIT) acquires 100% shareholding of HoldCo (Bagmane Developers Private Limited) from the Sponsor (Bagmane group & investors)
HoldCo already owns the underlying commercial real estate assets
What assets can an Indian REIT own?
Real estate, such as offices, retail, among others; but only assets situated in India.
They are not permitted to own speculative landbanks
Indian REITs must have at least 80% (by value) of their assets completed and income or rent generating; the remaining 20% can be invested in under-construction assets and certain other investment instruments
REIT vs Listed Company: Key Differences
REITs are registered as business trusts and not as a limited company
REITs have restrictions regarding the assets that they can own as mentioned above, whereas no such restrictions exist for a listed company
REIT distributions are comparatively more tax-friendly in the hands of the investors
REITs can raise debt upto a maximum of 49% (net debt / total enterprise value)
REITs are mandated to distribute at least 90% of their cash flows (called NDCF) to their unitholders at least semi-annually, whereas listed companies are not mandated to give out distributions
Tax Implications on REIT Investing
Nature of Income | Taxation for Unitholders |
|---|---|
Dividend | Exempt* |
Interest Income | Slab rates; TDS deducted |
Repayment/Amortization of debt | Reduced from acquisition cost |
Capital Gain on sale of REIT units | Taxable as capital gains |
*Conditional on REIT fulfiling certain conditions
History of REITs from the US (1960s) to India (2019)
Globally REITs have been around for 60 years and 1st ever REIT was listed in USA in 1960s
SEBI brought in REIT regulations in 2014 and India saw its 1st listed REIT in April 2019 in the form of Embassy Office Parks REIT
REITs were launched in India to enable investors to invest in commercial or other real estate without actually having to buy, own and manage a physical real estate asset.
The image below depicts India's REIT evolution so far.
Which REITs are listed in India?
REIT | Underlying Assets |
|---|---|
Embassy Office Parks REIT | Commercial Office |
Mindspace Business Parks REIT | Commercial Office |
Brookfield India REIT | Commercial Office |
Knowledge Realty Trust | Commercial Office |
Nexus Select Trust | Malls / Retail |
Bagmane Prime Office REIT (Upcoming) | Commercial Office |
Advantages & Risks of REIT Investing
Advantages | Risks |
|---|---|
Professionally managed | Market risk similar to equity shares |
Small investment amount (Divisibility) | Drop in income due to fall in occupancy, competition, demographics, financing, etc. |
Liquidity | Leverage, interest rate and refinancing risk |
Tax-efficient yields | Govt policies & taxes |
Potential capital appreciation | Future acquisitions |
Portfolio diversification | Development timelines & costs |
How to Evaluate a REIT? Key Metrics Explained
Instead of studying each term theoretically, let us take a practical example of the upcoming Bagmane Prime Office REIT and understand the key metrics.
Particulars | Embassy Office Parks REIT | Mindspace Business Parks REIT | Brookfield India REIT | Knowledge Realty Trust | Bagmane Prime Office REIT |
|---|---|---|---|---|---|
Sponsor Name | Blackstone & Embassy | K Raheja Corp | Brookfield | Blackstone & Sattva | Bagmane Group |
Geographies | Bangalore, Mumbai, Pune, NCR | Mumbai, Hyderabad, Pune, Chennai | Mumbai, NCR, Kolkata | Mumbai, Hyderabad, Bangalore | Bangalore |
Total Leasable Area (mn sqft) | 51.6 | 38.3 | 37.0 | 46.4 | 19.6 |
Geographical Concentration | 75% of GAV in Bangalore | 35-40% of GAV each in Mumbai & Hyderabad | Diversified across Bangalore, Mumbai, Gurgaon & Noida | 30% of GAV each in Hyderabad, Bangalore & Mumbai | 100% of GAV in Bangalore |
Completed Area (mn sqft) | 41.1 | 31.2 | 32.4 | 37.2 | 16.6 |
Under construction / dvpt (mn sqft) | 10.5 | 7.1 | 4.6 | 9.2 | 3.0 |
Under construction / dvpt – This area represents 20-25% of total leasable area under the respective REIT; which is based on floor of minimum 80% of GAV in completed assets to be held by the REIT. | |||||
Committed Occupancy (%) | 90.0% | 92.8% | 92.0% | 92.0% | 98.8% |
In-place Rents (₹ per sqft per month) | 94.0 | 74.7 | 101 | 95 | 107.5 |
SEZ Completed area (mn sqft) | 11.4 | 13.0 | 16.7 | 6.9 | 3.6 |
SEZ exposure (%) | 27.6% | 41.9% | 52.6% | 18.6% | 21.4% |
SEZ exposure (%) – It is better to have lower exposure to SEZ since the REIT gets tenant flexibility and on flipside asset value is high | |||||
Weighted Avg Lease Expiry (yrs) | 8.4 | 7.3 | 6.5 | 7.9 | 7.4 |
Weighted Avg Lease Expiry (yrs) – Commonly referred to as WALE and a longer WALE provides better visibility on occupancy and Embassy inches slightly ahead in this metric. | |||||
MTM Potential (%) | 11.0% | 16.6% | 13.0% | 22.0% | 17.6% |
MTM Potential (%) – This indicates the potential upward revision in lease rentals on expiry and a high MTM represents that current rentals of the REIT are lower than market rate to that extent and could get revised upwards on expiry of the lease. Knowledge Realty has a slightly higher MTM as compared to peers and could benefit during lease renewals. | |||||
Share of MNCs/GCCs | 65.0% | 73.3% | 69.0% | 73.0% | 98.7% |
Share of Gross Contracted Rentals – MNCs, GCCs and Fortune 500 – A higher proportion denotes the strength of the tenant and may indicate higher stability in rental income. | |||||
Gross Asset Value (GAV) – ₹ crores | 63,980 | 44,130 | 53,463 | 64,551 | 40,264 |
Dividend Component (%) | 25.0% | 53.5% | 17.0% | 69.0% | 65-75% |
Dividend Component (%) – Proportion of dividend in the distribution per unit of respective REIT. A higher proportion of dividend may be preferred by investors. | |||||
LTV (Loan to Value) = Net Debt to GAV | 32.0% | 24.9% | 31.5% | 18% | ~5% |
LTV (Loan to Value) = Net Debt to GAV – This denotes the leverage taken by the REIT. There is no ideal proportion of debt since acquisition of new assets and under construction asset mix may influence debt levels of individual REIT. We note that LTV of Bagmane is low at ~5% which implies scope to take on more debt and potentially improve GAV as well as unitholder returns. | |||||
ROFO assets (mn sqft) in the REITs | NA | 1.9 | 1.5 | 6.7 | 47.1 |
ROFO assets (mn sqft) at the time of listing | 42.8 | 8.6 | 6.7 | 6.7 | 47.1 |
ROFO assets (mn sqft) in the REITs - ROFO (Right of First Offer) assets in a REIT are properties owned by a sponsor or third party that the REIT has the exclusive contractual right to purchase before they are offered to the public. This indicates potential addition of assets in the REIT i.e. a growth pipeline. Bagmane has a sizable ROFO pipeline as compared to peers. | |||||
Renewable Energy consumed in portfolio | 66% | 49% | 37% | 43% | 47% |
Source: RHP of Bagmane Prime Office REIT
Portfolio Occupancy Trends
In case of Bagmane, occupancy levels are ~98% and its built-to-suit model could be the reason behind the higher occupancy as compared to its listed peers.
What is the built to suit model? It is a pre-leased area, mostly a complete building or multiple buildings, or certain floors as well, developed with specifications tailored to unique requirements of a specific tenant, going beyond the standard design/construction typically undertaken by the developer.
How Should Investors Look at Returns from REITs?
Returns will be a combination of the following –
a. Distribution yield (bi-annual/quarterly payouts)
b. Capital appreciation / depreciation of underlying real estate assets
c. Value accretive / dilutive acquisitions
How Do Historical Yields/Returns Stack up?
Closing price on 4 May 2026; 6 months data annualized; *based on mgmt. guidance in the IPO analyst meet.
The high total returns for 1 and 3-year periods were partly driven by the decrease in interest rates, classification of REITs as ‘Equity’ for mutual funds, growth of GCC demand and other factors, and may not be considered as the norm going forward.
How are REITs Valued?
The below image summarizes the typical valuation methods used for a REIT.
Some nuances:
REITs appoint independent valuers to determine the value of the property on a regular basis. The listed price of these REITs have usually traded at a discount of ~5% to these NAVs (net asset value) determined by valuers.
Cap rate (Net operating income divided by GAV) is used to analyse acquisitions made by the REIT. A lower cap rate implies higher valuation of the asset.
Distribution yield (DPU viz. distribution per unit divided by unit price) is used to compared REITs with other fixed income investment options.
A Comparative Valuation Analysis
Here is a summary of the valuations for listed commerical property REITs:
* If full year is not available, we have annualized the latest quarter
** Data derived from RHP, NAV includes value of under construction assets. Excluding these, the discount is ~1%
The difference in cap rates can be driven by difference in asset mix, growth pipeline, tenant quality, etc.
Disclaimer: We are NOT registered as research analysts with SEBI. This blog is purely for informational purposes and is not a recommendation to buy/sell/subscribe to any security. Do your own due diligence, consult your financial advisor and thoroughly evaluate the risks before undertaking financial decisions.
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