REITs

A REIT (Real Estate Investment Trust) is a regulated investment vehicle that lets you buy tradeable units of income-generating real estate—like office parks, malls, or apartments—without owning or managing property directly. The benefit of REITs is that you don’t have to buy an actual property and still gain from capital appreciation and interest on investment.

SEBI describes REITs as pooled vehicles that allow investors to participate in real estate without directly owning the physical property. A REIT pools investor capital and owns income-generating real estate assets, typically through underlying Special Purpose Vehicles (SPVs). The SPVs own properties, collect rentals from tenants, pay operating expenses and other obligations, and generate cash flows that ultimately move up to the REIT.

Example: Assume an office SPV earns ₹200 crore of rental revenue and incurs ₹50 crore of property and operating expenses. The remaining cash flow, after applicable adjustments such as interest, taxes, capex and debt-related items, contributes towards the SPV's Net Distributable Cash Flow (NDCF). Under the SEBI framework, NDCF is computed at both the REIT and HoldCo/SPV levels, with prescribed minimum distribution requirements.

A REIT distribution is not the same as a conventional company dividend. One SPV may own a particular office park/building, while another SPV may hold a different property. Each SPV can have a different capital structure and therefore generate a different mix of dividend, interest and repayment of shareholder debt/capital.

When SPV declares a distribution per unit, the distribution notice specifies its exact components—dividend, interest, repayment of debt/capital and other applicable components—which is important because each component may have a different tax treatment for the investor.