STRUCTURE AND KEY REGULATIONS GOVERNING REITS:

REITs are registered as a business trust with three parties managing it:

HOW DO REITS GENERATE RETURNS?

There are only two components of returns: Distribution of cash flows and capital appreciation of the underlying property value. The combination of the two needs to be looked at on a post-tax basis.

1. Components of Distributions, Capital Gains, and their Taxation:

Distributions are comprised of dividends, interest, the amortization of the debt received from the Special Purpose Vehicle (SPV), and other income. While the REIT itself is a pass-through vehicle and does not pay any tax, each of these components is taxed differently for the unit holders.

HOW DO REITS COMPARE WITH PHYSICAL REAL ESTATE?

There are several advantages of holding REITs versus investing directly in real estate:

• Accessibility – Ownership in professionally managed real estate assets, even with a small ticket size.

• Liquidity – Units are traded on stock markets just like equity shares.

• Transparency – Regulated by SEBI with strong governance frameworks and disclosure requirements.

• Cashflow – Offer regular and tax-efficient yields by distributing at least 90% of the cash flow, while providing long term capital appreciation.

• Structure – Allows for a tax-efficient distribution mechanism for investors. REITs also enable an investor to participate in the growth upside via organic and inorganic growth opportunities.

• Diversification – Provided through a high-quality real estate portfolio across sectors, cities and tenants which is difficult to manage through direct real estate.