Another Good one @Malkd Sir. May I suggest here that since u r playing this thru yield and asset quality play, consider studying InvITs ( Power\Road Infra assets) & Telecom tower assets play as well ( Indus Towers).
I was thinking on somewat similar lines and managed to seek and get good feedback from @dd1474. Sharing link to that post : -
This is one of the epic must-read post for anyone seeking to invest in these IT(Investment Trust) structures.
I understand that ur circle of competence is commercial Real Estate bt ultimately u r seeking higher yield with stability and capital appreciation. So tu summarize, it all comes down to leasing of these assets & related options for these : -
Commercial Assets
Power\Road assets
Telecom Tower assets
Disclosure :- Not invested as of now. Studying these options to seek out the undervalued one of the lot, if any.
Same here. @sahil_vi got me looking at REITs too(thanks to him and forum) and I had also recently entered into embassy after looking at the benefits.
They aim to distribute 100% income as tax free
Much higher yield than traditional real estate
Decent Unit NAV appreciation in future( both mine and Sahilās employer are pushing for back to office and if giants and employees both donāt see WFH as stable option then I donāt see any risks in long term , in fact current opportunities are golden I feel)
I also found Embassy better than listed peers. ( regional distribution and clients) . Will diversify if new entrants present better opportunites.
Cheers and thanks @shardhr. I invest in Invits already. However, I do it via my Wifeās capital protection portfolio. Locked in Indigrid at rs. 90 and I donāt think il Ever find a deal that good again. If I ever get an INVIT at 12 to 14 percent yields again il surely biteā¦ but I canāt see that ever happening again. The thing about an invit is the yield wonāt increase as much as an REIT over a decade. So I donāt mind getting a smaller yield from an REIT in the short term since long term il enjoy a huge one. With an INVIT you need to lock in during high yield early so Iām not a buyer at anything above rs. 100 for indigrid though I will diversify into them(powegrid when out) the moment they offer an opportunity at a juicy yield.
Road assets I wouldnāt want anything to do with tbh. Every few years Iād worry if I had a lot of capital invested and since Iām planning on investing huge amounts I prefer the safety of Real estate and power(though again at a huge yield which doesnāt look likely to repeat).
Iāve never looked at tower assets before. They sound intriguing. Will have a look now. That being said REITs and commercial property in real life are so directly linked that I may just stick to REITs so I lock It away as a real estate investment in my brain so I donāt get tempted to liquidate anytime soon for other opportunities in the stock market. It literally is a direct and better replacement for my use need which is an office space
@Rushil REITs are well accepted in the USA. Itās only a matter of time wherein india accepts them too. ThAt being said a lot of social status and even security in india is linked to second homes/commercial property so maybe the lower yields from real life property is here to stay for most even though the yields do not make much sense. Il be making trips next year to visit some of the companies Iāve invested in. Will defo visit embassy too. That feeling of ownership is something that has to be developed for me and il only really feel it when I see it in real life
Side note: My major bets Laurus and Deepak have performed fantastically off late(they take almost 70 percent of my portfolio now after the run-up since mid last year) and I donāt want to add more into them lest they go through a correction mode causing me to mess with compounding. So hence why having a stable instrument like this to invest future cash flows in as an alternative makes even more sense to me at this point in time.
Real estate is a leveraged buy , you get a loan and u r leveraging the borrowed money to invest it in full, the real-estate will grow by 2-3% per year, so the entire invested amount grows by that amount. More often than not and very likely that the real estate price will double every 10-15 years, if the city that u r staying in has a growth story. Panjim (Goa) i believe. which i believe can grow many folds.
Along with the loan comes the burden of interest payment which would be 8% (on 1.5 crore comes to 12 lakhs), again u will be making a down payment of minimum 50 lakhs, so the actual loan would be for 1 crore and the interest for the same is 8 lakhs but even this amount is an opportunity lost that could have potentially earned 8% through RIETS as per you.
The entire interest paid on the loan amount is tax deductible , the rent that u pay is also shown as an expense on u r P&L, so they kindoff cross one another or the benefits of one over the other needs to be studied in detail probably by an auditor or tax consultant.
When u buy RIETS for 75 lakhs(in one shot) and the same money goes into the rent, then every three years u need to buy more RIETS upto 7.5 lakhs to fulfill the additional rent hike of 10%, which you will do through SIP, so every year u again put 2.5 lakhs into RIETS to keep up to the rent hike. which i believe is not such a wise move
The money parked in RIETS is blocked to just pay rent and it wont work on itself and wont grow, so ur opportunity cost to grow that money is lost.
In real estate u can save on the rent and also the real estate grows in value and in RIETS u will earn interest but the initial capital doesnāt grow.
So one should ideally invest in a place where u will reap benefits of dividends which can help u meet the needs and also there is scope for growth. but dividends are taxable in nature so u need to invest it through non earning members of u r family. to avoid tax, or they can claim back the taxes
Please correct me if i have misunderstood your point of view or the the way RIETS works.
Hey @rshankv There is one thing missing regards the REIT points you mentioned.
Say I had rs. 75 lakhs and I could afford to buy embassy office today in one go. The DPU for FY 22 and FY 23 would be approx Rs. 24.4 and 25.7 which would be an approx 7.77 to 8.1 percent yield.
This yield wouldnāt remain the same next year or the year afterā¦ it would grow at approx 5 percent per year since the Rental yield would increase by 15 percent every 3 years on the client side (assuming they do not lose clients) while my current rent would increase by 3.33 percent per year hence I would still be in profit.
Embassy would also be buying more property and hence increasing the DPU in the future via acquisitions. Also, as the value of the land increases in its prime areas of Bangalore etc so would the net asset value(as long as debt doesnāt go too high) and the āshareā price will also theoretically go up in the same way the value of the land parcels would go up so I wonāt need to add anything to that initial 75 lakhs
So I wouldnāt need to buy any more units after the initial investment since both the DPU and asset value would increase every year(though take a time scale of a decade year to capture a full real estate cycle) plus il have the discount to NAV also to be factored in.
Now assume I had the same rs. 75 lakhs with me and I took a loan for the balance rs. 75 lakhs to buy a physical office. I would firstly lose the opportunity cost of the initial rs. 75 lakhs which I could invest elsewhere AND I would need to pay 8 percent interest on the balance rs. 75 lakh for atleast 5 years.
At the end of it in 5 years I would have 2 offices worth slightly approx 1.7 crores(assuming the land appreciated in value) and Iād be saving rent of approx 6.6 lakh rupees a year in 2026.
This translates to me losing 75 lakhs AND paying interest to settle for a yield of under 4 percent in 5 years since I would still be using those 2 offices and would just be saving on the rent im currently paying.
I would then have physical assets that I could sell for double maybe a decade later which is a positive but the same would happen with embassy tooā¦
With embassy Iād be saving the rs. 75 lakhs opportunity costā¦ Iād be getting a return of 8 percent every year though considering this would pay my current rent atleast it would also mean Iām not losing 8 percent every year via a loan(plus rental yield of embassy will grow 15 vs my 10)ā¦ and I could also sell it for probably double CMP in a decade+ too if I decide to shut my business OR continue holding it at the rental yield rate in 2030 without having to spend on brokers/opportunity costs waiting for a new client to take up the space on rent.
Also, personally I currently have all my networth in mostly mid, small and micro caps so this would be a way of de risking my overall networth and taking a loan for an illiquid asset would mean I am increasing risk instead of decreasing it. Add the fact that the offices would be for me to save my own rent and not to be used to get another tenant and in my case the REIT makes sense though I understand why it wouldnāt in other cases.
Atleast thats how Iāve built my thesis. Also, I donāt have rs. 75 lakhs or any cash outside my portfolio infact to pay upfront in the first place
It really is unbelievable @rshankv . Especially at a discount to NAV since there will be growth in rental yield and NAV + Share price growth to reach NAV in upcycles. il only ever add them at discounts to their NAVs so I may go for brookfield/mindspace in the future if embassy runs up etc.
There will be instances where debt slows growth/land value crashes etc but those are risks with physical investments too(where debt would be on my side and I wouldnāt even know actual land prices) and any investments in general but here embassy atleast looks beautifully managed That being said il be SIPing into it so along the way if any risks pop up il be able to exit without all of my capital at risk.
The run up in Laurus led to my pharma allocation running through the roof at 65 percent of my portfolio and I wasnāt willing to sell any of laurus so my dad added granules and alembic to his portfolio and i exited and invested the cash in Tech/IT since I had nil allocation there. Still very bullish on granules (and alembic) long term but I just donāt have space for it in my portfolio at present which is still 40+ percent pharma ie laurus even without them
Indeed I agree on all your points and the mathsā¦few thoughts that I would like to add hereā¦
I would not ideally consider REIT as a part of stock market as it seems to me as a totally different instrument like say bonds etc.
If I gather trust in Indian REIT sponsors as their listed history grows, I would consider investing some part for diversification, mostly because globally and specifically in US, REITs have performed reasonably well on capital appreciation as well.
Now comes the tricky part of completely replacing physical RE with REITsā¦while your maths is excellent here and quick liquidity is a plus but I have seen many a times illiquid nature of RE resulting in huge benefits as the owner does not liquidate easily or even in parts.
Having negligible physical RE and most money in financial instrumentsā¦donāt you see this as a risk considering how often we see financial frauds happening at brokerage levels, wealth managers level, banks level etcā¦havenāt heard anything at depositories levelā¦at least yet.
While holding physical RE also has risks of disputes etc. But atleast risk is diversified and not tied to the same depository, brokers etc where you hold your stocks, bonds, debt etc. , if anyā¦
The liquidity is welcome tbh. Say I do end up having a huge amount tied up in REITs and it rises way above itās NAV I can liquidate a small percentage and use it to invest in the companies in the broader stock market if a huge dip etc becomes available in those. With RE your entire amount is tied up all the time.
In bad times(like last year) the entire asset would have had to be sold and in good times you canāt take advantage of land price spikes either so I like this flexibility.
I agree that investing here should be considered similar to a bond and that hopefully we reach the USA levels of REIT acceptance in the next decade. I believe the marker wants to actually see and believe that they can be profitable over a decade without even a year of bad debt and mismanagement etc. I believe them surviving this entire covid period with profits and no rental issues etc will lead to some sort of re rating if not atleast some appreciation by the market for their resilience over the next few years.
Hi @Malkd Any idea about the latest Nav. I checked around but couldnāt come up with the latest number. Wanted to have a sense as to the discount / premium vis-a-vis the current price.
All in all it does seem to be a decent investment, which apart from a good yield can also provide a limited capital appreciation. Just that the deteriorating covid situation may put a spanner in the works. Of course the current price is also due to the same.
Not invested. Looking to add upto 5% of pf the coming week.
Last I read it was approx 386 which puts it at around a 20 percent discount. This discount to NAV will probably remain for a few quarters and it may get discounted further for two reasonsā¦
The opportunity cost of locking money up here is huge considering the overall bull market.
These are supposed to be low risk investments so the threat of covid and WFH would scare investors away.
However, The world will normalise at some point over 3 to 4 years at worst and we ll be back to where we were and by then the yield here could be 10 percent+(as per the new embassy thread itd be 9.4 percent just 2 years from now) and at current levels there are higher chances of upside surprises rather than further downsides.
Never in a million years did I think Iād see Idfc first below rs. 50 post the recent QIP that was completed in the 57 to 60 range. Imagine my surprise when it touched rs. 48 today. Loaded up on it at rs. 48 and will continue SIPING in it alongside ITC and Embassy as my safe large cap bets for the foreseeable future in what looks like could be a very volatile market. Nesco managed to touch the 480s too but I managed to hold off until I get it at an even bigger discount hopefully near 2500 to 3000 crores MCAP. Itās a lot to ask for but Il only load up on it in that range considering the risks around their exhibitions business model in Mumbai due to covid and the new Reliance center.
A huge fall like today is a good tester of resolveā¦ I felt no fear at all seeing:
Laurus, Deepak, ITC, Idfc, Borosil, IDA, Vaibhav, Jubilant Ingrevia, Astec, Just dial, Racl, Embassy crash today. All I felt was excitement at the thought of adding more in them.
However, I had an inkling of doubt in my mind regards my small cap risky IT bets in xelpmoc and Expleo and felt a bit annoyed I had my cash tied up in those 2 companies and couldnāt use it in those previous 12 names in the crash today(especially borosil).
Will do a deep dive into those two companies and my convictions again and figure out if I really do want to own them and chase potential multibaggers with a bit of speculation attached or if Iād rather my money in those previous 12 safe(alteast what I consider safe) names instead where my conviction and resolve is at the highest possible level
Regarding IDFC first bank. I believe you have a long term view (5 yrs plus). Just wondering why not take position through IDFC (at discount of 30-50%) than buying idfc first bank directly.
Yes I plan on holding and adding long term. Itās sumilar to ITC to me where in I already know I have no qualms adding at any dips and holding even for a decade. I did consider the arbitrage but Iām not sure if itās worth the risk of something going wrong with the reverse merger especially when IDFC was trading at just 5 percent less than IDFC first when I bought it today morning. Tbh Iām not sure Iāve fully understood the reverse merger either so I bought IDFC first directly instead(even if the number of shares via IDFC may end up being more. I just didnāt understand the situation properly tbh )
Yes there is some uncertainty on when and how the idfc value would be unlocked. You are too humble to state that you didnāt understand the situation properly
Anyways I will try to put down as simply as I can.
Total no. of Idfc shares outstanding 159.63 cr
IDFC holding IDFC bank sharesā¦ 226.89 cr
So idfc shareholders indirectly get 1.42 share of Idfc first bank in addition to amc business.
There would be taxes and closing expenses. But still it offers good arbitrage. Time factor is big uncertainty. But for long term shareholders I believe this is a better way to acquire in my opinion.
Thanks for explaining it so simply ā¦ i could maybe split my buying into both of them over the next few quarters/years to take advantage of the situation and prevent any risk of it not working out as planned. Cheers.
False dichotomy. We can do both.
Options are always a good thing. Noone is forcing anyone to read their pf thread. This allows a person to gather all their thoughts in a single place. Serves as a proxy for a blog. Enables more traffic for VP website which is also good.
