Imagine investing in some of the top office spaces in India without spending a fortune. The commercial real estate sector in India will soon make history as it announces the biggest ever office REIT IPO. Knowledge Realty Trust is set to offer Rs. 6,200 crore in IPO, with Rs. 900 crore going to retail investors. Backed by global investors like Blackstone and Sattva Group, the IPO has already attracted the attention of investors around the globe.

Price ranges between Rs. 95 and Rs. 100 per unit. The offer includes some of India’s most sought-after commercial properties including One BKC and One World Centre in Mumbai, and Knowledge City in Hyderabad. These buildings are already occupied by companies like Amazon, Google, Cisco, and Goldman Sachs. Investors will own a stake in these Grade A properties as well as their rental income from these offices without the need to buy the units themselves. So, can this be a profitable investment?

Understanding REITs and Their Benefits

For those who are unfamiliar with REITs, these investments offer a unique opportunity to acquire high-quality commercial real estate without inputting a large amount of capital.

REITs pool their investment to buy, manage and operate commercial properties such as office buildings, retail spaces and industrial parks. Investors pay dividends from the rental income generated by these properties as well as potential appreciation in their value. REITs are regulated by the Securities and Exchange Board of India (SEBI), and are traded on stock exchanges like any other public stock.

India’s REIT market is still in its early stages but is growing quickly. There are currently three listed office REITs in the country, i.e., Embassy Office Parks, Mindspace Business Parks, and Brookfield India REIT. Knowledge Realty Trust (KRT) is set to become the fourth REIT listed in India, and it enters the market as the largest in terms of Gross Asset Value (GAV) at Rs. 62,000 crore, and with a Net Operating Income (NOI) projected to reach Rs. 3,432 crore by FY25.

India’s REIT market is still in its early stages but is growing quickly. There are currently three listed office REITs in the country, i.e., Embassy Office Parks, Mindspace Business Parks, and Brookfield India REIT. Knowledge Realty Trust (KRT) is set to become the fourth REIT listed in India, and it enters the market as the largest in terms of Gross Asset Value (GAV) at Rs. 62,000 crore, and with a Net Operating Income (NOI) projected to reach Rs. 3,432 crore by FY25.

KRT’s Performance and Dividend Prospects

KRT is unique in the sense that it has a broad portfolio of assets located in six cities including the three most active office markets in India — Mumbai, Bengaluru and Hyderabad.

96% of KRT’s assets are located in these cities, which are still the leader in terms of demand and rental growth. At first glance, the KRT IPO seems like a good opportunity for investors looking to gain exposure to some of the top commercial properties in India. But, there are risks and rewards to the deal.

KRT management said the IPO would offer a discount to the market value of the assets at stake. For example, KRT’s net asset value (NAV) is 10% lower than its current market value. Some properties, such as the One BKC office building in Mumbai, are being offered at 30%-35% below their strata sale price. This may be appealing to investors seeking value in a highly competitive sector.

Another advantage of this IPO is its “mark-to-market” potential. Many of KRT’s tenants are on long-term leases at lower rental rates. When the leases expire and new leases are negotiated at current market rates, KRT could see higher rental rates. Management estimates that this could lead to an increase of income of up to 20% for investors.

KRT REIT’s CEO Shirish Godbole said his trust is committed to distributing 100% of its cash flows to investors and that most of its projected growth has already been secure through signed deals. It believes this will provide investors with a steady and predictable income but also grow consistently.

KRT is aiming for an initial yield of 7.2%, with the expectation that it could rise to 7.7% or more in the coming years. With projected annual cash flow growth of 13%, the total return could reach 14 to 15% over time, making it a potentially rewarding investment.

Low Debt and Future Expansion

Another positive aspect for KRT is its relatively low debt level. With a Loan-to-Value (LTV) ratio of just 19%, KRT has the ability to raise additional capital and acquire new assets without reducing returns for existing investors. This low-debt structure provides stability and flexibility, especially in a competitive market where premium office spaces are becoming harder to acquire.

KRT also plans to stand out as India’s first “brand-agnostic” REIT, offering smaller developers and high-net-worth individuals (HNIs) an opportunity to monetize their commercial properties without compromising on branding.

Should You Invest in This REIT?

If you are looking for long-term stability and are comfortable with the risks associated with market fluctuations, this IPO could be a promising investment to consider. However, like any REIT, it is important to approach the KRT IPO with caution, keeping in mind the market risks and the past performance of other listed REITs in India.

For investors seeking exposure to high-quality commercial real estate, Knowledge Realty Trust provides the chance to participate in the growth of some of India’s most valuable office properties, with the potential for attractive returns.