Question:
Embassy REIT (best REIT in India) owns high end office space in Bangalore, Mumbai, Delhi, Pune most space taken by IT companies , they hold offices even under lockdown so the company receives rent. The company will distribute about 6–7% yield dividends at today’s prices, about 310 a unit. But it’s a very good hedge against inflation , as this rs. 310 unit will also increase in price over time. So better than a fixed deposit.
Please advise
On the comparison with a fixed deposit
The Embassy REIT is not like a fixed deposit. It has a very different risk-reward profile.
- A fixed deposit gives a guaranteed return. The REIT does not.
- A fixed deposit never gives negative returns. In a REIT, your initial investment can fall.
The Embassy REIT is similar to a dividend paying stock, and is not an alternative to a Fixed Deposit.
On the price of the REIT expected to rise
As the value of the property held by the REIT increases, over the long term, the price of the REIT should increase.
As with any stock, one should look for a long history of price performance. This stock does not have a long enough history. And the short history does not provide much confidence so far.
The stock has not recovered from the Covid shock of March 2020. This may be a reflection of the increase in “work-from-home”. There is anecdotal evidence of many companies giving up office space.
Comparison with the Nifty index
The stock price seems less volatile compared to the Nifty index. However, while the index has recovered strongly, the REIT has not.
Since April 2019, when the REIT was listed on the stock exchanges, the REIT stock is down 2% while the Nifty index is up 26%.
Dividend payouts
The dividend payments also reflect the slowdown in office rentals from Covid.
Recommendation
At this point, this stock does not have any positives that would support investing in it.
One could take a contrarian view and invest when it is down. But given the unabated surge in the pandemic, the investor would need to be willing to accept a greater drop in stock price and lower payouts in the short term.
Finally, if you do invest, please make sure that you have a finance professional who can review this stock once every 3 months. This is not an investment you can afford to forget about.
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