InvITs

An Infrastructure Investment Trust is a REIT for infrastructure. The regulatory architecture is deliberately parallel, so this chapter is mostly about where the asset differs — and one difference is large enough to change how you read the yield.

The same shape

Not less than eighty per cent. of the value of the InvIT assets shall be invested, proportionate to the holding of the InvITs, in completed and revenue generating infrastructure projects.

And on distribution, the same floors as a REIT: not less than ninety per cent of net distributable cash flows from the SPV to the InvIT, and not less than ninety per cent from the InvIT to unit holders, with a holdco passing through one hundred per cent of what it receives from underlying SPVs.

On leverage, where consolidated borrowings exceed forty nine per cent, a quarterly valuation of the InvIT's assets by the valuer is required — a disclosure response to higher gearing rather than a prohibition.

So the investor-facing promise is the same: mostly finished assets already producing revenue, and a statutory obligation to pass the cash through.

What the assets are

Roads and highways, power transmission lines, gas and petroleum pipelines, telecom towers and fibre, warehousing, renewable generation.

They share a profile that is genuinely different from offices and malls:

Revenue is often contracted or regulated rather than negotiated. A transmission line typically earns a tariff set by a framework; a toll road earns a toll set by a concession agreement. That tends to make cash flows more predictable than commercial rent, which depends on a leasing market.

Demand is frequently inelastic. People drive and use electricity through a downturn.

Counterparties are often government or large utilities, which changes the nature of credit risk rather than removing it — payment delays by state entities are a real and documented feature of Indian infrastructure.

Operating costs are lumpy. A road needs periodic major maintenance on a schedule, not smoothly.

The difference that matters: finite life

This is the point of the chapter.

A building sits on land, and the land does not expire. A REIT's office tower will need refurbishment, but in eighty years there is still an asset and still a site.

Many infrastructure assets are held under a concession for a fixed term. A toll road operated under a thirty-year concession reverts to the grantor at the end. After that the InvIT owns nothing of it.

So part of what an InvIT distributes may be return of capital rather than return on capital. If an asset with twenty years left is paying out its cash flows, some of each payment is compensating you for the fact that the asset is twenty years closer to being worth nothing.

That is not a criticism — it is how a finite-life asset is supposed to work, and the yield is higher precisely because it must repay principal as well as pay a return. It becomes a problem only when an investor reads the distribution yield as though it were a perpetual rent.

The practical test: ask whether the trust is reinvesting or acquiring to replace expiring assets, and on what terms. An InvIT that keeps buying new concessions can sustain distributions indefinitely. One that is simply running its existing assets to expiry is returning your money to you and calling it a yield.

Reading an InvIT

Beyond the usual disclosures, three things specific to this asset:

The weighted average remaining concession life. The single most informative number, and the one that tells you how much of the yield is return of capital.

Who pays, and whether they pay on time. Receivable ageing against government counterparties is the credit risk that actually materialises here.

The maintenance schedule. Major periodic maintenance is a large, predictable outflow, and a trust distributing as though it were not coming is overpaying now and will cut later.

Working the problem

An InvIT on toll roads at 9% against a REIT at 6%.

Why 9% is not automatically better:

Part of the 9% may be your own capital returning. If the roads run under concessions with, say, eighteen years left, the trust is distributing cash from an asset that will be worth nothing at the end. A perpetual 6% and a terminating 9% are not comparable without knowing the term.

The riskier cash flow deserves a higher yield. Traffic risk, counterparty payment risk and periodic maintenance all argue for compensation. A higher yield may be exactly the right price rather than a bargain.

Leverage may differ. If the InvIT runs materially higher gearing — above forty-nine per cent, triggering quarterly valuation — some of the yield premium is borrowed.

What I would need to decide:

1. Weighted average remaining concession life, and what happens at expiry.
2. How much of the distribution is return of capital — the trust's own disclosure on this is the quickest route.
3. Acquisition pipeline and track record — is it replacing expiring assets, and at what prices?
4. Counterparty concentration and receivable ageing.
5. Gearing, against the forty-nine per cent threshold.
6. The maintenance schedule over the next five years.

The general principle, which applies beyond InvITs: a higher yield is a question, not an answer. The three honest explanations are more risk, more leverage, or a finite life, and all three are visible in the disclosures. A yield you cannot explain is one you have not finished reading.

The point

An InvIT applies the REIT architecture to infrastructure: at least eighty per cent in completed, revenue-generating projects, at least ninety per cent of net distributable cash flows passed through at both SPV and trust level, and quarterly valuation where borrowings exceed forty-nine per cent. The assets differ in having contracted or regulated revenue and often governmental counterparties, and above all in that many are held under concessions that expire — so part of a high distribution can be return of capital rather than return on it. The decisive figures are the weighted average remaining concession life and whether the trust is acquiring to replace what is running out.