InvIT REIT are strcutured product based on Cashflow. So Depreciation -Amortisation charge, which are major P&L item, are non-cashflow item. Since in equity, corporate is assume to run indefinite, it would need capex to surivive and grow and hence Maintenance Capex and Working capital requirement are deducted from Profit to calculate free cashflow to equity owners. However, Hybrid products (InvIT/REIT) work on current assets which are already financed from debt/equity mix and are owned. For instance, IRB InvIT have right to collect for say 15 years for Toll assets which is valued say Rs 90. So every year, as per accounting policy, there would be amortication charge of Rs 6. However, the InvIT has already paid for same. Future acquisition in IRB InvIT or any REIT/InvIT would be funded be new unit issuance or fresh debt . Hence, accounting proft or loss (after charging depreciation/amortisation) would be misleading. Hence, better way to look at Cashflow (defined as Net Distributable Cash flow or NCDF). The calculation of cashflow exclude cash avaiable from assets, less operating and maintance cash expenditure, less interest and principle payable to third party (for InvIT/REIT colnsolidated) and to parent (for InvIT REIT standalone subsidiary which normally cancell out on consolidation). Since future acquisition would be funded by new debt/equity mix, the current cashflow shall be look at net available cash (net of interest/princiapal repayment of exisiting loan and not depreciation which is accounting charge). or NCDF to get better perspective.
Hope these answer your query.
Please not that I am not REIT/InvIT expert and my understanding may be wrong.
Disclosure I am not SEBI Registerd advisor. I am not suggesting any investment action in REIT/InvIT. I have invested in IRB InvIT/India Grid InvIT/ Embassy REIT and Brookfield REIT. My view may be biased due to my investment. I am increase/decrease/exti from InvIT/REIT investment without informing forum.
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