Unitech Ltd, the second largest real estate firm in India by market capitalization, is looking to float a Real Estate Investment Trust (Reit) in an overseas market to raise $2-3 billion (about Rs8,000-12,000 crore) to meet its expansion plans.
Unitech and its investment arm will sell a stake in the six special purpose vehicles (SPV) that currently own six commercial properties to the Reit.
This trust could likely be listed in Singapore, though Hong Kong or the London Stock Exchange are also options, R. Nagaraju, general manager, corporate planning, Unitech, said.
The Reit will be listed in the later half of 2008, after a portion of the construction work in each of the various projects is completed.
Reits, common in several developed countries, use money from investors to purchase and manage property. They are traded on major exchanges just like stocks. They are also granted special tax considerations and enable sharing in non-residential properties as well, such as hotels, malls, and other commercial or industrial properties that yield rental income. Much of the income from the properties owned by Reits is shared among its investors.
Unitech’s Reit will acquire a 60% stake in each of the six SPV’s created for the six commercial projects that Unitech is developing,. This stake is currently held by Unitech Corporate Parks Plc.
The projects include four information technology special economic zones (SEZ) in the National Capital Region (NCR), one IT Park in Noida and an IT SEZ in Kolkata. Unitech has received formal approvals for three special economic zones in NCR and one in Kolkata. Construction work has started on these three zones and a fourth information technology park in the Delhi suburb of Noida. A sixth SEZ in the Delhi area has received only in-principle approval from the government.
The six properties are expected to have a total leasable area of 21.5 million sq. ft, according to a document on Unitech Corporate Parks that was made available to investors during an overseas listing of the company.
In December, Unitech sold a 60% stake in each of the six SPVs to Unitech Corporate Parks Plc. for Rs4,400 crore. This was prior to the listing of Unitech Corporate Parks Plc. on the London Stock Exchange’s Alternative Investment Market. Unitech, however, retained a 40% stake in the projects.
“Once the construction work gets completed, we will float a Reit which will buy the 60% stake from Unitech Corporate Parks and also some of Unitech’s stake in the SPV,” Nagaraju said.
While the amount of stake that Unitech will sell has not yet been decided, the stake sale will happen in three-four phases.
“We will start selling the stake as and when the buildings in the zones get completed. It will be done in a staggered manner,” he said. All the SEZ projects are expected to be completed by April 2010.
The company expects to raise $500-600 million in each phase.
The management of the projects and the Reit, will however, be done by Unitech. “We will identify and lease the property to tenants,” Nagaraju said. If Unitech manages the trust, it will receive a fee every year for this, which will be around 2% of the amount raised through the Reit, he added.
Singapore’s regulations, including the tax benefits it offers, are attracting many Indian companies to list Reits there.
Singapore, which developed its market for these trusts five years ago, has as many as 16 such investment trusts. India has not yet introduced legislation to support Reits.