Property consultants believe that given the positive investor sentiment for India’s commercial office sector, DLF’s REIT could be a game-changer due to its sheer size and quality of assets
BENGALURU: The rental arm of DLF Ltd, India’s largest real estate developer, is preparing for a real estate investment trust, providing a significant boost to the country's emerging REIT market.
DLF Cyber City Developers Ltd (DCCDL), a joint venture between DLF and Singapore's sovereign wealth fund GIC Pte Ltd, owns and operates a 35 million sq ft ready rental portfolio, of which around 3 million sq ft is retail space and the rest is office.
Over the next 15-18 months, the company will structure its rental assets to make it a REIT-ready portfolio, though the listing will depend on the two shareholders, said a top company executive. The process would start with the appointment of advisors soon, followed by structuring the portfolio for a REIT.
DLF holds 66.67% stake while GIC has 33.33% stake in DCCDL, which the latter had picked up for around ₹8,900 crore.
“We wanted to see how the first couple of REITs performed, and they have done very well. We also a strong project pipeline with two large development parcels, ‘Downtown’ in Gurgugram and Chennai . Lease rental discounting rates are low and the whole ecosystem is becoming more conducive for a REIT, going forward," said Ashok Tyagi, whole-time director, DLF said in an interview.
The upcoming Downtown office projects in Gurugram and Chennai are 11 million sq ft and 8 million sq ft respectively, that would add 18 million sq ft to the rental portfolio.
Property consultants believe given the positive investor sentiment in India’s commercial office sector, DLF’s REIT could be a game-changer due to its sheer size and quality of assets.
“DLF’s portfolio would be the single, largest REIT once listed. The REIT market is deepening and accepted both by institutional and retail investors," said Shobhit Agarwal, MD and CEO, Anarock Capital.
Embassy REIT’s (33.3 million sq ft) listing in 2019 and the Mindspace Business Parks REIT (29.5 million sq ft) listing amid the pandemic, both backed by Blackstone Group Lp, as majority and minority shareholder respectively, have given investors huge confidence in the office sector.
Canada’s Brookfield Asset Management recently filed a draft offer document with market regulator SEBI to raise around ₹4400 crore through a REIT, which has assets of 14 million sq ft. The IPO could be launched this year-end or by early 2021 latest.
DLF’s Tyagi said as and when the REIT happens, a significant chunk of the capital that will be raised could be used to pare debt.
“The benefits of a REIT are many. It helps to find the right value of the investment, there are opportunities for growth inorganically for a listed REIT, creates opportunity for under construction projects and allows a shareholder to monetize, if it wants at any stage," Tyagi added.
DCCDL’s consolidated debt is around ₹18,103 crore. Tyagi said the interest cost in DCCDL has been reduced and could come down further. In October, DCCDL raised ₹2,400 crore from State Bank of India in one of the largest LRD deals in recent times. When bank disbursements to real estate developers have been sparse, DLF’s debt transaction, at an interest rate of 7.35% for a tenure of 15 years, also enables the company to reduce cost of its debt. It raised the funding against two rental assets of 2.4 million sq ft in CyberCity, Gurugram.
Vinod Rohira, CEO, Mindspace Business Parks REIT, said REITs have the potential to transform the commercial real estate market and to change the way assets are looked at.
“We will see institutional investors doing multiple REITs, either on their own or with developer partners. Investors who are sitting on large asset portfolios will want to exit and REITs are now a viable exit route. In India, around 50-60 million sq ft of commercial space has got listed and there is nearly 300 million sq ft with investors. So, there is a strong REIT pipeline," Rohira said in a recent interview.
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