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The rental arm of DLF Ltd, India’s largest developer, is preparing to float a real estate investment trust (Reit). This could could significantly boost India’s emerging Reits’ market.

DLF Cyber City Developers Ltd (DCCDL), a joint venture between DLF and Singapore’s sovereign wealth fund GIC Pte. Ltd, owns and operates 35 million sq. ft ready rental portfolio, of which around 3 million sq. ft is for retail and the remaining is office space.

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 will soon start with the appointment of advisers, followed by structuring the portfolio for a Reit.

DLF holds a 66.67% stake in DCCDL, while GIC holds 33.33%. GIC had picked up the stake for around 8,900 crore in December 2017. “We wanted to see how the first couple of Reits performed, and they have done very well. We also have a strong project pipeline with two large development parcels, ‘Downtown’ in Gurugram and Chennai. Lease rental discounting rates are low and the whole ecosystem is becoming more conducive for a Reit," said Ashok Tyagi, whole-time director, DLF, in an interview.

The upcoming Downtown office projects in Gurugram and Chennai are 11 million sq. ft and 8 million sq. ft, respectively, and will add 18 million sq. ft to the rental portfolio.

DLF’s Reit could be a game changer because of its sheer size and quality of assets, considering the positive sentiment in India’s commercial office sector, according to property consultants. “DLF’s portfolio will be the single-largest Reit once listed. The Reit market is deepening and accepted both by institutional and retail investors," said Shobhit Agarwal, managing director 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, have given investors huge confidence in the office sector. Both Reits are backed by Blackstone Group Lp as a majority and minority shareholder, respectively.

Canada’s Brookfield Asset Management had recently filed a draft offer document with the Securities and Exchange Board of India (Sebi) to raise around 4,400 crore through a Reit, which has assets of 14 million sq. ft. The initial public offering is expected to be launched by early 2021.

A significant chunk of the capital from the Reit could be used to pare down debt, Tyagi said. “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, It creates opportunity for under-construction projects and allows a shareholder to monetize, if it wants at any stage," he said.

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