Brookfield listing is proof that Reits are here to stay
Analysts say investors have embraced the product, paving the way for more to come
The launch of the third real estate investment trust (Reit) in India last week by an entity of Canada’s Brookfield Asset Management values the market capitalization of Reits in the country at over $8 billion.
With three office Reits launched in under two years—the first and second being Embassy Reit and Mindspace Business Parks Reit respectively—analysts and bankers said international and domestic investors have embraced the investment product, paving the way for more to come.
Brookfield India Real Estate Trust’s ₹3,800 crore Reit issue closed on Friday with an overall 8 times subscription. It was subscribed nearly 12 times in the retail investors’ segment and five times in the institutional investors’ category.
Importantly, ahead of the public issue, the Reit received commitments of over ₹1,710 crore from 39 anchor investors, including several domestic insurance and mutual fund firms as well as overseas institutional investors.
“The launch of the first Reit took a long journey. Prior to listing the Embassy Reit, while there was positive response from international institutional investors who were familiar with Reits, domestically it was challenging. With two more Reits being launched since then, domestic investors understand the product now and have significantly contributed. The Indian office sector is well-placed to launch more Reits, which will deepen the market and benchmark performances,” said Mike Holland, CEO, Embassy Reit.
Markets regulator Sebi first introduced the concept of Reits as a new investment vehicle in February 2008 and then, only in 2013, issued draft regulations for Reits.
In a year’s time, the rental arm of DLF Ltd will be Reit-ready and has appointed tax and legal consultants for the same. In the next couple of years, it is expected that in the office sector alone, there could be multiple Reit launches.
Sriram Khattar, MD, rental business, DLF, said the government’s legal and tax framework is encouraging Reits to get listed.
“Their popularity as a stable, income-generating asset class with relatively lower risk will increase with time. However, the Indian Reit market will continue to be much smaller compared to Singapore or Hong Kong, which are mature markets. India’s Reit market’s smaller size and a maturing asset class will ensure that appetite from international and domestic investors remains robust,” Khattar added.
To put it in context, the market cap of Singapore office Reits would be an estimated $75-80 billion, according to two bankers, who didn’t wish to be named.
“Reit is a well-evolved product now with wider investor participation. When a Reit controlled entirely by Brookfield, which is a rank outsider in India, sees high retail investor participation, it means that the product has been fully accepted and is not a fluke,” said Shobhit Agarwal, MD and CEO, Anarock Capital.
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