India's first REIT unlikely to get listed before end of the year: Property experts

Blackstone-backed Embassy Office Parks is expected to file draft documents for the country’s first real estate investment trust (REIT) shortly, but real estate experts say a listing will not take place before the end of the year.

Industry sources confirmed to Moneycontrol that realty firm Embassy Group is preparing to launch a Rs 5,250-crore REIT, which could perhaps be Asia’s Asia’s biggest office REIT listing. But they cautioned that the issue could take time to get all approvals in place.

The Bengaluru-based Embassy Group has over 30 million square feet of leased office space and has a pipeline of about 22 million square feet across major cities.

“The REIT listing will take some time. It will take time to get all regulatory approvals in place and will also depend on market conditions. Our sense is that it would not be launched before the end of this year. It would definitely be before 2019,” a source says.

Sources added that the REIT listing is unlikely to spark a rush for more listings. “The next REIT listing will depend on what the first REIT is priced at. The first REIT needs approval from the government. Some issues need to be ironed out. Hopefully, by the end of this year, the first REIT will get listed,” the source maintained. Other companies said to be considering launching REITs are K Raheja Corp, RMZ and Prestige among others.

REITs are listed entities that invest in income-generating properties and distribute at least 90 percent of their income proceeds to unit-holders through dividends. Post registration with SEBI, units of REITs will have to be mandatorily listed on exchanges and traded like securities.

Properties listed through a REIT are typically commercial assets -- primarily office spaces that can generate steady and lucrative rental income. Retail malls, hotels, hospitals, schools, student housing, hotels and even PSU buildings can also be put under REITs.

REITs offer investors who have an appetite as small as Rs 2 lakh an opportunity to invest in the commercial real estate market. Like listed shares, small investors can buy units of REITs from both primary and secondary markets. Sebi had notified regulation over REITs and InvITs (infrastructure investment trusts) in 2014, allowing setting up and listing of such trusts, which have become popular in some advanced markets. However, only two InvITs - IRB InvIT Fund and Indiagrid Trust - have got listed on stock exchanges so far.

‘Maturing of the market’

“It is a historical event for India's real estate sector. It shows maturity of the Indian real estate market as only mature economies have a REIT structure in Place. It will show that we too can transact as per international standards,” says Anshuman Magazine, chairman – India and South East Asia, CBRE.

“We do expect more institutional money to flow in which may include insurance companies and even pension funds. One thing is sure – this event (REIT listing) will ensure that hereon there will be an exit route in place for investors,” he says.

REIT acquisitions touched USD 10 billion in the first half of 2018 and accounted for 17 percent share in the investment volume in Asia, according to a CBRE- CII Report Challenges to Opportunities.  In 2017 alone, total acquisitions undertaken by REITs in APAC crossed USD 20 billion, with an approximate share of 15 percent in the overall commercial real estate acquisitions undertaken in the region.

The report noted that a successful REIT listing in India would prompt other prominent asset holding companies such as Xander, Brookefield and CPPIB to issue their own offerings, thereby widening the real estate investment scenario in the country. REIT listings are likely to substantially move from the office sector to retail and logistics sectors thereby resulting in creation of quality assets across segments, the report said.

Sanjay Dutt, managing director and CEO of Tata Housing, says that there are many opportunities for investors, especially retail investors going forward. The shift is likely to be from capital appreciation to rental income.

“If we see commercial REITs and going forward rental housing REITs and industrial REITs, a lot of trusts will get established with retail investors. Instead of buying hard assets as an option, they are likely to go for this as an alternative model. As the sector matures over time, you will see another five to six companies getting listed over next four-five years with a combined market cap of 4 to 5 million US dollars which will allow retail investors to have an institutional play,” he said.

“The Blackstone Embassy REIT is poised to be one of the biggest milestones for the Indian real estate industry this year. The REIT will also be the first opportunity for retail investors to participate in investing into a single office asset platform with assets not only in Asia’s No. 1 city of choice for technology occupiers but also in the major office districts of India,” ”, says Joe Verghese, managing director, Colliers International India.

“For the industry, it opens up a new avenue for the exit for institutional office assets investments as well as provides developers a new avenue to gain more liquidity. Considering the buoyancy in the India office leasing market and the forecasted growth, it seems to be very well timed both for the existing investors as well as for the market,” Verghese adds.

7 to 8 percent ROI

According to Shobhit Agarwal, MD and CEO, ANAROCK Capital, "Being realistic in one's returns expectations from REITs is important. A realistic ROI (return on investment) expectation would be in the range of 7-8 percent annually, post adjustment of the fund management fee," he says, adding this instrument is ideal for investors who want a steady income with minimum risks.

The way ahead

While the first listing will be an important day for Indian institutional real estate, globally whoever has invested in India or is considering the possibility of investing in India would want to see how the REIT listing fares. Everybody would be keen to see how their exits will happen. “The only alternative right now for investors is sell to another fund or go in for an offshore REIT listing,” says Anckur Srivasttava of GenReal Advisers.

While the initial REITs would be to do with income generating commercial assets, eventually one may see REITs getting listed for hospitals, schools, warehousing, retail malls, residential properties not being sold but only leased out,  student accommodation, industrial facilities, even companies owning cinema halls could consider making their properties REIT-able, according to Srivasttava.