India's second REIT to encourage more builders to monetise assets: Experts

The successful launch of India's second REIT with an issue size of Rs 4,500 crore and its listing on bourse at 11 per cent premium on Friday will encourage more builders to monetise their rent yielding commercial assets through this route, according to industry experts.

The participation of retail investors will also increase in future REITs, enabling them to earn dividend income from fully leased and listed commercial real estate, they added.

Mindspace Business Parks REIT, which is owned by K Raheja and Blackstone, made its market debut on Friday, with a premium of nearly 11 per cent against its issue price of Rs 275 per unit.

The units of the REIT are listed at Rs 304, reflecting a gain of 10.54 per cent from the issue price on the BSE.

This is India's second REIT, the first Embassy Office Parks got listed in April last year after raising Rs 4,750 crore.

Commenting on the listing, Jonathan Gray, president and chief operating officer of Blackstone, said: "Blackstone is honored to be partners with the Rahejas to help create India's second public REIT. Like Embassy last year, Mindspace has tremendous assets and a real commitment to producing shareholder value."

"We remain quite confident in the future of office parks in India," Gray added.

Commenting on the development, Anarock Chairman Anuj Puri said, "REITs are good news for investors who have a small appetite and yet want to invest in the otherwise highly cost-intensive commercial real estate (CRE) market. With REITs, they can literally take a small bite of the large Indian CRE pie,"

Knight Frank India CMD Shishir Baijal said this is a great sign for the future of commercial real estate in India as it shows market and investor confidence for the long term.

REITs will allow greater participation from retail investors in the asset class, he added.

Baijal said the office space segment has been growing from strength to strength over the past few years.

"We expect this momentum to regain in the near future which would encourage more participants to enter the REITs market and improve the fund flow into the sector," he added.

Sahil Vachani, MD & CEO of Max Ventures & Industries (MaxVIL), said: "The demand for leased Grade A office space has seen a secular uptrend in India since the last few years and is projected to continue in the foreseeable future, temporary disruption due to COVID-19 notwithstanding."

"Since these Grade A pre-leased offices are the underlying assets of the existing and upcoming REIT offerings, they present a sound investment opportunity," Vachani said.

He expects more such pooling of high-quality office complexes into REIT's in future, which is also encouraging for trusted developers of Grade A built-to-lease commercial real estate.

MaxVIL, a listed entity of Max group, has entered into commercial real estate with two completed office complexes in the Delhi-NCR market.

Nidhi Marwah, MD South Asia & GCC, The Executive Centre, said the real estate sector has been resilient in these past few months and the movement of demand from buying to rental as a trend is expected to push the yields higher.

"REIT as a concept is yet fairly unexplored in India and with the IPO, Mindspace Business Parks are only the second to be listed in the market. The Indian REIT market is expected to grow to USD 22-40 billion over next few years which shows significant promise in terms of investment," she said.

Sharad Mittal, CEO, Motilal Oswal Real Estate Fund, said: The listing of the Mindspace REIT at ~11% premium shows that a balanced product like REIT is preferred by both institutional and retail investors."

This listing will augur well for future investments in asset-backed financial products and commercial real estate in India, he said.

"Despite the recent weakened sentiment around commercial real estate, a diversified portfolio of grade A assets with strong rental collections as demonstrated by the Mindspace REIT finds flavour with the retail investor," Mittal said.

Real estate investment trust (REIT), a popular instrument globally, was introduced in India a few years ago aimed at attracting investment in the real estate sector by monetising rent-yielding assets.

It helps unlock the massive value of real estate assets and enable retail participation.