MINDSPACE REIT’S SUCCESS: A Tribute to India’s Top-Notch Developers.

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For all those who were lucky enough to get a handful of Mindspace Business Park REIT units, the listing on the stock market on Friday, at a 10% premium to the offer price of Rs. 275, was a cause of celebration. India’s second and hugely successful REIT closed on 29th July with a thumping over-subscription of 13 times, leaving investors wanting more.

K Raheja, one of the most respected developers of Mumbai offered an investment opportunity into 29.5 million square feet of India’s grade A premium office assets to institutional and retail investors and it was simply lapped up. What is noticeable is that the company had to push out the IPO date, file a revised offer document, warning investors of the possible risks in an office leasing portfolio during and post a pandemic. But savvy investors knew better and none of it deterred them.

“The success of India’s second REIT augurs well for the office market. This is a true indication of how well the Indian office sector is seen by global and local investors,” said Ramesh Nair, chief executive officer and country head, JLL India, while speaking at a webinar organized by Workplace Trends India.

India’s first REIT was offered in April last year, by another well regarded developer from India’s silicon-valley, Bengaluru, the Embassy Group. A brand new and yet untested investment product in the Indian market garnered a 2.57 times oversubscription. Since then, Embassy’s REIT company has worked well as a proof of concept, giving investors a steady dividend. The listed units have also seen a capital appreciation, whetting investor appetite. Embassy Office Park declared its June quarter numbers yesterday, revealing a story of resilience even in the most challenging times. The company signed leases for 5.26 lakh square feet in the quarter gone by, including 2.01 lakh of SQ FT of new leases at market rent. Embassy Office Parks even achieved a rental increase of 14% on about 2 Mn SQ FT of its office portfolio. 

 Some of the key factors behind the success of the two REITs are strong developer credentials, a positive outlook for commercial real estate, and an established portfolio that ensures stability of returns via rental income by way of tax-free dividend, which works well in investors’ interest.

 REITs may be a new investment avenue in India, but they have been around globally for more than five decades. According to various reports and press release, several overseas listed REITs have given returns similar to equities. “Globally, REITs have provided returns commensurate with those provided by equities over a 10-15-years period with a large part of the return being less volatile compared to equities,” said Sharad Mittal, CEO, Motilal Oswal Real Estate Fund.

“The office market has shown nearly 98% rent collection, low relevant micro market vacancies with some marginal rental growth. This abundantly demonstrates its sustainability. This can be attributed to the fact that office space is linked to global consumption complemented by cost arbitrage, talent pool, scale, competitiveness, and geopolitical advantage,” said Sanjay Dutt, MD & CEO, Tata Realty & Infrastructure Ltd, and Chairman, FICCI Real Estate Committee. 

REIT’s by regulation have to distribute 90% of the rents collected and when it comes to diversifying one’s portfolio to include best in class commercial real estate, one can’t beat a quality REIT. For us, the success of India’s first 2 REIT’s is a salute to India’s top-notch developers and their execution and management capabilities. This moments beckons us to remember that it’s the home grown developers like K Raheja, Embassy Group, DLF, Prestige, RMZ, Tata Realty, Godrej, Brigade who have created a hard infrastructure for India to become the world’s leading IT and IT Enabled Services hub. The likes of Blackstone and GIC have managed to get some of the most prized commercial and office assets created by our very own desi business leaders and entrepreneurs.

According to a Bloomberg report, Brookfield Asset Management, could be the next in line for a REIT IPO in India. Jog your memory and you’ will find that Brookfield too bought out some of the best office assets built by Unitech in its hey days, in the National Capital Region and Kolkata. Brookfield further acquired office assets built by another marque developer the Hiranandani Group, in Powai, Mumbai.

While we don’t know which of these assets will be part of the Brookfield REIT, we do have enough reason to make us pause and reflect; when it comes to building out India’s finest commercial and office assets, it’s the Indian developers who deserve the applause.

Posted by: Ashwini Sharma

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