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Brookfield India’s REIT IPO allays fears of disruption in office space market due to work-from-home culture

It also strengthens India’s story of attracting global institutional capital for commercial real estate.

Alternative asset manager Brookfield’s announcement of its Rs 3,800-crore initial public offer (IPO) for its real estate investment trust (REIT) further strengthens India’s story of attracting global institutional capital for commercial real estate.

It allays fears of disruption in office space due to COVID-19 and the emphasis on work from home, say real estate experts, adding that it would encourage more real estate asset owners to come up with REIT listings in the future.

Amidst the COVID-19 pandemic, alternative asset manager Brookfield on January 29 announced its Rs 3,800-crore initial public offer (IPO) for its real estate investment trust (REIT), giving investors a share of over 1.4 crore square feet of its commercial properties across the country. This is the first REIT in Asia for Brookfield.

The global asset manager said there is no data to suggest that the work-from-home concept is the new normal and exuded confidence that benefits like closely working together for productivity purposes will eventually get teams to work from offices. The issue will open for subscription on February 3 and close on February 5, and bids can be made for a minimum of 200 units and in multiples of 200 thereafter by bidders other than anchor investors.

So far two REITs have been listed in India. While the Embassy REIT was launched in April 2019, the Mindspace REIT was launched in July 2020 in the midst of the pandemic.

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This activity on the REIT front demonstrates long-term hope on the commercial office market and that investors have faith in organised investment tools as compared to investing in physical real estate despite the COVID-19 pandemic, experts said.

Currently, the top seven cities of India have more than 550 million sq. ft Grade A office supply, of which 310 - 320 million sq. ft. is REIT-able.

“The announcement of Brookfield IPO further strengthens India’s story of attracting global institutional capital and retail penetration of Investing in stable income-generating assets. This is also allaying fears of disruption in office space due to COVID-19,” said Piyush Gupta, Managing Director, Capital Markets and Investment Services (India) at Colliers International.

The listing of another large commercial REIT is a testimony to the resilience of the commercial real estate which shall continue to attract further FDI investment in Indian real estate. “It also offers investors (both institutional and retail), in these times of uncertainty, an opportunity for diversification into stable yielding asset backed by large sponsors and Grade A tenants,” said Sumit Suri, Senior Director – Capital Markets, JLL India.

The Brookfield REIT IPO launch definitely helps strengthen the overall India real estate investment trust space. “With the initial two REITs from Embassy Group and K Raheja Corp garnering very good support from investors, we have seen more and more new investors coming into the listed real estate assets space via REIT. We expect this trend to continue and Brookfield's REIT IPO is a logical extrapolation of this trend,” said Shobhit Agarwal, MD & CEO - ANAROCK Capital.

Brookfield is a very large private equity investor and this move certainly helps boost the overall credibility of REIT offerings. The success of the first two REITs, along with the expected success of the Brookfield REIT, will definitely encourage many more real estate asset owners to come out with REIT listings in the future, he said.

The listing during COVID-19 times reflects the confidence in commercial real estate, especially for Grade A Properties in Tier I cities. This is also an outcome of strong fundamentals of lower vacancies, strong collection and rental values being held on as per pre-COVID values.

The major positive of the recent listing is that the geographical spread of the overall REIT portfolios has got widened.

However, the successful listing in the current market conditions reflects that investors’ expectations on rental values are unlikely to see any kind of significant correction. In fact, there have not been any significant increase in vacancies or renegotiations or deferral of receivables, say experts.

The launch of this REIT during the pandemic is interesting.

“It lends great credibility to the inherent demand and strong fundamentals of the Indian commercial office market, as well as REIT as an investment vehicle itself,” said real estate experts.

However, some experts are of the opinion that, while the launch could not have come at a better time and is suggestive of the fact that the commercial real estate market in India has matured, there could be a correction within three months of the end of the loan moratorium period.

“It is a smart move on the part of the company to go in for a listing while the markets are riding high and there is a deluge of foreign capital into the Indian stock market. Having said that, there may be significant financial stress in the Indian real estate ecosystem right after the RBI moratorium period ends,” says Anckur Srivasttava of GenReal Advisers.

Who should invest? Long term investors and those seeking low beta stocks with moderate risk returns expectations over a period of time after taking into account the rental distribution returns and capital gains appreciation.

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. After registration with SEBI, units of REITs will have to be mandatorily listed on exchanges and traded like securities.

SEBI notified REIT's regulations in 2014, allowing setting up and listing of such trusts, which are popular in some advanced markets.
Vandana Ramnani
first published: Jan 30, 2021 03:26 pm

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