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Coronavirus pandemic | Launch of proposed REITs may be hit, say experts

Companies such as K Raheja Corp, Blackstone Group, Prestige Estates and Brookfield Asset Management were planning to launch REITs over the next one year.

Like many sectors, the coronavirus outbreak is also set to cause major disruption in the real estate sector as there could be a delay in the launch of the proposed Real Estate Investment Trusts (Reits) planned over the next one year, sources told Moneycontrol.

Companies such as K Raheja Corp, Blackstone Group, Prestige Estates and Brookfield Asset Management were planning to launch REITs over the next one year. Mindspace Business Park REIT had filed its draft prospectus with the Securities and Exchange Board of India (SEBI) on December 31, 2019. This was set to be India's second REIT issue.

Embassy Office Parks REIT, where Blackstone is a shareholder, listed its units in April 2019, after an IPO where it raised Rs 4,750 crore. Blackstone owns around 15 percent in various special purpose vehicles (SPVs) that are part of the Mindspace REIT.

Launch of REITs had hit a roadblock after the Budget 2020 announcement in which the FM proposed to remove dividend distribution tax (DDT) at the company level while individual investors told to pay taxes on dividends received as per their respective tax rates.

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"REITs depend on the performance of underlying assets, which in this case is primarily commercial real estate. If Covid 19 situation were to get prolonged, that is, extend to months instead of a few weeks, its impact may be felt on this asset class. If commercial leases are hit, weakening the rental outlook in the process, or if companies start postponing fresh commitments, there may also be an impact on proposed REIT launches," said Arvind Nandan, Managing Director- Research and Consulting, Savills India.

Anckur Srivasttava of GenReal Advisers said that investors will adopt a cautious approach considering the current circumstances.

"All new floatations, including REITs, will get affected by the recent market turmoil and currency volatility. Most foreign institutional investors are taking a wait and watch approach. But they are all keeping an eye on the India story, as it evolves. Unfortunately, hard to predict markets. More so, when it is a force-majeure situation. Everybody's waiting on the sidelines for now. Except for the deals that have been committed and are under due diligence, new transactions will get stalled," he said.

As is the case with any IPO, where a simple rule of not launching in an uncertain time holds, in this case too, the same dynamics will play out, he said.

"We do not know how long COVID-19 will last, will it be there for a few weeks or a few months, will it be a two-quarter blip or longer, only time will tell. But in this case the regulatory issue should also be resolved,” he added.

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.

Securities and Exchange Board of India (SEBI) had 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: Mar 17, 2020 02:46 pm

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