Mindspace Business Parks REIT, with an issue size of Rs 4500 crore, made its market debut on August 7, with a premium of nearly 11 per cent against its issue price of Rs 275 per unit. This, say real estate experts, may encourage more real estate developers to enter the REITs market and improve the fund flow into the sector.
The units of Mindspace Business Parks REIT owned by K Raheja and Blackstone is the second REIT to be launched in the country.
Mindspace Business Parks REIT made its market debut on August 7 and closed with a premium of over 10 per cent against its issue price of Rs 275 per unit. The units of the REIT listed at Rs 304, reflecting a gain of 10.54 per cent from the issue price on the BSE. During the day, it touched a high of Rs 308.90, zooming 12.32 per cent. Later, it closed at Rs 303.87, up 10.49 per cent.
On the NSE, it closed at Rs 303, a gain of 10.18 per cent after debuting at Rs 302, a rise of 9.81 per cent.
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."
“Investors have demonstrated a strong interest for Mindspace REIT and this has resulted in huge over-subscription of the issue. Some of the key factors for the success of this REIT are strong developer credentials combined with positive outlook for commercial real estate, established portfolio that ensures stability of returns via rental income. This clubbed with the fact that the majority of distribution of income is by way of tax-free dividend works very well in investors’ interest,” said Ramesh Nair, CEO and country head (India) JLL.
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. The commercial office space segment has been growing from strength to strength over the past few years with sustained growth in rentals across prime business districts. 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,” said Knight Frank India CMD Shishir Baijal.
Sharad Mittal, CEO, Motilal Oswal Real Estate Fund, said, “the listing of the Mindspace REIT at around 11 percent premium shows that a balanced product like REIT is preferred by both institutional and retail investors. 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 flavor with the retail investor. This listing will augur well for future investments in asset backed financial products and commercial real estate in India.”
Experts also said that there could be one more REIT launched by the end of this financial year.
“Every asset in the market is currently chasing a huge amount of liquidity. There is enough liquidity in the global market and India still remains very attractive. The commercial office space story for India is still intact and returns are bound to be attractive. We would see one more REIT getting launched before the end of this financial year,” Anuj Puri, Chairman - ANAROCK property Consultants, told Moneycontrol.
It is important to note here that notwithstanding the lockdown and the pandemic, the listed commercial real estate players in the country have collected almost 97 percent of the rents in the April-June quarter. This indicates that the commercial real estate market continues to remain robust despite the focus on work-from-home and some reduction in commercial real estate footprint.
“Commercial leasing activity last year was around Rs 4 crore and this year new leasing is expected to be in the range of Rs 2.5 crore despite the lockdown,” Puri says, adding this accounts for almost 60 percent of leasing in 2019.
The launch indicates the coming of age of Indian commercial real estate market story.
“It was a one REIT stock story until now. Launch of a REIT by one more player adds to the maturing of the commercial real estate listed space. With the REIT market deepening there are clearly more avenues for larger foreign institutional players like pension, retirement funds and insurance companies to deploy long-term capital in asset backed space instruments,” said Anckur Srivasttava of GenReal Advisers.
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.