DLF pushes ahead with REIT listing plans

Suncapital: Country’s largest real estate firm by market capitalisation is gearing up to launch REITs worth up Rs6,000 crore in two tranches over the next two years

DLF is currently putting together commercial office assets totalling around 25 million square feet of land into the REITs portfolio

Mumbai: Pushing a step closer to launching India’s first Real Estate Investment Trust (REIT), real estate firm DLF Ltd expects to complete forming a special purpose vehicle (SPV) within the next six months, said a top company executive of the Delhi-based company.

“We would be ready with the SPV in the next six months. As we announced earlier, we have signed non-disclosure agreements with 25 global investors. We should be the first one to crack it (REITs),” Rajeev Talwar, chief executive officer (CEO), DLF Ltd, told Mint over the phone.

Country’s largest real estate firm by market capitalisation is gearing up to launch REITs worth up Rs.6,000 crore in two tranches over the next two years.

REITs are listed entities that primarily invest in leased office and retail assets, allowing developers to raise funds by selling completed buildings to investors and listing them on stock exchanges as trust. Investors earn return on investment either through value appreciation or rental income generated from commercial assets.

REITs will also give overseas investors a chance to invest in lease rental generating assets, an asset class otherwise prohibited for foreigners.

DLF is currently putting together commercial office assets totalling around 25 million square feet of land into the REITs portfolio. As part of the process, promoters of DLF have decided to sell around 40% of its stake in DLF Cyber City Developers Ltd (DCCDL), a rental arm of the company to institutional investors. DCCDL earns around Rs.2,200 crore a year from rentals.

“Basically what is going on right now is divestment (of commercial portfolios) and to get foreign investors into the REIT portfolio. They have to come in the fair market valuation. In the first two quarters of the year, we would have brought all the funds and complete with our first stage which is to form an SPV,” Talwar said.

The listing of REITs, which many believe would bring stability and attract funds to the sector, has not been able to take off mainly due to tax hurdles.

Finance minister Arun Jaitley in the Union budget on Monday proposed to exempt REITs from the purview of dividend distribution tax (DDT), removing a significant hurdle to floating it in India.

“Exemption of DDT on REIT along with the FDI (foreign direct investment) policy changes in December last year will help get huge inflows from foreign institutional investors. For foreign institutional investors, the taxation was making it a lower return product for them. Now this (exemption) increases return and thereby attract more inflow of funds,” he said.

Anuj Puri, chairman and country head of JLL India, said with the proposal to remove DDT, REITs would become a realty soon with few listings likely to happen this year either by financial institutions or developers.

“Currently, around 229 million sq. ft of office space can be seen as REIT-compliant. If we assume that even 50% of these get listed, we are looking at a total REITs listing worth $18.5 billion,” Puri said.

Sun Capital Advisory Services