Top property developers DLF and Phoenix Mills have shelved the listing plan of REITs (real estate investment trust) of their commercial portfolios, according to sources.
High Liquidity vs. Regulatory Compliance
The reasons include strong cash flows and REIT regulations (such as distribution of 90% of income & requirement of completed 80% portfolio), which these companies are averse to adhere to, said the sources.
Recently, markets regulator Securities and Exchange Board of India (Sebi) eased regulations for REITs. These include their classification as equity, boosting liquidity and encourage institutional participation, and RBI allowing banks to lend them directly, which is expected to widen their funding avenues and bring in incremental funds.
There are five listed REITs currently through Embassy Office Parks, Mindspace Business Parks, Brookfield India, Knowledge Realty Trust and Nexus Select Trust.
DLF, the country’s largest listed developer, is not going ahead with a REIT for its commercial arm DLF Cyber City Developers (DCCDL), a joint venture with Singaporean fund GIC because it is well capitalised and expecting rental income of `6000 crore in FY27, sources said. “Their commercial property JV with GIC is well funded and has good rental income ,” the source said.
“Moreover, GIC is also not keen on floating a REIT here due to higher compliance norms,” they added.
In 2017, DLF entered into a JV with GIC to build rental assets after its promoters sold 33.34% stake in its rental arm DCCDL to GIC for Rs 8,900 crore.
In early 2023, DLF said it has put off the plans due to high interest rates and global uncertainties but later started looking at REITs again, reports said .
An email sent to DLF did not elicit any response till the time of going to press .
For Phoenix Mills, sources indicated it is not looking at the REITs because of the belief that it makes sense to invest money in new assets than distributing majority of income.
“They believe it is better to increase the value of assets than to distribute the cash,” sources added.
Phoenix Mills spokesperson also did not offer any comment on the subject.
Strategic Roadmap
Phoenix and its subsidiaries currently operate over 11 million sq ft of retail space across eight major cities. The company is developing nearly 7 million sq ft of additional retail space, including five new malls and expansions of existing destinations.
Its mixed-use portfolio also includes Grade A office assets with a completed gross leasable area (GLA) of about 4.8 million sq ft across Mumbai, Pune, Bengaluru, and Chennai.
Others realty firms like Tata Realty & Infrastructure (TRIL) want to scale up before taking the REIT route. The company will float and list a REIT or float an IPO in the next two years once it reaches a total of 20 million square feet portfolio. Currently it has 11 million sq ft of office space and developing six million sq ft, according to sources in investment banking.
According to Shobhit Agarwal, CEO at Anarock Capital, listed companies also want to avoid the REITs as they are already listed and have enough cash on the books and want to “avoid double compliance and efforts to run two different listed companies,” he said.
The operational REIT market is currently valued at Rs 2.3 lakh crore, comprising four listed office REITs and one retail REIT, according to a JLL report. The report noted that performing office assets alone represent an additional opportunity worth `5.9 lakh crore , indicating a potential fourfold growth for the office REIT segment.