The agency said the portfolios with annual rentals of over Rs 1,000 crore, translating into a minimum asset valuation of Rs 10,000 crore, can absorb higher transaction costs and comply with regulations and are more likely to use this option.
As many as 10 commercial real estate developers and operators have the potential to raise as much as Rs 1.5 lakh crore through the real estate investment trust (REIT) route by monetising 184 million sqft space, the report said. According to a report by the rating agency Crisil, these assets, with annual lease rentals of around Rs 17,000 crore, represent around 30 per cent of Grade A properties across major micro-markets in the country.
“Our analysis shows that the top 10 commercial real estate developers and operators in the country can raise as much as Rs 1.5 lakh crore through the REIT route by monetising 184 million sqft space assuming a capitalisation rate of 8.5 per cent and stake dilution of 75 per cent,” the report said.
The agency said the portfolios with annual rentals of over Rs 1,000 crore, translating into a minimum asset valuation of Rs 10,000 crore, can absorb higher transaction costs and comply with regulations, and are more likely to use this option.
“While investor interest in the residential segment is declining fast because of limited property price appreciation and inability to monetise assets, REITs can be a potential investment option, providing assured and ongoing returns. REITs, which invest primarily in completed, income-yielding real estate assets, are similar to mutual funds, and can be listed and traded on stock exchanges,” Crisil said. Through REITs, private equity firms can divest at the portfolio level instead of individual assets. This would sync better with their typical exit timelines of 7-10 years.
The report said that vacancy levels for Grade A offices are in a low-to-moderate range across cities. “This will work in favour of commercial lease rentals, which we believe, are likely to escalate at 5-10 per cent per annum over the next 2-3 years,” it said.
Crisil, however, noted that given the high level of compliance and stringent regulatory requirements for REITs, developers with smaller commercial portfolios would continue to use lease rental discounting loans, which are accessible at rates as low as nine per cent. “Furthermore, developers who prefer to retain the capital appreciation opportunity and not dilute their stake, will not prefer the REIT route,” the report said.