DLF Ltd, the country’s largest realty company by market capitalisation, is readying plans to float India’s first Real Estate Investment Trust (REIT) to raise an estimated Rs 6,000 crore over the next two years.
While the company will use the funds to finance projects, it will offer individuals and institutions an alternative investment vehicle to earn returns from realty projects in a model similar to mutual funds (MFs).
In REITs, pooled funds are invested in specific projects. REIT unit holders earn returns from value appreciation or rental income of these projects.
This is very similar to MFs where shareholders or unit holders own stocks of companies indirectly through funds that pool money from individuals and invest in shares. If the share prices of these companies go up, benefits also flow out to individual unit holders of the MFs.
DLF’s executive director Rajeev Talwar told HT that the company has engaged JP Morgan and Morgan Stanley as investment bankers for the launch of two REITs. “We will have the first REIT of the country, that is for sure and this would be over the next one year,” Talwar said.
Talwar did not specify the size of the proposed floats, but sources said that two funds will likely raise an estimated Rs 3,000 crore each. The first of these will hit the market this fiscal year, followed by another one next year.
On Thursday, finance minister Arun Jaitley exempted units of business trusts in REITs and SPVs (special purpose vehicles) from minimum alternate tax (MAT).
Talwar said that the earlier pre-requisite of MAT being applicable on exchange of equity shares of a SPV for REIT units had restrained the company from taking its plans forward.
DLF’s two REITs will be used to fund office and retail projects. The company is examining to put to use about 25 million square feet of land, which is currently leased out, sources said.
In March, the Securities Appellate Tribunal (SAT) had set aside a Securities Exchange Board of India (Sebi) ruling which banned DLF, which has a market capitalisation of Rs 24,287.67 crore, and six top executives from accessing the capital market for three years for allegedly concealing material information while selling shares to the public in 2007.
Sebi has challenged the SAT order in the Supreme Court.
Last year, Sebi had issued guidelines for REITs that allows listing of such trusts and their units on bourses like equity shares.
REITs have paved the way for an alternative to bank finance for the cash-starved realty and construction sectors, saddled with high debt and rising borrowing costs.
Analysts said new norms will enable infusion of $15-20 billion (Rs 94,500-126,000 crore) in the sector by 2020.
In the absence of a robust property valuation system, the Securities and Exchange Board of India (SEBI) has made it clear that an independent party will assess the property value every six months, over and above the annual valuation check by two other authorised and empanelled valuers.
Besides, the net asset value of REIT units will be declared at least twice a year, which will make minimise the chance of inconsistent fluctuation in values.