Blackstone-Embassy JV shelves $2-bn Reit listing

This article has been modified. Please see clarification at the end.

In the first concrete sign that the government's real estate investment trust (Reit) policy has failed to take off, a joint venture between private equity firm Blackstone and real estate group Embassy has decided to shelve plans to list a $2-billion Reit in India due to tax issues.

"The tax structure would have made it quite unattractive," said Mike Holland, chief executive, Embassy Office Parks.

The joint venture has 27 million sq ft of office assets. Its planned Reit was aimed at unlocking value in these assets.

"We are exploring different avenues to raise funds," Holland said, adding these included foreign listing, private investment by investors and commercial mortgage-backed securities. "The attraction of Reit was that it was a fairly transparent and structured instrument."

SNAPSHOT ON REITS

What are Reits:

• Reits are publicly-traded instruments that pool investor money to buy real estate such as office buildings, shopping malls and residential complexes

Total Reitable assets:

• 80-100 million sq ft of office space worth at least Rs 60,000 cr can be converted into Reits

Probable candidates:

• Blackstone-Embassy, DLF, K Raheja Corp, Phoenix Mills

Contentious issues:

• Minimum alternate tax and dividend distribution tax

Countries that have Reits:

• US
• UK
• Singapore

Earlier, the JV was looking at floating a Reit after June this year and, subsequently, listing it. Projects that were part of the Reit included the Embassy Tech Village in Bengaluru (for which Flipkart recently signed a long-term annual lease agreement); Embassy Tech Zone in Pune and the Manyata Business Park and Embassy Golf Links in Bengaluru.

Recently, Business Standard had reported a deal between Blackstone and leading real estate developer DLF might be stuck due to taxation-related clauses in Reits.

Sources say none of the major developers are looking at floating Reits due to tax issues. Earlier, property developers such as DLF, Phoenix Mills and K Raheja Corp were exploring this route to monetise assets.

While the government has moved a step closer to launching the instrument by giving certain exemptions in the recent Union Budget, developers and tax experts say lack of clarity on minimum alternate tax (MAT) and the dividend distribution tax could be the biggest dampeners to launching Reits.

However, Punit Shah, co-head (tax) at KPMG, recently told Business Standard the Budget exemptions were irrelevant because in the Indian context, the MAT liability was triggered twice: once, at the sponsor level, when one transfers shares to a Reit and second, when one sells Reit units.

CLARIFICATION
In an earlier version of this article, first name of Mike Holland was misspelt. The error is regretted.