REITs reduce borrowing costs by about 200 basis points or more in FY21

Real estate investment trusts (REITs) reduced their borrowing costs by about 200 basis points (bps) or more in FY21 due to their strong credit profiles and better ratings.
 
In comparison, top property developers such as Godrej Properties and the rental arm of DLF reduced their borrowing costs in FY21 by 110 bps and 145 bps, respectively.
 
Mindspace Business Parks’ REIT’s average cost of funds came down 210 bps in FY21. The Mindspace REIT also did refinancing of Rs 1,150 crore of debt raised in the REIT via listed non-convertible debentures and market linked debentures. Mindspace REIT has a credit rating of AAA from rating firm ICRA.

 

Instruments rated AAA carry the lowest credit risk. Refinancing means financing existing loans again with new loans at a lower rate “We continually seek re-financing opportunities at REIT and the SPV (special purpose vehicle) level to further reduce our cost of borrowing,” said Vinod Rohira, chief executive officer (CEO) at Mindspace REIT.
 
The average cost of borrowing of Embassy Office Parks REIT came down 180 basis points in FY21. It has refinanced Rs 3,280 crore in FY21, saved 336 basis points and raised Rs 5,200 crore at 6.9 per cent. Embassy REIT also has a credit rating of 'AAA'.

 
“We believe that a combination of RBI (Reserve Bank of India) measures to increase liquidity during the year taken together with the increasing confidence of our lenders in the overall REIT model comprising stable cash flows, low leverage of 22 per cent to gross asset value as well as AAA rating have led to a flight to quality among our lenders. This resulted in reduction in borrowing rates,” said Aravind Maiya, chief financial officer (CFO) at Embassy REIT.
 
Vishal Shrivastava, president, corporate finance, Anarock Capital, said that REITs have better credit profiles than property developers.
 
Mathew Kurian Eranat, vice-president at rating firm ICRA said, “REITs have been borrowing through instruments such as debentures where the reduction in benchmark yields have been higher than the decline generally seen in bank lending rates. Other developers generally access credit mainly through bank lending and could not see a similar reduction in rates.”

 
Among top developers, DLF’s rental arm DCCDL redu­ced borrowing rates by 145 basis points on a yearly basis, from 8.90 per cent in Q4 of FY20 to 7.45 per cent in Q4 of FY21.