Budget 2021: More REIT, InvIT listings on the cards, say experts

Allowing debt financing by FPIs will reduce cost of funding, say experts

The Budget proposal allowing debt financing by foreign portfolio investors (FPIs) in real estate investment trusts (REITs) and infrastructure investment trusts (InvITs) and exempting taxes on dividends will lead to more listings by such investment vehicles, said top executives and capital market experts. This could even prompt smaller players to opt for the instruments, they said.

“REIT is one of our strategic goals. Budget makes it better. It will provide for growth, development, scale, and financial and operational efficiencies. We are already in National Capital Region (NCR), Mumbai, and Chennai and likely to add Hyderabad and Pune,” said Sanjay Dutt, managing director and chief executive officer of Tata Realty & Infrastr­ucture, which plans to float a REIT.

When contacted, Ashok Tyagi, whole-time director of DLF, said: “As disclosed earlier, we are working to make DCCDL REIT ready. We believe this process will take 12 months. The exact timing of the REIT will be decided by the two shareholders, taking into account all relevant regulatory and strategic factors.” DCCDL is a rental arm of DLF and is a joint venture with Singaporean fund GIC.

Currently, two REITs and InvITs each are listed on the exchanges —Embassy Parks REIT and Mindspace Business Parks REIT, and IRB InvIT Fund and India Grid Trust in InvIT. 

The initial public offering (IPO) of Brookfield’s REIT is set to open on Wednesday. Last week, Power Grid Corporation of India filed preliminary papers with the Securities and Exchange Board of India (Sebi) to float an InvIT to raise over Rs 5,000 crore. Some of Blackstone’s JVs, such as Salarpuria Sattva and Panchshil Realty, could also come up with REITs, sources said. 

“The Budget announcement enabling FPI in debt securities of REITs and InvITs is a positive as it will enable access to larger pools of debt capital, which will ultimately benefit the real estate and infrastructure sectors. This will also lead to increased participation in future bond issuances and enable access to debt capital at competitive rates to the benefit of unitholders,” said Vikaash Khdloya, deputy CEO and COO, Embassy REIT. 

Experts, too, have welcomed the move. Vishal Srivastava, president, corporate finance, at Anarock Cap­ital, said this would bring down cost of funding for REITs and improve yields for investors, making it more attractive. TDS exemption brings more transparency and makes it more lucrative for investors, Srivas­tava said. “We expect at least one more REIT offer this calendar year,” he added.

Nitin Gupta, MD of Macquarie Capital, said the announcement will pave the way for inflow of offshore capital into REITs by way of debt. TDS exemption will help ease administrative burden. “These measures, coupled with attractive spread of dividend yield over government bonds, will help in new listings,” he said.

Saurabh Shatdal, MD, capital markets, at Cushman & Wakefield, said REITs and InvITs are very common investment vehicles globally, especially in developed nations. Hence, their risk profiles are well understood. 

“Allowing FPIs will significantly open up sources of funds and provide foreign investors a relatively secure debt investment alternative in India. Relaxing norms on TDS reduces the compliance burden on REIT managers and allows investors to have more cash flow and plan better for taxation,” he said.