- Mindspace Business Parks REIT launched its IPO to raise a sum of ₹4,500 crores.
- The IPO have closed on July 29.
- On the last day, it was subscribed 13 times which was astonishing.
- With demand for office and commercial spaces likely to reduce as companies consider permanent work from home, revenues for REITs were estimated to take a hit.
- REITs were first introduced in India by SEBI in 2007.
Public issue of Mindspace Business Parks REIT was subscribed 12.96 times on the final day of bidding on Wednesday. The Rs 4,500-crore issue received bids for 87,78,24,600 shares against the total issue size of 6,77,46,400 shares, according to data available with the National Stock Exchange (NSE).
The offer was managed by Morgan Stanley India Company, DSP Merrill Lynch, Axis Capital, Citigroup Global Markets India, JM Financial, Kotak Mahindra Capital Company, CLSA India, Nomura Financial Advisory and Securities (India), UBS Securities India, Ambit Capital Private, HDFC Bank, IDFC Securities and ICICI Securities.
REIT, a popular instrument globally, was introduced in India a few years ago, aimed at attracting investment in the real estate sector by monetising rent-yielding assets.
It helps unlock the massive value of real estate assets and enable retail participation.
The units of the REIT will be listed on the BSE and the NSE.
What is REIT or Real Estate Investment Trust?
REIT or Real Estate Investment Trust is a company that allows investors to invest in the units of portfolio of real estate assets without having to own the physical property itself. It is a pool of investors just like mutual funds, who invest in the real estate as the underlying asset to generate return for investors.
REITs were first introduced in India by Securities and Exchange Board of India (SEBI) in 2007. Through a circular issued on 23 April, SEBI reduced the minimum subscription limit for REITs from ₹2 lakhs to ₹50,000.
The investor makes money on a yearly basis. REITs are mandated to give investors a certain portion of the money back on a yearly basis. Investors also earn from capital appreciation.
There are three types of REITs: equity REITs which purchase, own and manage income-generating properties; mortgage REITs which lend money directly or indirectly to real estate owners; and hybrid REITs which are a combination of the first two, according to a report by Care Ratings.
REITs allow any investor- small or big to invest in portfolios of real estate assets. The stockholders of a REIT earn a share of the income produced through real estate investment.
‘Embassy Office Parks REIT’ is the only listed REIT in India.
What is Mindspace Business Park REIT?
Mindspace Business Parks REIT, which is an irrevocable trust registered with SEBI as Real Estate Investment Trust, has a quality office portfolio of 295 lakh square feet of office properties in key markets – Mumbai, Pune, Chennai and Hyderabad, which comprises of 230 lakh square feet of completed area, 28 lakh square feet of under-construction area and 36 lakh square feet of the future development area, as of March 31, 2020.
Its portfolio has five integrated business parks with superior infrastructure and amenities (such as restaurants, crèches and outdoor sports arenas) and five quality independent offices.
The company plan was to raise up to Rs 4,500 crore from the issue which consists of a fresh issue of up to Rs 1,000 crore and an offer for sale of up to Rs 3,500 crore by selling unitholders.
Mindspace Business Parks REIT, owned by K Raheja group and Blackstone, has already received commitment worth Rs 1,125 crore from institutional investors including Singapore government’s Sovereign Fund GIC, affiliates of Fidelity Group, Capital Group, Fullerton Group.
The public offer of Mindspace Business Parks REIT was open for subscription on July 27 and the closing date was July 29.
It is the second REIT to come out with IPO after Embassy Office Park REIT which launched its Rs 4,750 crore IPO in March 2019.
REIT – A New Era in The Real Estate Investments in India.
The Indian market has evolved over the years, with increased participation of retail investors, in equity and debt products, due to increased awareness about investments in capital markets. Stock market investments through direct and mutual fund SIPs have been on the rise over the last few years. The Indian retail investors maybe warming up to equities more lately, but they have emerged as one of the largest net-providers of funds to the financial system.
Similar early signs has been observed in newer investment products like Real Estate Investment Trust (REIT). It took nearly five years to introduce the first REIT listing in India. Today, there is optimism observed among the retail and institutional investors on the performance of REITs, even though it is a relatively new product for Indian investors.
India has attracted USD 43.5 Billion of institutional investments in Indian real estate during the period 2016-20. This has been roughly five times the investment of USD 9.4 Bn which was made in the previous five years. Private Equity players have seen value in the Indian commercial real estate. Marquee PE brands have invested and now own quality office space assets in India.
Amidst the COVID-19 lockdown, there seems to be action in the commercial realty space, especially Grade A corporate office space. Publicly available data shows the following : major IT brands as Google, Accenture, Intel have signed lease deals in India. RMZ, owners of office properties in southern India, has closed rental deals with global firms. Mindspace Business Parks, of the K Raheja Corp group in its addendum filed recently stated that it has leased 7 lakh sq ft since April 2020. Brookfield Properties, global real estate services company Brookfield Asset Management has leased over 3.50 lakh sq ft office space in Mumbai’s business district BKC to five corporate clients. The Blackstone Group raised over $300 million by selling an 8.7% stake in Embassy Office Parks REIT through block deals.
Should millennials invest in REITs?
Millennials are not as particular about the status value of their address as they are about the connectivity, conveniences and security of a neighbourhood. They want to be able to get to work and back home quickly and enjoy a decent level of social amenities in the area they live in.
For many of them, buying a home in such an area may be beyond their financial capability, so renting makes complete sense to them. However, even if it is affordable, Millennials as a global breed do not necessarily view buying a home as the best of investment choices and may choose to put their surplus cash into stocks instead said an analysis by Anarock.
Globally, especially in the highly-developed countries, the Millennial Mindset as a factor influencing residential market trends highlights a definite predilection for renting as opposed to buying homes. We are also seeing this trend in India, but it is far less distinct, the analysis said.
Post-Covid, this rent generation seems to be rethinking its strategy with nearly 40 percent saying they would want to invest in property that is rightly priced, an analysis by housing.com said.
As for the pandemic and its impact on the commercial real estate market, it needs to be borne in mind that the current crisis has its roots in sociological and biological problems, unlike during the global financial crisis.
How work from home policy could have hit REITs?
Apart from the lockdown-related market correction, the fall in the value of REITs can be attributed to concerns over the demand for office space as some companies, especially in the IT sector, are planning to continue with the work from home (WFH) model adopted to battle the covid-19 infection. IT companies are among major clients of REITs. According to media reports, they have approached the IT ministry to allow WFH on a permanent basis. This will reduce the demand for office space, hitting REITs’ revenues.
Also, the change in the income tax law, making dividend income taxable in the hands of some investors, will make REITs less attractive. Rental income from REITs is distributed as dividends.
Real Estate Sector Experts Opinion- ‘The Investment of Choice for Indian Retail Investors’
Mr Mike Holland, Chief Executive Officer, Embassy Office Parks (Embassy Office Parks is India’s first publicly-listed Real Estate Investment Trust (REIT) said, “REITs is a tax-efficient tool and if the product continues to perform, the way it has been, then it will be very successful in attracting investors domestically as well as internationally.”
Mr Gaurav Karnik, Partner and National Leader Real Estate EY India, said, “There is strong corporate governance framework which allows related parties to be valued properly. So from corporate governance and tax efficiency perspective, and also potential fixed income and upside on the unit growth, REITs are a good place to put your money in.”
Mr Balaji Rao, Managing Partner – Real Estate, Axis AMC Limited, said, “Once we emerge out of COVID-19, the office market is likely to be as lucrative as ever. REITs should be given as much preference as equities or Mutual Funds as it is a much safer investment tool.”
Mr Arvind Nandan, Managing Director, Research & Consulting, Savills India said, “REITs are an attractive investment offering, especially in the current environment when interest rates are benign. Apart from capital growth, the returns from REITs include dividend returns which are currently 7%+. Overall, REITs promise to offer healthy returns over a 3-5-year period. Investors have had a positive experience from India’s first REIT in the last year.”
Should you Invest in REITs in the FUTURE or NOT?
The short-term outlook for REITs is not positive but experts don’t write them off in the long term. REITs should be part of the asset allocation strategy along with gold, debt and equity.
REITs may give “fixed-income-plus” returns in the long term. However, in the near term, the value of listed units of REITs and rental income may see some downward pressure. Investors who can understand how REITs work and have the ability to evaluate the sustainability of rental income should invest in REITs.
Investors considering REITs for diversification should evaluate factors such as the quality of the underlying assets, type of tenants (it is advisable to go for MNC tenants) and the track record of asset managers, among other factors.
With demand for office and commercial spaces likely to reduce as companies consider permanent work from home, revenues for REITs may take a hit HOWEVER-
The short-term outlook for REITs is not positive but experts don’t write them off in the long term.