Industrial realty developers may raise Rs 1.5 lakh crore through REITS, ” says Crisil.
With investor interest in the residential segment decreasing because of limited land price appreciation and inability to monetise resources, property investment trusts (REITs) can provide a better investment option.
Rating agency Crisil, in its analysis on India’s REIT Opportunity, stated on Thursday that the top 10 commercial real estate developers and operators in the country could increase up to Rs 1.5 lakh crore through REITs route by monetising 184 million square feet (msf) assuming a capitalisation rate of 8.5percent and stake dilution of 75%.
Crisil said those assets, with annual lease rentals of approximately Rs 17,000 crore, represent around 30 percent of Grade A properties around major micro markets in the nation.
‘We consider portfolios with yearly rentals of over Rs 1,000 crore, translating into a minimum strength evaluation of Rs 10,000 crore, could consume increased trade prices and comply with all regulations, and also therefore are more inclined to use this option,’ stated the report on REITs.
REITs, which invest mostly in finished, income-yielding property assets, are much like mutual funds, and also could be listed and traded on stock markets. There are multiple advantages of REITs for both investors in addition to developers or personal equity (PEs). For investors, REITs provide steady yields, capital appreciation chance and low ticket size of investment. While for programmers, it can enable them to monetise the portfolio of operational assets and unlock capital and deleverage the balance sheets.
At present, only Embassy Office Parks REIT is listed on the trades and has given returns of 28.6% since its record in April this year. Even though, the BSE Realty index is down by approximately 7% for the exact same time period. In the past couple of years, profitability has improved for industrial resources granted low rates of interest and constant improvement in rentals and developers with lease leasing portfolio have embraced multiple alternative modes of financing, whereas deleveraging their balance sheets in recent times.
‘This is obvious from the simple fact that from nearly Rs 75,000 crore of PE investment in the industry in the previous 3 yearsas much as 70 percent has been parked in retail and commercial portfolios of programmers. It has a positive stance on the charge profile of such assets, together with the credit ratio well above 1.0 time for the last few decades,’ the report stated.
The positive trend is expected to hold across cities moving forward also because vacancy levels for Grade A offices are in a low-to-moderate range across cities. ‘This will work in favor of commercial lease rentals, which, we believe, are most likely to escalate at 5-10% per annum over the subsequent two-three decades,’ the evaluation agency said.