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October 21, 2007

Are REITs the right way?

A Businessworld article discusses how real estate companies like DLF and Unitech are raising money via REIT listings overseas and raises questions on whether such issues are fair to their domestic shareholders.

For instance, the promoters of DLF, India’s largest private land bank owner, have filed a prospectus for floating a REIT in Singapore. DLF Asset (DAL), their offshore entity, has already acquired assets of 5.3 million sq. ft of commercial office space from DLF, the publicly-listed Indian firm. An additional 6 million sq. ft will be sold to DAL at regular intervals over the next couple of years. It is 1.8 per cent of DLF’s total land bank of roughly 615 million sq. ft. “Singapore’s investors have a great penchant for REITs,” says Saurabh Chawla, vice-president of finance and investor relations at DLF. “In addition, Singapore is a great place for pan-Asia property deals.”

...Once its REIT gets listed on the Singapore exchange, there will be a public valuation of the 5.3 million sq. ft of commercial office space sold by DLF to DAL. Only then will investors be able to determine whether DLF’s asset sale to its promoter-owned entity was at the right price, or it went cheap.

Indian shareholders invested in DLF or Unitech’s listed entities in India will not benefit directly from REITs. In the case of DLF, it is the promoter and private equity owners of DAL who will profit the most. Similarly, Unitech Corporate Park is owned by shareholders in the AIM market.

Arun Natarajan is the Founder & CEO of Venture Intelligence, the leading provider of information and networking services to the private equity and venture capital ecosystem in India. View free samples of Venture Intelligence newsletters and reports.