Borrowing costs

REITs cut borrowing costs by around 200 basis points or more in FY21


Real estate investment trusts (REITs) reduced their borrowing costs by around 200 basis points (bps) or more in FY21 due to their strong credit profiles and better ratings.

By comparison, major property developers such as Godrej Properties and DLF’s rental arm reduced their borrowing costs in FY21 by 110bps and 145bps, respectively.



Mindspace Business Parks REIT’s average cost of funds declined 210 basis points in FY21. Mindspace REIT also refinanced Rs 1,150 crore of debt incurred in the REIT via listed non-convertible debentures and market-linked debentures. Mindspace REIT has a AAA credit rating from the ICRA rating firm.

Instruments rated AAA present the lowest credit risk. Refinancing means refinancing existing loans with new loans at a lower rate. Rohira, Chief Executive Officer (CEO) at Mindspace REIT.

Embassy Office Parks REIT’s average cost of borrowing decreased by 180 basis points in FY21. It refinanced Rs 3,280 crore in FY21, saved 336 basis points and raised Rs 5,200 crore to 6.9%. Embassy REIT also has a “AAA” credit rating.

“We believe that a combination of RBI (Reserve Bank of India) measures to increase liquidity over the course of the year, coupled with growing confidence from our lenders in the overall REIT model comprising stable cash flows, low leverage of 22% on gross asset value along with the AAA rating has led to a flight to quality among our lenders This has resulted in lower lending rates,” said Aravind Maiya, Chief Financial Officer (CFO) at Embassy REIT.

Vishal Shrivastava, president, corporate finance, Anarock Capital, said REITs have better credit profiles than property developers.

Mathew Kurian Eranat, vice president of ratings firm ICRA, said: “REITs have borrowed through instruments such as debentures where the reduction in benchmark yields has been greater than the decline typically seen in rates. bank loans. Other developers typically access credit primarily through bank loans and have not been able to see a similar reduction in rates.

Among major developers, DLF’s leasing arm, DCCDL, cut borrowing rates by 145 basis points on an annual basis, from 8.90% in the fourth quarter of FY20 to 7.45% in fourth quarter of fiscal year 21.

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