MUMBAI: American private equity fund Blackstone has begun the process of grouping all the property it holds in India into a real estate investment trust, or REIT, and list this on the local bourses to raise around $1.5 billion, or Rs 6,000 crore, by selling roughly 50% to the public, four people with direct knowledge of the development said.
The stake sale will value the fund's assets at $3 billion. Blackstone has the third-largest commercial real estate portfolio after DLF Ltd and K Raheja Corp.
"Six investment banks have been hired to advise them to transfer the assets with the least tax outgo," said one of the three persons cited above. These are Citigroup, Goldman Sachs, JPMorgan, Standard Chartered and UBS with Morgan Stanley as the lead banker, the person said.
Another person close to the transaction said Blackstone was looking to monetise its real estate assets and the appointment of bankers was to see if a REIT was possible.
"The firm is looking at a listing in the next financial year. Initial work has begun," said another of the three persons.
Akhil Gupta, India chairman of the Blackstone Group, did not respond to an emailed questionnaire or calls and messages on his mobile phone.
The Blackstone Group, one of the largest global PE investors, has been pumping money into Indian real estate since 2009 and has spent $1.5 billion on 15 assets, including the 25-storey Express Towers in Mumbai.
The Securities & Exchange Board of India (Sebi), the capital market regulator, issued norms for the listing of REITs in August.
"Blackstone is an ideal candidate for REIT as the capitalisation rate, or cap rate, is expected to rise with the lowering of interest rates," said the managing director of a real estate fund on condition of anonymity. The cap rate is the rental yield received on an asset.
For example, the cap rate is 10% if the rental yield is Rs 10 on an asset valued at Rs 100. Interest rates are expected to decline next year as inflation has been slowing while economic revival is still looking uncertain.
A REIT IPO will offer a better opportunity for Blackstone to unlock value from investments in property, drawing both long-term investors that include pension funds and insurance companies as well as retail investors.
For developers, REIT listings are an alternative financing opportunity that will deepen the Indian real estate capital market. Retail investors get an opportunity to purchase REIT units with assured long-term returns rather than risking large amounts on buying real estate assets.
Sebi allows retail investors to invest a minimum Rs 2 lakh in REITs and issuers have to distribute 90% of the rental yield of the listed assets as dividend to investors every year.
"For good-quality commercial assets with good tenancy, this is a good exit option," said Neeraj Bansal, partner and head, real estate & construction, KPMG India, a global consultant. Until now, only secondary exits in favour of another PE were available. "From a regular income perspective, REITs offer less risk though not-so-high returns for investors," Bansal said.
For instance, financially strapped national carrier Air India is looking to put its real estate into a separate trust and list it to trim some of its Rs 40,000-crore debt.
Globally, there are 500 REITs in 22 countries, of which nine are emerging real estate markets, a September report by KPMG said. More than $800 billion has been invested in these REITs globally. Foreign investment in Indian real estate has been steady over the past five years. Until now, roughly $1.45 billion has flowed into the sector from PE investors, data from Venture Intelligence show. In the past five years, more than $9.5 billion has been invested in real estate assets.
Blackstone, which created a large property portfolio with investments in Express Towers and projects by Century Real Estate, DLF, Embassy Group, Ozone Group, Panchshil Realty, Paranjape Schemes Construction, SSI, Synergy Property, Trishman Speyer and Woodstock Ambience will be looking to exit from these investments.
"However, though Sebi allowed listing REITs in August, some clarification and changes have yet to come in," said Bansal of KPMG. "Listings can happen only next year."