Global alternatives giant Blackstone believes Indian retail represents something of a bright spot for private real estate.
The firm this week launched an initial public offering for Nexus Select Trust, India’s first retail REIT. Nexus Select Trust planned to raise 32 billion rupees ($391 million; €357 million) from the listing of its retail portfolio on May 9, with the issue scheduled to close on May 11.
The portfolio is the largest retail platform in India, comprising 17 assets across 14 cities. Blackstone is understood to have been accumulating the malls since 2016. The portfolio is more than 90 percent occupied, with over 130 million footfalls annually.
“For the rest of the world, retail has been a tough place to be over the last 10 years or so,” Christopher Heady, chairman of Asia-Pacific and the head of real estate Asia at Blackstone, told PERE in an exclusive interview following the listing of Nexus Select Trust.
“But Indian retail has been a different type of market, seeing phenomenal growth driven by trends such as a growing middle-class population and a shift from unorganized retail shops to organized retail. I think investors are excited about the sector.”
Heady told PERE that listing this portfolio was a natural step because it allowed Blackstone to have “the best of both worlds.” “For a large portfolio like this, the public market is a pretty efficient way to start that process of returning capital to our investors, as well as maintaining an interest in it so that we can continue to participate in its growth,” he said. Blackstone currently has 60 percent stake in Nexus Malls that will be reduced to 43 percent post-IPO.
Institutional investors will represent 75 percent of the subscription, with non-institutional investors making up the remainder. Anchor investors in the IPO are a mix of domestic mutual funds, insurance companies, global institutional investors including HDFC Trustee, SBI Life Insurance, Morgan Stanley Asia and UK-based independent fund management company Prusik, according to a filing.
As the pioneer in India’s REIT market, Blackstone had already sponsored two prior REITs in the country: Embassy Office Parks and Mindspace Business Parks. The firm fully exited Mindspace last year and has sold down its stake in Embassy Office Parks to 24 percent.
For Blackstone, India represents a core developing market. PERE understands that the firm has $50 billion of assets under management in the country.
“If you look at what has been on investors’ minds, there are concerns over growth and interest rates,” Heady said. “India is one of the fastest growing major economies and I don’t think its interest rate policy has had much of an impact as other places around the world because the rates have always been relatively high in the country. These are the things that people are attracted to.”
Future remains bright for Indian REITs
Apart from Nexus Select Trust, India’s three existing listed REITs – Embassy Office Parks REIT, Mindspace Business Parks REIT and Brookfield India Real Estate Trust – are backed by office assets. Since Q3 of FY 2020, the in-place rents of these listed REITs have been trending up, according to a February HSBC Global Research paper seen by PERE. The financial year in India is from April 1 to March 31 of the next year.
“We expect global captives to continue to enter the Indian market,” the HSBC paper said. “This should create new job opportunities, resulting in increased leasing demand for the REITs we cover, as they are the main suppliers of the high-quality grade A space needed by such global captives.”