Indian investors looking to invest in commercial properties will soon have another choice as the first retail focused Real Estate Investment Trust (REIT) will go public soon.
REITs are companies that own income-generating real estate assets like large office parks, hotels and shopping centres. REITs are listed on stock markets. Just like people invest in mutual funds, they can buy REIT units. While the underlying assets in mutual funds are stocks or debt securities, in case of REITs it is real estate. REITs offer a good choice for people to invest in top quality real estate assets without buying the entire property. REIT investors earn regular dividend income.
The market for REITs has been fairly large in many developed markets. It is estimated there are close to 900 listed REITs with a combined equity market cap of around $2 trillion. Singapore alone has over 40 REITs, making it the largest REIT market in Asia excluding Japan.
In India, however, REITs are a fairly recent phenomenon. The first REIT in India - Embassy Office Parks - made its debut only in 2019. Since then, two others - Brookfield India REIT and Mindspace Business Parks REIT have gone public. All of them are focused on the commercial office sector. The portfolio of these three REITs largely includes rent yielding large business and technology parks in cities like Bengaluru, Hyderabad, Pune and the National Capital Region.
The Select City Walk shopping mall in New Delhi will also be a part of this REIT.
Now, Nexus Select Trust will open new avenue for investors looking to invest in rent yielding retail real estate like shopping malls. Nexus has the largest portfolio of shopping centres in India. Currently, it has 17 Grade-A shopping centres across 9.8 million square feet in 14 cities. Some of its properties includes Nexus Ahmedabad One Mall, Nexus Amritsar, Nexus Seawoods in Navi Mumbai, the Elante mall in Chandigarh, Nexus Whitefield and Nexus Shantiniketan in Bengaluru, Nexus Vijaya Chennai and The Pavilion Pune among others.
The Nexus Select Trust portfolio also includes two hotel assets and three office assets. The issue, which will open for subscription on May 9 and close on May 11, has been priced in the Rs 95-100 per unit band. The total offer is for Rs 3,200 crore and includes a fresh issue of Rs 1,400 crore and an offer for sale of up to Rs 1,800 crore from existing investors.
Nexus Select Trust said that the funds raised from the fresh issue will be used for prepayment or repayment of certain debts of the asset SPVs (special purpose vehicles) and the investment entity, as well as acquisition of stake and redemption of debt in certain asset SPVs.
Nexus Select Trust is backed by global private equity giant Blackstone. Incidentally, this will be third REIT from Blackstone in India. The Embassy Office Park REIT was co-sponsored by Blackstone and Embassy Group. Mindspace REIT was co-sponsored by Mumbai-based developer K. Raheja Corp and Blackstone. Blackstone exited Mindspace REIT last year, selling its remaining stake to Abu Dhabi Investment Authority (ADIA).
Blackstone's stake in Nexus will come down to 43 per cent from 59 per cent post the IPO. However, Blackstone executives say they will remain long-term investors in the company.
Like other organised retail firm, Nexus Select Trust too was hit hard by the COVID-19 pandemic as malls were shut for a long period of time. But, as the pandemic has ebbed and consumer confidence has grown, retailers including Nexus are seeing a good rebound. Nexus Select Trust's net loss narrowed sharply to Rs 10.9 crore in the year ended March 2022 from around Rs 199 crore in 2020-21. Revenue during the period surged 45 per cent to over Rs 1,318 crore.
Between financial year 2018-2020, its tenant sales across the 14 shopping centres increased at an 11 per cent compounded annual rate and projections are they will grow 6-10 per cent per annum.
A large youth population, a growing middle class and rising incomes, coupled with under penetration of organised retail offers huge growth opportunities for retailers and shopping centres in the country.
India's consumption is estimated to have grown at a 10 per cent compounded annual rate from $966 billion in FY2015 to $1.87 trillion in FY22.
Consulting firm Knight Frank estimates shopping mall sales in India's top eight cities will touch $39 billion by FY2028, growing at a 29 per cent CAGR between FY22-FY28.
To cash in on the growing opportunity, Nexus is looking to acquire new malls to grow its business. Typically, once Blackstone makes an acquisition of a shopping mall, it is then brought under the portfolio of Nexus, which operates the mall. In 2021, seven shopping malls were acquired from the Bengaluru-based real estate developer Prestige Group.
Officials said it will continue to seek acquisition opportunities, and large consumption centres like state capitals will be among the focus areas for growth.
