American private equity (PE) firm Blackstone and its local partner, Bangalore-based realty developer Embassy Group, are targeting to list India’s first Real Estate Investment Trust (REIT) in the second quarter of FY16 and raise approximately R5,000 crore, according to sources. One of the marquee properties that Blackstone co-owns in Mumbai, Express Towers, is unlikely be a part of the proposed REIT.
Morgan Stanley, Goldman Sachs and Standard Chartered have been roped in as lead bankers for the issue.

Embassy Group chairman and managing director Jitu Virwani confirmed that the two entities are looking at a listing for its REIT sometime after June and the projects that are going to be included, but did not divulge details of the valuation that they are looking at.

Blackstone-Embassy wants to monetise around 27 million sq ft of income-generating, commercial real estate that they own between themselves in India, by pooling it into a special purpose vehicle (SPV). Some of the projects that will be a part of the REIT include the Embassy Tech Village in Bangalore, where Flipkart recently signed a long-term annual lease agreement worth R300 crore; Embassy Tech Zone in Pune, Manyata Business Park and Embassy Golf Links in Bangalore. According to Embassy’s website, IBM, Goldman Sachs, Hexaware, Yahoo and Wells Fargo are its clients.

Blackstone has been on a major acquisition spree, buying prime assets across Bangalore, Mumbai, Pune and the NCR over the last past three years. Among the projects it owns, Blue Ridge in Hinjewadi, Pune and the recently-acquired Oxygen Boulevard, along the Greater Noida Expressway, will be a part of the upcoming REIT.

Blackstone has been preparing for a REIT offering in India for some time. It has emerged as one of India’s largest owner of commercial real estate with a reported portfolio of around 29 million sq ft, surpassing DLF’s posrtfolio of 25 million sq ft. The PE fund’s strategy has been to identify commercial real estate available with distressed developers and acquire them at values off their peaks, allowing for the potential of significant returns on investment.

Real estate sector experts are looking forward to the first REIT listing as it will serve as a reference point for others to follow, especially at a time when commercial real estate transactions are expected to pick up in wake of an anticipated upswing in the economic activity.

“Investor appetite is high for income-generating assets and the income-generating capability of a commercial project can be more easily ascertained than a residential project,” says Neeraj Sharma, partner, Walker Chandiok. “In a commercial project, rents are already locked in for a number of years so expectation of valuation for companies might be more realistic.” Location and occupancy rates also play a significant role in determining the valuation of REITs, analyst say.

REIT valuations will also depend on clarity on the taxation of REITs, which is expected in the ensuing Budget in February.