Blackstone Group has sold its whole stake of 9.16% in Mindspace REIT. Mindspace REIT is sponsored by K Raheja Corp., it operates commercial real estate in Mumbai, Pune, Hyderabad & Chennai. Managing a leasable portfolio of 3.13 crore sq. ft., Mindspace has diversified both, its client base & geographical portfolio, across sectors & cities successfully. With a market cap of approx. 19,500 crores, it is the second-largest listed REIT.
About Blackstone Group
Blackstone Group is an alternative investment management company, headquartered in New York, USA. As of Sep 2021, it managed 54.82 lakh crores of AUM of which, 17.25 lakh crores are invested in Real Estate across the globe. Globally, it is one of the leading private equity institutions with the backing of pension funds, large institutions and individuals. (Source: Blackstone)
What this transaction means to Blackstone Group?
As of Sep 21, the group has investments of approx. 4.5 lakh crores in India, with a plan of additional 3 lakh crores of investments in the next 5 years (source: Economic times). According to the BSE filings, post IPO of India’s first REIT, Embassy Office Park, Blackstone owned a little more than 55% of this REIT and still continues to own approx. 32%. It also supported the Mindspace REIT by acquiring 15% stake in 2017 and selling this stake partially in 2020 in the IPO. The execution price of the latest transaction was at Rs. 320 which is at 16% premium than the IPO price. As per reports of Economic Times, Blackstone managed to generate an internal rate of return of 20% through this investment.
As of date, it continues to own real estate worth 1.5 lakh crores across India. It is preparing to list a 3rd REIT by mid-2022, this one will be India’s first retail centred REIT. Based on the type of usage, retail real estate properties include structures like malls. Hence, the portfolio of retail properties for the REIT above, will be a combination of Blackstone’s subsidiary Nexus Malls along with the assets acquired through the recent acquisition of commercial assets of Prestige Group.
Having said that, Blackstone has made investments worth Rs.18,600 crores in India in FY 22 itself. These types of aggressive investments require equal funding, hence to tap the available opportunities, the company has been pledging its units in the REITs to raise funds. While the company declined to comment on the latest transaction, it has been on an investment spree across the country. Hence, the transfer of funds from one project to other can be adjudged.
Debut of Abu Dhabi sovereign wealth fund in Indian REITs
Abu Dhabi Investment Authority [ADIA] is the sovereign wealth fund of Emirate of Abu Dhabi, with an AUM of approx. 65 lakh crores(source: globalswf). It has been investing actively in Indian companies both private as well as public, across sectors like fintech [MobiKwik], infrastructure [Greenko], finance [Axis Bank] etc. This transaction marks the debut of ADIA in Indian REIT space.
This is significant as Indian commercial real estate is attracting more foreign inflows every fiscal year. Sovereign and Pension Funds have a longer time horizon of investments and looking at the inflows in this space, we understand that such foreign funds are setting-up and expanding their Indian presence, their long-term investment horizon of 10 to 15 years will add further stability to the Indian office market.
Impact on Mindspace
As the concept of REIT is relatively new to the Indian markets, an investment by a sovereign fund might attract other foreign players too. From a governance standpoint, it is a positive sign when big foreign funds invest in any entity. Usually when there are foreign inflows in any company a basic filter which they apply is good governance. Hence, this transaction will boost retail investor confidence in the REIT. Currently, Mindspace REIT has the lowest liquidity among the 3 listed REITs, and if such inflows continue to take place, we might see some changes going forward.
Indian real estate is emerging as a favored investment asset class due to various intrinsic factors including the growth of the economy, demand-supply fundamentals, investor-friendly policies, and increased transparency.