NEW
DELHI – Blackstone Group(BX.N: Quote, Profile, Research) and its partner,
Embassy Group, are laying the groundwork to cash in on their property holdings
by setting up India’s first real estate investment trust (REIT) and listing it
on one of the country’s stock exchanges.
The
move comes as Prime Minister Narendra Modi’s government works to finalise rules
as early as next month that will govern the trusts. The finance ministry is
expected then to clarify tax rules for REITs in the budget, people with direct
knowledge of the matter said.
The
world’s biggest property investor and Embassy have a joint portfolio of more
than 20 million square feet of offices in India, which is likely to help value
their REIT at $2 billion, said Jitendra Virwani, chairman of Bangalore-based
Embassy.
Listing
REITs gives companies like Blackstone, The Xander Group, an emerging markets
investor backed by the Rothschild family, and private equity firm Red Fort
Capital, which counts Abu Dhabi Investment Authority among its investors, an
attractive option to exit some of their investments.
“We
are actually gearing up because we feel the pace the government is moving at is
faster than what we would want, so it is better to be prepared much earlier
than later,” said Virwani, who was set to meet Blackstone on Thursday to draw
up a plan for the listing.
A
spokeswoman of the tax department did not answer requests for comment.
Blackstone did not respond to a request for comment.
The
long-awaited move by India will be implemented by the country’s market
regulator after the ministry clarifies tax rules to transfer assets into a
separate vehicle before listing the trust, which had triggered worries over
double taxation.
Implementing
REITs will also be one early sign from Modi of how he wants to bolster the
economy, which is suffering its longest spell of under-5-percent growth since
the late 1980s.
India
issued draft regulations for REITs in 2008, but was forced to shelve the plans
after the global financial crisis dried up investor interest and an economic
downturn dimmed the outlook for real estate investments.
If
REITs are approved, India will follow China, where regulators in April approved
the first property trust. The absence of REITs in China and India made
Singapore and Hong Kong the preferred markets for listing property assets in
the region.
REITs,
listed entities that invest mainly in leased office and retail assets and
distribute most of their income to shareholders as dividends, will give
developers a new avenue to raise funds by allowing them to sell finished
commercial buildings to investors and list them as a trust.
MORE
LIQUIDITY
Between
2008 and 2013, private equity funds invested more than 452 billion rupees ($7.6
billion) in Indian real estate, of which more than a third was spent on office
and retail assets, according to data from Cushman & Wakefield, an
international property consultant.
“If
there is more liquidity in the market, if people believe they have clearer exit
possibilities, obviously it is helpful to any investor,” said Siddharth Yog,
managing partner at Xander.
“If
REIT laws came into being and a potential REIT listing in India was possible,
it could be one of many potential exit strategies that could be explored,” said
Yog, adding that REITs, however, will not dictate the company’s investment
plan.
In
2012, Blackstone paid $200 million for a 50 percent stake in three office
assets managed and owned by Embassy and mainly located in Bangalore. Earlier
this year Blackstone and Embassy hived off their portfolio of assets into a
separate vehicle, taking their first step towards listing a trust in India.
The
portfolio, leased to tenants like Microsoft (MSFT.O: Quote, Profile, Research),
IBM (IBM.N: Quote, Profile, Research) and Goldman Sachs (GS.N: Quote, Profile,
Research), generates an annual rental income of 8 billion rupees and Virwani
expects this to rise to 10 billion rupees by the time it lists a REIT.
“To
have a brand like Blackstone along with us will help us market the REIT and get
a better valuation.”
Source: Reuters, By Aditi Shah (Additional reporting by Rajesh Kumar Singh; Editing by Sumeet Chatterjee and Matt Driskill)
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