Blackstone Set to Launch India’s First Mall REIT in $391M IPO Next Week

US fund management giant Blackstone will kick off the initial public offering for India’s first listed trust of retail properties on 9 May, with a goal of raising up to INR 32 billion ($391 million), according to an updated prospectus filed on Friday.

Nexus Select Trust will give investors a chance to buy equity in 17 retail properties across 14 cities in India, and will be Blackstone’s third REIT to list on Indian stock exchanges, following its listing of India’s first listed trust, Embassy Office Parks REIT in 2019 and Mindspace Business Parks REIT in 2020.

Citing statistics that show consumption accounting for nearly 60 percent of India’s GDP in 2022 after growing by a compounded average rate of 10 percent from 2014 through 2021, Blackstone is pitching the mall REIT as an opportunity to profit from growing spending power.

“As the owner of India’s largest consumption centre platform with a market-leading presence in 14 prominent cities across India, we believe our Portfolio is well-positioned to capitalize upon the consumption growth driven by these megatrends,” the company said in the prospectus.

Malls Still in Style

The offering, which runs through 11 May, includes INR 14 billion in new units of the retail trust, alongside INR 18 billion in shares currently held by the REIT’s sponsor.

News reports from November, when a draft prospectus had first been filed, cited sources familiar with the offering as indicating that the share sale would raise up to INR 4 billion, with the prospectus valuing the Nexus portfolio at over INR 230 billion.

Book running lead managers for the offering include BoA Securities, CitiGroup, HSBC, JP Morgan and Morgan Stanley, as well as India’s Kotak Mahindra Capital.

The most valuable property in the portfolio is Select Citywalk, a 500,000 square foot freehold mall in New Delhi which was appraised at INR 45.5 billion. Next on the list is the Nexus Elante Complex in the northern India city of Chandigarh, a freehold complex which includes office and hotel components alongside a 1.2 million square foot mall, and was appraised at INR 44.6 billion in total.

Described as India’s largest platform of high quality retail properties, the trust’s assets include whole or partial interests in 18 shopping centres, three office properties, four hotels and a solar park in Karnataka state. In total, the portfolio spanned 9.2 million square feet as of 31 December, and was 96 percent leased.

Profitable in 2022

INR 2.5 billion of the expected INR 13 billion in net proceeds from the IPO, after offering expenses, would go for debt servicing while INR 10.5 billion is earmarked for acquisitions and redemption of debt securities. Blackstone said that some of the proceeds could also be used for general purposes. The REIT will be listed on both the National and Bombay stock exchanges.

In the nine months ending 31 December, the portfolio generated total income of INR 15 billion, according to the prospectus, up from INR 14 billion for the full year ending 31 March 2022. That revenue translated to a profit of INR 2.6 billion in the nine months ending 31 December, after the portfolio booked a loss of INR 110 million in the year ending 31 March 2022.

Blackstone is launching its India retail REIT after sales at the country’s shopping centres last year surpassed pre-Covid benchmarks, with tenants predicted to lease a record 10 million net square feet (93,000 square metres) of mall space this year, according to a recent report by JLL.

“The retail sector (in 2022) saw a remarkable turnaround with footfalls and sales both crossing the pre-pandemic levels, giving growth momentum to retailers’ expansion plans while underlining the strength of the brick-and-mortar retail in the country,” the property consultancy said in its study.

With over 1,000 local and international brands occupying nearly 2,900 stories in the Nexus portfolio, Blackstone predicts that net operating income will grow organically by 17.1 percent in the next three years. The weighted average term to lease expiry (WALE) for the portfolio was 5.7 years as of 31 December.

Potential for Acquisitions

In addition to touting the earnings from its existing portfolio, Blackstone pointed to opportunities to grow the trust by acquiring additional properties.

“While we have not projected any growth due to acquisitions over the Projections Period, following the listing of our Units we expect to have a lowly leveraged balance sheet providing significant flexibility to drive accretive growth through disciplined acquisitions,” it said in the prospectus.

Since establishing the platform in 2016, the Nexus team has acquired 17 retail assets measuring 4.6 million square feet, including repositioning some properties to improve returns, and has leased 4.2 million square feet of shop space. During the same period, the platform’s managers have renewed leases on 2.9 million square feet of space, with those renewals involving average rent increases of 19.2 percent.

Emphasising the acquisition track record of its management team and the trust’s projected 20 percent level of indebtedness post-acquisition, Blackstone expects to expand the trust by purchasing more properties, as well as by expanding some existing assets. Nexus does not have plans to expand the trust through greenfield development.

“We intend to continue our core strategy of acquiring, owning and managing best-in-class retail assets within submarkets that have attractive fundamentals,” Blackstone said in the prospectus. “In addition to acquisitions, we intend to undertake strategic expansions within our existing assets to enhance the value of our Portfolio.”