Mumbai: Singapore’s Temasek Holdings Pte and GIC Pte, the Canada Pension Plan Investment Board and the Abu Dhabi Investment Authority are in advanced talks to invest in Everstone Group’s $2 billion real estate investment trust (Reit) offer, three people aware of the development said.
The offering by Everstone Group’s industrial and logistics real estate development platform, IndoSpace, is set to become one of the biggest fund-raisings through a private Reit in India. These offerings are sold to a handful of big investors.
The Indian industrial and logistics warehousing industry is in its infancy and is growing rapidly, making it very attractive for investors, experts said. The fragmented nature of the industry, a shortage of warehousing facilities and growing demand from manufacturers and retailers add to the attraction.
“There is a lot of demand from e-commerce and retail companies. Additionally, as manufacturing growth picks up, demand for warehousing assets will grow further,” said Vishwas Udgirkar, senior director at Deloitte Touche Tohmatsu India Pvt. Ltd.
The potential gains from the Reit has attracted top global investors and the transaction is expected to be closed in a few weeks, said one of the three people cited above, requesting anonymity as the talks are private.
“Talks are at an advanced stage with these four funds. It is likely that a couple of them will write the cheque together, as it is a very large sum of money,” the person said.
Reits are entities that own rent-generating real estate assets and offer investors regular income streams and long-term capital appreciation.
IndoSpace is a joint venture between Everstone Group and US-based Realterm. Everstone is a private equity and real estate firm that focuses on India and South-East Asia, with over $3.3 billion of assets under management. Realterm is an industrial real estate firm that manages approximately $2.5 billion of assets across 300 operating and development properties in North America, Europe and India.
Citibank is advising IndoSpace on the transaction, said the first of the three people cited earlier.
The private Reit transaction that IndoSpace is in talks for will be valued at $1.5-2 billion, said a second person, who also spoke on condition of anonymity. “They plan to roll up around 25-30 million sq. ft in total of assets under the Reit. They have close to 10 million sq. ft of assets which have been developed and leased out. Another 20-25 million sq. ft is under various stages of development; some of that has also been leased out,” this person said.
IndoSpace has invested close to $1 billion in developing these assets, he added, saying, “They are the largest real estate developers in the industrials and logistics space in the country, with the closest competitor at least 10 times smaller than them. The Reit will help them return significant capital to their LPs (limited partners).”
The IndoSpace platform has so far raised $584 million across two funds to invest in building logistics parks. These include the IndoSpace Logistics Park I, raised in 2009 with a corpus of $240 million, and IndoSpace Logistics Park II, raised in 2014 with a corpus of $344 million.
“We are in the process of rolling our developed assets into a private Reit structure and are in conversation with a few select partners,” said Sameer Sain, co-founder and managing partner of Everstone Group. He declined to comment on the specifics of the transaction.
Temasek, the Canada Pension Plan Investment Board and Citibank declined to comment. Emails sent to the Abu Dhabi Investment Authority and GIC on Friday went unanswered.
IndoSpace’s portfolio includes 17 industrial and logistics park projects under operation and development across Mumbai, Pune, the National Capital Region, Bengaluru and Chennai. Its tenants include companies such as Amazon, L’Oreal, Procter and Gamble, Nissan, PepsiCo, DHL, Leoni, Steelcase, Kubota, Ericsson, Bosch, Delphi, Caterpillar, Adidas and Asian Paints.
In February, IndoSpace said it plans to invest an additional $1 billion in the country over the next five years. The additional investment will increase its development pipeline from 20 million sq. ft to 50 million sq. ft, it said in a statement.
IndoSpace cited growth in consumption and e-commerce, and the unlocking of great manufacturing potential through government programmes such as Make In India, as reasons for its aggressive investment plans in the logistics space.
Also in February, IndoSpace signed two memoranda of understanding (MoUs) with the Maharashtra Industrial Development Corporation for a potential investment of Rs.768 crore (approximately $112 million), for the development of projects at the Ranjangaon and Chakan industrial parks.
Government initiatives are also creating huge opportunities for the warehousing industry, said Deloitte’s Udgirkar. “Programmes such as Make in India, Sagarmala project and the dedicated freight corridor will create significant demand for warehousing assets. The passage of GST (goods and services tax) bill will also boost the sector significantly.”
The interest in IndoSpace’s offerings from marquee global institutional investors comes at a time when several other companies continue to make slow progress.
On 25 July, Mint reported that firms such as Blackstone Group LP, Embassy Group, Panchshil Realty, RMZ Corp. and K Raheja Corp. have drawn up plans to introduce Reits, but no one expects to list before 2017.
On 18 July, the Securities and Exchange Board of India unveiled proposals aimed at making Reits more attractive. This included allowing them to invest in holding companies which have a multi-layered structure of real estate asset ownership, expanding the definition of real estate to include hotels and hospitals, allowing Reits to invest more money in under-construction projects and increasing the number of sponsors to five from three.
Earlier, in February, the Union budget had left out Reits from the purview of dividend distribution tax.