Piramal Capital plans third-party REIT platform
Piramal Capital plans to set up an aggregated platform comprising a portfolio of rent-generating, commercial office properties that could be listed through a REIT
Bengaluru: Piramal Capital & Housing Finance plans to set up an aggregated platform comprising a portfolio of rent-generating, commercial office properties that could be listed through a real estate investment trust (REIT).
The rationale is that while there are a number of good-quality office assets developed by mid-sized developers, not everyone has the critical mass (in terms of portfolio size) to do a REIT on their own.
“Piramal will act as a sponsor to the platform and earn a management fee as a service provider,” said managing director Khushru Jijina. “As a third-party REIT, the valuation should be high. We will be ready to launch it next year. This adds to the bouquet of services I offer and gives me a significant fee income.”
It’s early days, but Piramal is targeting an enterprise valuation of ₹3,000 crore on listing, Jijina said.
Separately, Piramal Capital is also planning to aggregate non-real estate, rent-generating assets, across sectors such as road or logistics, under a platform and may list it through an infrastructure investment trust (InvIT).
REITs are listed entities that primarily invest in leased office and retail assets, allowing developers to raise funds by selling completed buildings to investors.
Norms for both REITs and InvITs were notified in September 2014.
Piramal Capital & Housing Finance has lent around ₹5,000 crore in construction finance to commercial office projects and another ₹5,000 crore in lease rental discounting (LRD). The LRD model of financing is a longer-term funding, where the project becomes rent-generating and developers repay from those lease rentals.
As of March 2018, Piramal had ₹48,000 crore of assets under management (AUM), of which ₹37,000 crore is in real estate and its relatively young housing finance business. The remaining ₹11,000 crore is from non-real estate business, including emerging corporate lending and lending arm Corporate Finance Group.
“An aggregated REIT platform makes sense because there are developers, who may not be able to do a REIT listing on their own, and it’ll be a good opportunity for them to align it through Piramal. If Piramal buys some of these assets, developers could even sell off part of their portfolio to get cash liquidity,” said Bijay Agarwal, managing director, Salarpuria Sattva Group, a Bengaluru-based developer that is building substantial office space in Hyderabad. It has also partnered with global investor Blackstone Group Lp for a couple of its office projects.
Despite the overall slowdown in real estate, the commercial office sector has fared significantly better.
Yet, Embassy Office Parks, the first to register a REIT with the stock market regulator last year, has delayed its application for a listing to August.
Shashank Jain, partner, transaction services, PwC India, said while the plan is worth evaluating, there would be challenges.
“For a REIT, especially an aggregated one, the quality of assets would be key along with the size of the portfolio and the tenant profile,” Jain said. “While we haven’t seen a REIT listing yet in India, there are plenty of mid-market office assets but aggregation will take its time.”