Prestige Group plans to tap the public market, through a real estate investment trust (REIT) of its commercial office portfolio after about a year, encouraged by the investor response to India’s first-ever REIT since its listing in March said a top company executive.
The property developer may also later launch a REIT for its retail assets or shopping malls, the executive said.
Bengaluru-based Prestige Group currently has 11 million sq ft of ready and rent yielding assets and nearly 15 million sq ft of under-construction office assets across south India.
It also plans to launch projects in Mumbai and National Capital Region (NCR) as part of its strategy to enter new geographies.
“Our office portfolio will gain a significant size in the next 3-4 quarters and tapping the public market through a REIT is the viable option," said Prestige chief executive Venkat K. Narayana.
“...Today, there are not many options for retail/ institutional investors to choose from, when it comes to yielding instruments with growth options. More REITs should come into the market. It’s a matter of time," he said.
Starting from the June quarter, Prestige has begun segregating its businesses (residential, office, retail, hospitality and services), based on their financial performance, operations and portfolios, capital employed and returns; the idea being that these businesses will have their distinct valuations and separate financials.
India may have been late by a few years in launching a REIT due to regulations, until Embassy Office Parks, a venture of Blackstone Group Lp and Bengaluru’s Embassy Group, launched India’s first real estate investment trust and raised around ₹4,750 crore.
The listing and performance of the Embassy REIT, which also enjoyed the first-mover advantage, has instilled confidence in other developers to follow the same route, and encouraged institutional investors because REIT provides an exit and brings in transparency and governance.
The Embassy REIT, which announced its first quarterly result last week post its listing, said its revenue has risen 19% to ₹535 crore in the June quarter, from ₹449 crore a year earlier, driven by continued leasing momentum across the portfolio.
India’s commercial real estate market is estimated to provide 294 million sq. ft of REIT-able space from the existing office stock, according to property advisory JLL’s report ‘India REITs—Heralding a New Era in Real Estate Investments’. These REIT worthy-assets would be valued at $35 billion.
Prestige’s Narayana said that the company’s annual rental income from its office portfolio will ramp up from ₹700 crore to ₹2,000 crore in the next 3-4 years.
Selectively, the developer has resumed strata sale of office space on the back of huge demand from high-networth individuals, starting with its under-construction project in north Bengaluru. Even if Prestige sells a million sq ft a year via strata sale or sale of office stock to individual investors, it is likely to add ₹650-700 crore annually.
After fewer launches in 2018-19, the developer has lined up multiple launches this year, spanning 10 million sq ft across businesses.