Blackstone-backed Nexus to launch India's 1st retail REIT next month; eyes ₹4,000 cr

American private equity firm Blackstone-backed Nexus Select Trust is expected to launch India's first retail real estate investment trust (REIT) by early next month. This would be the fourth REIT to make its debut on the Indian stock exchanges and the first in retail space as all three listed REITs - Embassy Office Parks REIT, Mindspace Business Parks REIT, and Brookfield India Real Estate Trust - are leased office assets. The REIT is an investment instrument that was introduced in India a few years ago to attract investment in the real estate sector by monetising rent-yielding assets. It offers proportionate ownership of an income-generating real estate asset to retail investors.

The size of the initial public offer (IPO) of Nexus Select Trust REIT will be ₹4,000 crore, which comprises a primary issue of ₹1,600 crore and ₹2,400 crore for secondary sale. The IPO will see major sponsor Blackstone and some other smaller holders partially selling their stake via the offer for sale (OFS) route.

As per the offer document filed with SEBI, the net proceeds from the public issue would be used to repay debt, acquisition of stake, and redemption of debt securities in certain special purpose vehicles (SPV) as well as to meet general corporate purposes. As of June 2022, Nexus had debt of ₹4,500 crore, which is likely to come down to ₹3,600 crore post fundraising.

Nexus Select Trust, which has a portfolio of 17 operational shopping malls across 14 major cities, filed the draft red herring prospectus (DRHP) with market regulator Securities and Exchange Board of India (SEBI) last November.  The trust is expected to file the Updated Draft Offer Document (UDOD) this week and after the approval of UDOD, the final document will be filed in early May.

The stock is likely to make its debut on the domestic exchanges - BSE and NSE - by May 15, sources close to the development said.

Nexus has a portfolio of 9.8 million square feet (msf) of retail real estate valued at around ₹23,000 crore, including Select Citywalk Mall in South Delhi, one of the most successful shopping malls in the country. Spread across 0.5 msf, Select Citywalk Mall has around 3,000 stores in its malls with nearly 1,000 brands. The company’s portfolio has a tenant base of 983 domestic and international brands with 2,924 stores as of June 30, 2022. As of June 30, 2022, 95.4% of tenant leases are provided for minimum guaranteed rentals with typical contractual rent escalations of 12% to 15% over a period of three to five years, as per the offer document.

The company’s business portfolio also includes assets that are mixed-use in nature with complementary hotels and office spaces like Hyatt Regency Chandigarh and Oakwood Residence Whitefield Bangalore (together constituting 2.8% of its gross portfolio market value as of June 30, 2022), which are managed by global hotel operators, Hyatt and Oakwood.

Post listing, Dalip Sehgal, who is the CEO of Nexus Malls, will head the REIT and Arjun Sharma, the promoter of the Select Group, will join the board of the REIT. The other key board members include Tuhin Parikh, Head of Blackstone India Real Estate, Michael Holland, ex-CEO of the Embassy REIT, Jayesh Merchant, ex-CFO of Asian Paints, and Sadashiv Rao, former director at IDFC.

If succeeded, this would be Blackstone’s third REIT listing on the Indian stock exchanges after Embassy Office Parks and Mindspace Business Parks. The first two were office REITs, while this would be retail REIT. The global investment firm launched India's first REIT Embassy Office Parks in April 2019 after raising about ₹4,750 crore through a public issue. Mindspace Business Parks was the second REIT that was listed in August 2022 following fundraising of ₹4,500 crore via the IPO route. There are around 3,000 stores in its shopping malls while the number of brands is approximately 1,000.

India’s retail sector has seen a strong impetus recently with multiple retailers raising capital from private and public markets. In FY22, approximately $2.6 billion in capital was raised from public issuances of retail companies, which was approximately 2.2 times the total amount raised by retail companies during the previous five years. Unlike office assets which have low occupancy, malls have rebounded strongly post-Covid with all major Grade A malls with 95%+ occupancy.