The CL Raheja-promoted K Raheja Corporation, one of the main contenders for a real estate investment trust (REIT) listing, is now looking to divest a 20% stake in its commercial or income-generating office portfolio, sources close to the development told FE. The firm’s assets will be regrouped such that the commercial and residential projects can be run as different entities. A holding company called Mindspace, the group’s flagship project, will now house a pool of the commercial properties and will be structured to make room for an institutional partner. While talks with some leading private equity (PE) funds are on, FE could not ascertain the exact valuation of the transaction.
Players evaluating this transaction include GIC, Asendus, Brookfield Asset Management, Canadian Pension Fund, Kotak and Macquarie. Senior officials of the K Raheja Corporation declined to comment on the story.
A back-of-the-envelope calculation estimates the enterprise value of the holding company, comprising seven commercial projects, to be in the range of R12,000-14,000 crore. This assumes the area leased out under the Mindspace and Commerzone brands is approximately 23 million sq ft, according to data from a property consultancy firm. The valuation presumes a competitive 9% capitalisation rate that many experts say Grade A office buildings currently command and rental value ranging between R35 and R90 per sq ft a month. The projects are located in Mumbai, Pune, Bengaluru, Hyderabad and Gandhinagar. “In our estimate, we ascribed current rental values to projects under construction,” the consultancy firm said. As experts point out, the valuation would depend on how leveraged K Raheja is; FE was not able to access the details.
While industry experts such as Anish A Sanghvi, partner at PwC, point out that institutions are willing to pay more if they believe there’s promise of a REIT, K Raheja, although a prime candidate, appears to be staying away from one for the moment.
Not the Reit time
* K Raheja looking to divest stake in commercial portfolio
* Co has about 20 m sq ft in markets including Mumbai, Bengaluru, Pune, Hyderabad
* Co to consider REIT listing after institutional funding
Incidentally, DLF has also restructured its business and is looking to sell a 40% stake in its commercial property outfit.
Experts say with the regulatory support in place, real estate players will look for institutional partners before they list. Meanwhile, institutional funds are looking for lucrative commercial portfolios to buy into and in the past couple of years, funds like Blackstone and Qatar Investment Authority have partnered with Embassy Developers and RMZ, both Bengaluru-based companies with primarily commercial assets. Others like CPPIB and Asendus too have tried to lock into partnerships. More recently, Milestone, Brookfield, Macquaire and even domestic players like Piramal and Kotak are hunting down commercial portfolios on the back of sustained, strong absorption data and rising cap rates.