Blackstone Group, the New York based world’s largest private equity firm looks set to acquire a 49% stake in the office rental business of Indiabulls Real Estate in a $600-650 million deal, the entire portfolio being worth around $1.2 billion. Talks are said to be in the final stages and an agreement might be in place by the end of next month.
The transaction will include landmarks in Mumbai’s Lower Parel such as One IndiabullsCentre and Indiabulls Finance Centre besides the One 09 building in Gurgaon and One Indiabulls Park in Chennai, part of a trend of overseas investors picking up select commercial properties in India.
Blackstone Group is also one of the largest owners of commercial real estate properties in India, and is looking to add more assets to its portfolio ahead of a planned real estate investment trust listing. It acquired the Express Towers building at Nariman Point in 2014.
Indiabulls Real Estate’s annual rental income currently stands at Rs 720 cr with a leasable area of 5 mln sqft, according to its FY17 annual report. It has more than 200 marquee clients including Morgan Stanley, HSBC, Mondelez, WPP Group, Aditya Birla Financial Services and others.
The company has four other office projects under development, which will take annual rental income to Rs 1,357 cr, the report said. In Mumbai, other than Express Towers, Blackstone also owns the 1.1mln sqft 247 Park, which it acquired from Hindustan Construction Co. (HCC) in 2016 for Rs 1,050 cr but missed out on Hiranandani's Office portfolio which Brookfield acquired for a billion dollars.
Founded in 2006, Indiabulls is the third-largest real estate company in India by net worth and assets. The company’s gross development value stands at Rs 32,189 cr and net worth at Rs 5,480 cr on June 30, 2017, its website showed. It also has 15 ongoing projects with a total saleable area of 33.91 mln sqft., the website showed.
“The deal will be positive for Indiabulls as entry of large institutional investor like Blackstone will definitely add a fillip to its future plans,” said Harish Sharma, CEO, Centrum Real Estate Management Advisory. “The deal, if successful, will add further investment interest in Indian commercial assets as large pension and sovereign funds are looking for income generating quality properties.”
Indiabulls reported a 45.82% rise in consolidated net profit to Rs 85.35 cr in the third quarter ended December from Rs 58.53 cr in the year-ago period. Total revenue from sales rose to Rs 2,164.44 cr from Rs 492.90 cr. Net debt was Rs 4,205 cr at the end of the third quarter.
Blackstone, the world’s biggest alternate asset manager, is the largest institutional investor in Indian property to the tune of $2.7 billion. It owns 31mln sqft across 18 operating office parks through about 20 companies in the key markets of Noida, Mumbai, Pune and Bengaluru. It also has 11mln sqft of commercial space under development across the country. These investments are separate from its $6 billion private equity portfolio. “Indiabulls has marquee assets on its balance sheet and pre-sales have been impressive, with the approval issues now largely behind it for key projects,” JPMorgan analysts Saurabh Kumar and Deepika Mundra said in a note.
“Despite being a relative newcomer, its execution has been much better than peers. Cash flow generation is solid, with the company FCF-positive. We think the stock should see a significant re-rating over the next few quarters as earnings scale up, narrowing the gap to fair value.”
FCF is free cash flow. Shares in Indiabulls Real Estate surged 181% in the past year compared with a 17.6% rise in the benchmark Sensex. It ended at s Rs 217.55, up 1.59%, on Tuesday.