Prestige Estates Projects looks to offload residual stake in malls

The deal also involves selling operational and under-construction office properties to the US-based fund manager
Prestige Estates Projects (PEPL), which is in the last leg of a deal with US-based fund manager Blackstone, is planning to sell its 13-15 per cent stake in mall assets to the American entity when the latter forms its real estate investment trust (REIT) and list it.

As part of the Rs 9,160-crore deal, Prestige will sell 85-87 per cent in its nine operational malls to Blackstone in places such as Bengaluru, Mysuru, Mangaluru, and Hyderabad.

The deal also involves selling operational and under-construction office properties to the US-based fund manager.

Analysts expect Blackstone to go for an REIT listing in six to nine months.

“We will tag along with them as and when they go for an REIT,” Irfan Razack, chairman and managing director, Prestige Estates, told Business Standard.

Blackstone did not comment on the matter.

Blackstone has nine malls of 6 million square feet, run by its company called Nexus Malls. Its malls are in places such as Indore, Pune, Mumbai, Ahmedabad, Amritsar, and Chandigarh.

Though Blackstone and Prestige tried merging their mall assets, the attempt did not go through, sources said.

REITs are like mutual funds that can be traded on stock exchanges.

Embassy Office Parks REIT and Mindspace Business Parks REIT are listed on the BSE and National Stock Exchange.

Brookfield Asset Management has filed a draft red herring prospectus for an REIT listing.

According to the PEPL management, the enterprise value (EV) of the company’s share in the individual assets/special purchase vehicles to be purchased is Rs 9,160 crore. This includes an EV of Rs 300-350 crore of two operational hotels and Rs 600 crore for a 50 per cent share of land in upcoming office projects which are part of the deal, said Adhidev Chattopadhyay, analyst at ICICI Securities, in a recent report.

“This implies a balance EV of Rs 8,210 crore for PEPL’s 100 per cent stake in completed office projects and 85-87 per cent stake in operational malls. The assumption here is that the office and mall rental income is Rs 770 crore of which the Net Operating Income (NOI) is 90 per cent or Rs 700 crore. This implies a cap rate of 8.5 per cent for the office/mall assets calculated as EV/NOI of 11.85x (Rs 8,210 crore/Rs 700 crore),” Chattopadhyay said.

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