We at Stallion Asset look at a lot of Data to understand the Emerging Trends in the Corporate India. One way of Data Analysis is looking at Private Equity Deals to get an Understanding to where Smart Money is getting Invested.
Lately there has been a Surge in Smart Private Equity money investing in the Commercial Real Estate Market.
DLF – GIC Deal – GIC, the Government of Singapore Investment Arm has bought 40% Stake in DLF’s Rental Arm by Investing an Estimated 13,000 Crores valuing the Rental Arm at 32,500 Crores. DLF Rental Arm has annuity revenues of 2700 Crores and has 30 Million Square Feet. The Valuation of Rental Arm is 12x Rental Revenues or 1100 Crores/Million Sq. feet.
Phoenix – CPPIB Deal – Lately Canadian Pension Fund picked up 49% Stake in Phoenix Bangalore at pre money valuation of 2200 Crores. Bangalore Phoenix mall has done a Revenue of 107 crores and is 1 million Square feet big. The Deal Happened at 20.5x Rental Revenues or 2200 Crores/Million Sq. Feet.
K Raheja – Blackstone Deal – Blackstone Group’s invested 1600 Crores to buy 15% stake in the office holding company of K Raheja Corp valuing the rental arm of K Raheja Corp at 11,000 Crores. They have 20-million sq ft income-producing office portfolio and is the 2nd largest commercial rental company after DLF. The transaction happened at 550 Crores per million Square feet. We dont have the rental income for this deal but we believe it should be in the range of 10-13x Rental Income.
Indiabulls Real Estate Rallied by 40% on a Single day last week as it announced demerger plan of its commercial assets. Indiabulls Real Estate owns 55% in commercial real estate arm and will have FY2018 Rentals of 692 Crores and growing it to 1,357 Crores by FY2021. We believe if Indiabulls Real Estate Arm would be sold today, it would get a valuation of about 10,000 Crores.
So why exactly is everyone suddenly so bullish on the Indian Commerical real Estate Story?
1) Global investors have preferred to participate in the commercial / leasing market with 76% of money invested going into commercial properties, even though Commercial Real Estate is only 20% of Total real estate basket. The Rest 80% of the Market is the Housing Market, which got only 24% of total Foreign Investments.
2) There has been a Sharp surge in Occupancy levels and reduction in vacancy level of commercial real estate as there is very low new supply in the market. It Normally takes 3-5 years for fresh supply to hit the Market.
3) REITS and RERA- With Real Estate Investment Trust expected to list in 2017-2018, it is expected that large PE Players are set to get a mindblowing exit. RERA, first regulator on Real Estate will get the much needed transparency in the Sector.
4) Housing Loans – Majority of Home Buyer buy their house on Loans, which decreases the incentive of paying by black money as home buyers can get access to cheap capital and get tax deductions. This increases white money in the real estate system and improves corporate governance.
Conclusion – Real estate was considered to be an ugly sector where mostly black money dealings use to take place and was not organised earlier, but now with entrance of large PE funds, RERA act, these companies now can improve their stretched balance sheet by liquidating a small percentage of their valuable rental assets. We believe Commercial Real Estate can be the biggest trend for the next 3-4 years.
Disclosure – Amit Jeswani and Family have no positions in Stocks discussed. Use this for Educational Purpose Only.