Virtuous Retail, the retail development arm of The Xander Group Inc., has finally found a buyer for its shopping malls after going back and forth on negotiations with a number of potential investors.
The firm is in advanced talks with Dutch pension fund manager APG Asset Management NV to sell a majority stake in VR Surat, VR Bengaluru and the upcoming VR Chennai malls, a senior executive of Xander Group told VCCircle.
“The deal is almost done. APG is buying 70-80% in the malls,” he said on the condition of anonymity. An announcement is likely by the end of this month, he added.
If the deal progresses along the expected lines, it will mark a closure for Virtuous Retail’s efforts to sell malls under its portfolio. The assets have been on the block for more than a year and a slew of global investors have looked at them for acquisition.
A real estate analyst, who did not wish to be identified, said several realty private equity firms including Blackstone were previously in talks for the properties. “However, talks did not progress due to a valuation mismatch. The retail platform did not pan out the way it was expected to, so a stake sale or a complete buyout has been on the card for some time now,” the analyst said.
The Xander Group executive said that the transaction could be worth between Rs 2,000 crore and Rs 2,500 crore, making it one of the largest deals in the retail real estate segment in recent times.
Spokespersons for Xander Group and APG didn’t respond to emails seeking comment till the time of filing this report.
Earlier this month, Business Standard reported that APG was in talks with the company to buy a majority stake in its malls for Rs 2,200 crore.
Virtuous has a portfolio of 5 million sq ft of retail properties in India through various formats—lifestyle centres, neighbourhood shopping centres and luxury retail. In an interaction with VCCircle last year, Rohan Sikri, partner at Xander Group, had said that the group's investment strategy in the coming year would revolve around reviving fresh investments under Virtuous Retail.
“We have not invested out of Virtuous Retail in the last 12 months as we have been focused on delivering under-construction projects but will hopefully have a few deals over the next one year. Based on ongoing conversations with various entities, our deal pipeline would be around $200 million for the next 12 months,” Sikri had said.
APG’s India play
A deal with Virtous Retail will mark APG’s debut in the retail real estate segment in India. Its real estate play so far has been limited to commercial and residential segments through joint investment platforms with local partners.
In the commercial segment, it forged a joint investment platform worth $300 million with Xander Group in 2014 to buy income-generating, institutional grade commercial assets across India's main office markets.
It also has a tie-up with homegrown developer Godrej Properties Ltd for investments in residential projects. It recently sealed its second such platform, after the first one was exhausted, with the developer to tap into the potential of the housing market in India.
Globally, APG manages pension assets totaling about 443 billion euros, administering over 30% of all collective pension schemes in the Netherlands. In India, outside of real estate, it has major investments in hospitality company Lemon Tree and has a platform with diversified firm Piramal Enterprises Ltd to invest in rupee-denominated mezzanine instruments issued by Indian infrastructure companies with a target investment of $1 billion.
Investors on a shopping spree
APG’s interest in the retail real estate market comes at a time when other global investors, too, have ramped up their activity in the segment. Blackstone Group, one of the biggest owners of commercial properties in India, is now lapping up malls and has created a separate platform—Nexus Malls–to house these assets.
Singapore sovereign wealth fund GIC recently bought a majority stake in Sheth Developer’s Viviana Mall in Mumbai and is out in the market to evaluate a number of deals. As reported by VCCirle, Canadian fund CPPIB is exploring talks with The Phoenix Mills for a retail segment play in the country.
Indeed, rental assets have been on the radar of large institutional investors in the Indian real estate sector. While the residential market reels under a slowdown on the back of a fast-paced price rise in the past and project delays turning off buyers, the commercial property market has been on a good run.
Rental properties, which comprise both commercial office assets and retail malls, promises to be a lucrative business as India’s economy grows at the fastest pace among major economies in the world. Although growth in the industrial sector is tepid, the services sector has led demand for office properties in large cities. A rise in disposable income has also made retail malls a big opportunity for foreign investors.
In a recent note, realty advisory firm JLL said supply of Grade-A malls jumped in 2015 after three dull years. It said that malls experienced a “healthy” rate of pre-commitments and “remarkable” occupancy level. “Despite a rise in completions in 2015, the vacancy rate fell across major cities of India,” it noted.
The JLL note added that mall rents, which had mostly remained stagnant during 2012-14, had risen since the new central government took over in May 2014.
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