Blackstone’s Nexus Malls Marks Presence in India’s Retail Sector

Nexus Malls to own and manage shopping centers in India’s top cities

b1The Blackstone Group L.P. (NYSE: BX), the world’s largest private equity manager, has made its presence in India’s booming retailing sector. The New York-based Blackstone, through its fully owned subsidiary Nexus Malls, is looking to own and manage shopping centers in India’s top cities with a view to improve underperforming malls, as reported by The Times of India on September 21st, 2016.

As a first step in this direction, Nexus has acquired AlphaOne malls in Ahmedabad, Gujarat, and Amritsar, Punjab, with a combined 1.3 million square feet (sqft) of retailing space. Nexus has also signed a number of deals to double its portfolio to 2.5 million sqft by the end of December 2016.

Over the next few years, Nexus Malls is looking to study the shopping patterns and behavior of consumers to overhaul underperforming malls. As part of these plans, Nexus will focus on shopping centers in tier-II cities and towns, which account for nearly a third of the total malls in India. These malls are struggling to attract footfall despite having the potential to drive consumption growth.

Globally, Blackstone owns more than 1,000 malls across U.S., Europe, and Asia/Pacific through Brixmor, a mall owning platform in the U.S., and Multi, which operates shopping centers in 14 European markets. In India, Blackstone already has a presence in commercial real estate as the country’s leading office landlord.

Global investors shy away from retail assets

Currently, India has very few national shopping center/mall chains except for Phoenix. Global investors have shied away from investing in retailing assets, barring Xander Group that runs Virtuous Retail and operates malls under the VR brand. Investors like GIC of Singapore and Brookfield Asset Management have acquired or built a large portfolio of tenanted office spaces, but have been slow to invest in retail spaces.

Meanwhile, demand for retail space remains upbeat with prominent global players such as Massimo Dutti, Longchamp, Cole Haan, and Hunkemoller making inroads into the country while brands like Zara, H&M, GAP, and Marks & Spencer continue to expand operations.

Malls struggle with online competition

b2India has around 650 malls with hardly 10% of them running profitable operations mostly because of competition from online big-box players like Bangalore-based Flipkart and Inc. (NASDAQ: AMZN). The struggles have prompted several developers to dump plans for future mall development at a time when global retail brands are heading to India to establish their presence and expand their operations. So far in 2016, only 1.5 million sqft of retail space in the form of shopping centers have been added. Given this scenario, Nexus is faced with the challenge of managing these public spaces that have an annual footfall of 10 to 12 million people.

Blackstone readies India REIT listing

Blackstone is also finalizing plans to raise INR4,000 crore (about $600 million) through a listing of Real Estate Investment Trust (REIT) on the Indian stock exchanges by early 2017. This will be India’s first REIT listing after market regulator Securities and Exchange Board of India (SEBI) announced REIT guidelines in 2014, giving Blackstone the first mover advantage. REITs are listed trusts holding income generating properties, earnings from which are distributed to shareholders. b3A REIT listing helps real estate developers list their rent-yielding properties, while providing investors with an inflation-indexed product.

Over the next two years, Blackstone, through its joint ventures with Bangalore-based Embassy Group and Pune’s Panchshil, is looking to build 50 million sqft of tenanted office space across top Indian cities, of which 30 million sqft are already leased.

Currently, Blackstone’s office space properties are spread across Bengaluru, Hyderabad, Pune, Mumbai and the National Capital Region. Blackstone and its partners earned INR2,200 crore (about $300 million), in rentals in 2015, and are targeting a rental income of $500 million by March 2018.

Blackstone and its local partners have been working with investment bank Morgan Stanley (NYSE: MS) and Indian law firm Cyril Amarchand Mangaldas for the past six months and are expected to make an announcement in this regard by early October 2016.

Stock Performance

b4Blackstone’s stock ended the day at $26.05, slipping 1.14%, at the close on Thursday, September 22nd, 2016, having vacillated between an intraday high of $26.61 and a low of $25.96 during the session. The stock’s trading volume was at 4,356,206 for the day. The Company’s market cap was at $31.10 billion as of Thursday’s close.

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