From ET Realty
BANGALORE: Cerestra, an investment fund focused on educational infrastructure, is acquiring the real estate portfolio of K-12 schools from Bengaluru-based Jain Group of Institutions (JGI) a first of its kind deal in India.
Cerestra Edu-Infra Fund wants to build a network of schools and eventually list on the stock exchanges through a specialist real estate investment trust (REIT). Cerestra is a joint venture between Religare Global Management and two veteran fund managers, Jasmeet Chhabra and Vishal Goel.
Cerestra will acquire 74% stake in the real estate assets of 12 schools promoted by Chenraj Jain’s Arka Eduserve, a wholly owned subsidiary of JGI in two tranches for roughly Rs 240 crore.
Cerestra is finalizing a deal for six schools initially in Karnataka, Maharashtra and Madhya Pradesh, to be followed by another six beginning June this year.
A REIT, structured as a real estate counterpart to mutual funds, allows small investors to invest in a diversified portfolio of rent-yielding realty assets. Specialist REITs like Alexandria and Prologis focused on healthcare research and industrial assets have come of age in the US. “REIT is a good vehicle to encourage educational entrepreneurs to contribute meaningfully to the sector. The model is asset-light and unlocks real estate value to encourage more entrepreneurs in tier-2 areas to take education to the masses,” Chenraj Jain, promoter of JGI, told TOI.
Despite recent guidelines, REITs are yet to take off in India even for mainstream commercial assets like office parks, malls and hotels. However, there’s rising interest among global investors for income-accruing Indian real estate assets, prompting many to explore REITs on foreign bourses.
Jain said the deal with Cerestra gives him an option to explore a buyback of assets after 10 years, providing an 18% return for the investor.
Boutique investment bank Sprout Capital advised on the transaction. A Cerestra spokesman said he would not comment on media queries.
Cerestra, with a targeted initial corpus of Rs 1,000 crore, is also in discussions with other prominent corporate school chains like GEMS and Zee-owned Mount Litera to carve out a portfolio of property assets, sources familiar with the matter said. Manipal Education and Medical Group, which operates educational campuses, too, has been exploring value-unlocking moves through REIT-linked deals. The school management will enter into a long-term lease to operate the sold land and buildings. For instance, Jain’s school assets would be leased to Cerestra for 31 years with a 10-11% annualized rate of return.
This gives JGI an early-mover advantage in structuring a non-traditional REIT transaction in the education space, helping it unlock real estate value and free up capital to expand its footprint in the K12 space. Its minority shares in the school real estate deals will also give it units in the planned REIT.
JGI, through a combination of owned and rented assets, operates 28 schools across the country and plans to take that number to 100 in tier-2 and tier-3 cities and towns.
The problem of access to quality primary education remains stark in India’s smaller urban centres. A recent UNESCO report said over one million children were out of school in the age group of 6 to 11 years in 2011, though there has been some progress in bringing down the number of out-of-school children in the last decade.