Oberoi Realty Ltd (ORL), the country’s second largest real estate firm by market value, is setting up a separate shopping mall business unit under which it plans to build a significant retail portfolio in the next few years and eventually look at a real estate investment trust (REIT) listing.
The Mumbai-based firm, which is largely focused on residential business, currently operates one mall in Mumbai under a special purpose vehicle (SPV) called Oberoi Mall Ltd. It has already chalked out plans to build two more malls in the city as part of an ongoing mixed-use development. It is also looking to step out of the city for the first time to expand its retail business either through acquisition of existing malls or building new ones.
“We are starting a mall vertical, which will focus only on building our mall business. While one part of the firm will continue to do residential, which is going to be our bread and butter, we also want to do shopping malls,” Vikas Oberoi, chairman and managing director, Oberoi Realty Ltd, said in an interview.
While Oberoi Mall is currently a unit of the firm, it may look at separating it. “At some point, we may have a mindset to list it, REIT the assets and continue to manage as our own,” Oberoi said.
REITs are listed entities that invest in leased office and retail assets.
On 5 August, Business Standard reported Oberoi Realty is in talks with Morgan Stanley and Singapore’s sovereign fund GIC Pte. Ltd to form a retail platform with a corpus of Rs.1,000 crore. The firm has also initiated talks with Canada Pension Plan Investment Board, according to the report.
Oberoi declined to comment if the firm is talks with any of the investors, saying it is at the preliminary stage of forming the vertical and is working on its structure.
“We don’t need money. We are very good to go with three malls ourselves. We wouldn’t need any investors as such. But let’s see. We might just adopt the public listing for that company itself, instead of going to the investors…We are working something out,” he said.
He said the firm’s first shopping mall at Goregaon in the suburbs of the city was developed primarily to build the locality but has achieved significant growth in the past few years. “It is culminating into good rentals and profits for the company and the shareholders. Hence we want to do more shopping malls,” Oberoi said.
The retail business contributes 15-20% to the company’s profit, he said. In the first quarter of this fiscal, Oberoi mall generated operating revenue of Rs.24 crore. For the year to March, its mall business posted a revenue of around Rs.94 crore. Its total revenue was Rs.1,444.30 crore in the last fiscal.
The firm is currently scouting for land parcels to build malls both in Mumbai and outside. It is also exploring opportunities to acquire existing mall assets which have not been fully leased out or whose construction has been stuck for various reasons.
“Since the company has an expansion plan to build more malls, it makes sense to consolidate and make it into one stand-alone vertical under their business. Right now, they (Oberoi Realty) have only one mall; so they do not have a large team or a large structure but when you have four or five assets, you need a proper structure around it,” said Pankaj Renjhen, managing director, retail services, JLL India, a property advisory firm.
Retail real estate development is in a consolidation phase in which serious developers are growing; and smaller, stand-alone mall developers are selling out. On an average, mall supply over the next two-three years is expected to be in the range of 2.5-3 million sq. ft.
“The outlook of retail real estate is positive. Consumption is growing in the upper middle and middle class segment. Food and beverages, fashion, entertainment—all these verticals are showing strong growth and the demand for space in a city like Mumbai is huge,” Renjhen said.