Blackstone-backed Embassy Office Parks looks to raise $400- $500 million; first likely institutional placement by REIT in India

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Embassy Office Parks, India’s first publicly listed Real Estate Investment Trust (REIT), is looking to raise between $400 and $500 million as it looks to acquire more office assets and amplify its existing portfolio, people familiar with the plans told Moneycontrol.

Embassy Office Parks, which is backed by private equity giant Blackstone and Bengaluru-based realty player Embassy, is the largest REIT in Asia by area.

“The likely route is an institutional placement. If the plan fructifies, this would be the first institutional placement by a domestic REIT,” one of the persons above told Moneycontrol without specifying the timing of the launch.

Confirming the fund-raising plains, a second person said: “Embassy Office Parks is in talks with merchant banks like JP Morgan, Morgan Stanley and BofA Securities for this proposed fund raise. These banks had worked with them earlier for the listing.”

Listed in April 2019, Embassy REIT owns and operates a 33.3 million square feet (msf) portfolio.

“But the board is yet to take a final call on the fund-raising instrument or the use of proceeds,” the first individual warned. A third person confirmed that plans are on for a big-bang fund raise and an institutional placement is the preferred choice as of now.

All the three persons spoke to Moneycontrol on the condition of anonymity.

In response to an email query from Moneycontrol, Blackstone, Embassy Office Parks and JP Morgan declined to comment.  BofA Securities and Morgan Stanley did not respond to the email query at the time of this article getting published. This article will be updated as soon as we hear from them.

A real estate investment trust is a company that owns, and in most cases operates, income-producing properties or real estate. Modelled after mutual funds, REITs pool the capital of numerous investors and generate a steady income for their investors. REITs own many types of commercial real estate, ranging from office and apartment buildings to warehouses, hospitals, shopping centres and hotels.

On October 27, 2020, Embassy Office Parks REIT had indicated its fund raise plans to the stock exchanges. It said, at a board meet held on November 2, it would consider “fund raise and issue of units/debt securities of the Embassy Office Parks REIT through an institutional placement, preferential issue, rights issue, debt issuance and/or any other mode as may be permitted under applicable law and in relation thereto issue of notice to the unitholders for approval of such fund raise, as applicable. “But later, these plans were deferred at the board meeting.

EMBASSY OFFICE PARKS REIT: THE ROFO ANGLE & ACQUSITION STRATEGY

In its 2019 annual report, Embassy Office Parks had outlined its strategy to maximise total returns by growing net asset value, increasing distributions and expanding the portfolio. “Judiciously acquire assets from our Right Of First Offer (ROFO) arrangement with Embassy Sponsor, as well as from third parties,” was one of the levers which formed part of the strategy. To be sure, a ROFO says that a rights holder can buy or bid for an asset before the owner tries to sell the same asset to a third party.

In November 2019, Embassy Office Parks REIT said it had received a ROFO invitation from Embassy Property Developments for the potential sale of 6.2 million sq ft of completed office premises and 2.5 million sq ft of under-construction area in Embassy TechVillage in Bengaluru.  Embassy REIT said it will evaluate this offer but said that "there can be no assurance that the Embassy REIT will enter into any definitive arrangements for the proposed acquisition". Till date, there has not been any further update from the firm on the status of this ROFO transaction.

Post the board meet on November 2, 2020, the results for the second quarter were announced and Mike Holland, Chief Executive Officer of Embassy REIT, indicated further growth via the acquisition route.

“Embassy REIT continues to deliver amidst challenging conditions caused by the global pandemic. We have been successful in collecting rents, keeping expenses low, and maintaining a healthy balance sheet. Most notably, we are distributing cash flows to our Unitholders that compares to the payouts of the top yield-paying Indian corporates. We also remain focused on growth through multiple channels including accretive acquisitions,” he said.

Blackstone also backs the Mindspace Business Parks REIT along with developer K Raheja. It also has plans for  third REIT offering in India. On October 17, 2020, Moneycontrol reported that Blackstone and Pune-based Panchshil Realty were evaluating a REIT listing of their joint venture assets.  On June 23, Moneycontrol was the first to report that Blackstone had launched a block deal to sell some of its units in Embassy Office Parks REIT and raise around $300mn.

Embassy REIT’s portfolio consists of seven infrastructure-like office parks and four city‑centre office buildings in the markets of Bengaluru, Mumbai, Pune, and the National Capital Region (NCR). Embassy REIT’s portfolio comprises 26.2 msf completed operating area, has an occupancy of 91.7 percent as of September 30, 2020, and is home to many of the world’s leading companies as occupiers. The portfolio also comprises strategic amenities, including two operational business hotels, two under‑construction hotels, and a 100MW solar park supplying renewable energy to park occupiers.