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Blackstone-Embassy Group expected to launch first REIT on March 13 to raise Rs 5,000 crore

Properties listed through a REIT are typically commercial assets -- primarily office spaces that can generate steady and lucrative rental income

Vandana Ramnani @vandanaramnani1

Real estate company Embassy Group is expected to launch the country’s much-awaited first real estate investment trust (REIT) on March 12 to raise around Rs 5,000 crore, sources said.

Embassy Office Parks, a joint venture between the Bengaluru-based property developer and private equity firm Blackstone, has put 33 million square feet of office and hospitality assets under its proposed REIT comprising of seven business parks and four city-centric buildings spread across Mumbai, Bengaluru, Pune and Noida.

Out of the 33 million sq ft, about 24 million sq ft area is operational at 95 percent occupancy and yielding a rental income of over Rs 2,000 crore annually. Another 3 million sq ft area is under construction and 6 million sq ft area in the pipeline.

REIT is an investment tool that owns and operates rent-yielding real estate assets. It allows individual investors to make an investment in this platform and earn income. Securities and Exchange Board of India (SEBI) had notified REIT's regulations in 2014, allowing setting up and listing of such trusts, which are popular in some advanced markets.

Embassy Office Parks' rental income is expected to rise by 55 percent in the next three years as it expects to lease area at a higher rent.

Sources said the REIT issue is expected to open on March 18 with a price band of Rs 299-300 per unit. The issue closes on March 20. The total issue size is 1,29,556,000 units.

Embassy Office Parks had in September last year filed the draft red herring prospectus (DRHP) with market regulator Sebi to launch REIT.

"We will launch our REIT in few weeks," Embassy Office Parks CEO Mike Holland was quoted by media reports as saying on February 24.

The JV firm has top MNC clients in its commercial projects. More than 50 percent of the rent comes from Fortune 500 companies. Clients such as Microsoft, Google, Wells Fargo and JPMorgan have their base in the office parks.

REITs are listed entities that invest in income-generating properties and distribute at least 90 percent of their income proceeds to unit-holders through dividends. After registration with SEBI, units of REITs will have to be mandatorily listed on exchanges and traded like securities.

Properties listed through a REIT are typically commercial assets -- primarily office spaces that can generate steady and lucrative rental income. Retail malls, hotels, hospitals, schools, student housing, and hotels. Even PSU buildings can be put under REITs.

REITs offer investors who have an appetite as small as Rs 2 lakh an opportunity to invest in the commercial real estate market. Like listed shares, small investors can buy units of REITs from both primary and secondary markets.

Market regulator SEBI had notified REITs norms in September 2014, but they never took off. REITs norms have been modified by five times since then.

‘Maturing of the market’

“REITs are a historical event for India's real estate sector. It shows the maturity of the Indian real estate market as only mature economies have a REIT structure in place. It will show that we too can transact as per international standards,” Anshuman Magazine, Chairman – India and South East Asia, CBRE, had told Moneycontrol.

“We do expect more institutional money to flow in which may include insurance companies and even pension funds. One thing is sure – this event (REIT listing) will ensure that hereon there will be an exit route in place for investors,” he said.

REIT acquisitions touched $10 billion in the first half of 2018 and accounted for 17 percent share in the investment volume in Asia, according to a CBRE- CII Report Challenges to Opportunities. In 2017 alone, total acquisitions undertaken by REITs in APAC crossed $20 billion, with an approximate share of 15 percent in the overall commercial real estate acquisitions undertaken in the region.

The report noted that a successful REIT listing in India would prompt other prominent asset holding companies such as Xander, Brookefield and CPPIB to issue their own offerings, thereby widening the real estate investment scenario in the country. REIT listings are likely to substantially move from the office sector to retail and logistics sectors thereby resulting in a creation of quality assets across segments, the report said.

Sanjay Dutt, Managing Director of Tata Housing had told Moneycontrol earlier that there are many opportunities for investors, especially retail investors going forward. The shift is likely to be from capital appreciation to rental income.

“If we see commercial REITs and going forward rental housing REITs and industrial REITs, a lot of trusts will get established with retail investors. Instead of buying hard assets as an option, they are likely to go for this as an alternative model. As the sector matures over time, you will see another five to six companies getting listed over next four-five years with a combined market cap of 4 to 5 million US dollars which will allow retail investors to have an institutional play,” he had said.

“The Blackstone Embassy REIT is poised to be one of the biggest milestones for the Indian real estate industry this year. The REIT will also be the first opportunity for retail investors to participate in investing into a single office asset platform with assets not only in Asia’s No. 1 city of choice for technology occupiers but also in the major office districts of India,” said Joe Verghese, Managing Director, Colliers International India.

“For the industry, it opens up a new avenue for the exit for institutional office assets investments as well as provides developers with a new avenue to gain more liquidity. Considering the buoyancy in the India office leasing market and the forecasted growth, it seems to be very well timed both for the existing investors as well as for the market,” Verghese added.

Return on Investment of 7 to 8 percent

According to Shobhit Agarwal, MD and CEO, ANAROCK Capital, "Being realistic in one's returns expectations from REITs is important. A realistic ROI (return on investment) expectation would be in the range of 7-8 percent annually, post adjustment of the fund management fee," he said, adding, this instrument is ideal for investors who want a steady income with minimum risks.

The way ahead

While the first listing will be an important day for Indian institutional real estate, globally whoever has invested in India or is considering the possibility of investing in India would want to see how the REIT listing fares. Everybody would be keen to see how their exits will happen. “The only alternative right now for investors is sell to another fund or go in for an offshore REIT listing,” says Anckur Srivasttava of GenReal Advisers.

While the initial REITs would be to do with income generating commercial assets, eventually one may see REITs getting listed for hospitals, schools, warehousing, retail malls, residential properties not being sold but only leased out,  student accommodation, industrial facilities, even companies owning cinema halls could consider making their properties REIT-able, according to Srivasttava.

"It is also an excellent avenue for corporates and PSUs to liquidate their assets and using the proceeds more productively for core businesses," he added.
First Published on Mar 12, 2019 05:34 pm
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