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Embassy Office Parks launches first REIT in India; to raise Rs 4,750 crore

The issue will open on March 18 in the price band of Rs 299 to Rs 300 and close on March 20

The initial public offering (IPO) of Embassy Office Parks REIT, the first ever by a Real Estate Investment Trust in India (REIT), will open on March 18 in the price band Rs 299-300, the company said in a statement.

Embassy REIT is issuing units aggregating up to Rs 4,750 crore and will constitute at least 10 percent of the issued and paid-up units on a post-issue basis.

The issue, made through the book-building process, will close on March 20, the statement said. The units are proposed to be listed on the National Stock Exchange and BSE. The minimum bid size is 800 units and in multiples of 400 units thereafter.

Proceeds from the same will be used for: i) Partial or full repayment of bank/ financial institution debt, ii) Payment for acquisition of the Embassy One Assets currently held by Embassy One Developers Pvt, and iii) For general purposes.

Not more than 75 percent of the issue, excluding the strategic investor portion, will be available for allocation on a proportionate basis to institutional investors, it said. However, the company may choose to allocate up to 60 percent of the institutional investor portion to anchor investors. For non-institutional investors, the same stands at not less than 25 percent.

The book running lead managers to the issue are: Axis Capital, Credit Suisse Securities (India), Deutsche Equities India, Goldman Sachs (India) Securities, HSBC Securities and Capital Markets (India), IIFL Holdings , JM Financial and Nomura Financial Advisory & Securities (India).

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

Of the 33 million sq ft, about 24 million sq ft is operational with 95 percent occupancy, 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 is in the pipeline.

The JV has top MNC clients in its commercial projects. Over 50 percent rent comes from Fortune 500 companies such as Microsoft, Google, Wells Fargo and JPMorgan.

What is a REIT?

REIT is an investment tool that owns and operates rent-yielding real estate assets. It allows individual investors to invest using this platform and earn income.

The 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.

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 that can generate steady and lucrative rental income. . Even government-run buildings can be placed under REITs.

REITs offer investors, with Rs 2 lakh in capital, 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.

‘Maturing of the market’

“This is a historical event for the real estate sector as it shows the market is maturing and that we too can transact as per international standards. At present, only mature economies have a REIT structure in place,” Anshuman Magazine, Chairman – India and South East Asia, CBRE. He expects additional institutional inflows from insurance companies and even pension funds.

According to a CBRE- CII report, a successful REIT listing would prompt other prominent asset holding companies such as Xander, Brookefield and Canada Pension Plan Investment Board to issue their own offerings, thereby widening the real estate investment scenario in the country.

REIT listings are likely to substantially move from offices to retail and logistics sectors, thereby resulting in a creation of quality assets across segments, the report added.

Sanjay Dutt, Managing Director of Tata Housing, sees a shift from capital appreciation to rental income going forward. “Instead of buying hard assets, retail investors are likely to choose this alternative model. As the sector matures over over the next four-to-five years, you will see another five-to-six companies getting listed with a combined market capitalisation of $4-5 million,” he said.

“For the industry, the Blackstone Embassy REIT opens an exit avenue for institutional office assets investments as well as offers developers 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,” said Joe Verghese, Managing Director, Colliers International India.

Return on investment of 7-8 percent

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

The way forward

While the first listing is an an important day for Indian institutional real estate, globally whoever has invested or is considering the possibility of investing in India would want to see how this listing fares. “The only alternative as of now for investors was sell to another fund or opt for an offshore REIT listing,” says Anckur Srivasttava of GenReal Advisers.

While initial REITs could be for income-generating commercial assets, eventually one may see REITs getting listed for hospitals, schools, warehousing, retail malls, leased out residential properties, student accommodation, industrial facilities and companies owning cinema halls.

"It is also an excellent avenue for corporates and PSUs to liquidate their assets and using the proceeds productively for their core businesses," he added.
Vandana Ramnani
first published: Mar 13, 2019 03:08 pm