Today we might witness India’s first real estate investment trust (REIT) coming to life almost four years after the rules were notified and the government has been making efforts over the past few years to put in place relevant regulations on par with global standards.
Embassy Office Parks, a joint venture of US private equity firm Blackstone Group and Embassy Group, is expected to file documents with the Securities and Exchange Board of India (Sebi) on Monday, proposing to raise over Rs 5,000 cr through this route. In addition to being India’s first, the Blackstone-Embassy REIT will be Asia’s largest in terms of office portfolio area, more than twice the size of others in the continent.
This move will catapult India into the league of global REIT markets such as the US, the UK, Singapore, Japan Australia and Canada. Embassy Office Parks will list 33 mln sqft of office real estate portfolio under the REIT.
Of this, an area of 24 mln sqft has been completed and has of 95% occupancy. The remainder is under construction. The company earns annual lease rentals of over Rs 2,000 cr from tenants including Google, JP Morgan, Microsoft, Cisco, IBM, Wells Fargo and Mercedes Benz. It counts more than 150 tenants, over half of which are Fortune 500 companies.
Experts opine that the REIT would lead to further formalisation of Indian real estate as more global institutional funds will become interested to invest in the country given the new liquidity avenue. “REITs will provide the much-needed option to inject growth-oriented equity capital into the Indian real estate sector,” said Rajiv Memani, chairman of EY India. “Since 2011, Blackstone has been a pioneer in identifying office space as an investment opportunity and been one of the largest investors in this segment.”
The proposed REIT portfolio includes over 70 assets in Mumbai, Bengaluru, Pune and the National Capital Region. In addition, Blackstone has included its own commercial assets such as Express Tower in Nariman Point, part of the First International Financial Center in the Bandra-Kurla Complex and 247 Park at Vikhroli in Mumbai in the portfolio. In August, ET was first to report that Blackstone would expand the REIT portfolio by including its own assets in this issue.
The portfolio, both in terms of size and rental income, is considerably bigger than the earlier plan as Blackstone has contributed a few of its marquee income-generating assets. Majority of the assets in the REIT have been stabilized. Blackstone has brought together integrated office parks and city centre buildings in the REIT.
According to property consultants, many of the lease contracts entered into a few years ago at these commercial buildings are priced at about 35% lower than current rates. These assets could attract higher rentals on renewals over the next few years.
Embassy has a pipeline of around 50 mln sqft of commercial development that can be offered to the REIT over the next few years. In addition to this, it will also look at inorganic growth opportunities.
The REIT, registered in 2017 as Embassy Office Parks, is sponsored by Blackstone and Bengaluru-based Embassy Property Developments. The lead banker to the issue is Morgan Stanley followed by JP Morgan, Kotak Mahindra and Bank of America Merrill Lynch. Blackstone has emerged as the most aggressive institutional investor in India’s real estate sector. The firm owns India’s biggest portfolio of income-producing office assets and has committed $5.3 billion across the key property markets of Mumbai, Noida, Pune, Bengaluru, Chennai and Hyderabad.
Global institutions including Blackstone, Brookfield Asset Management, GIC, Canada Pension Plan Investment Board, Ascendas-Singbridge and Qatar Investment Authority have been investing aggressively in Indian real estate assets. More funds are eyeing opportunities emerging in the backdrop of recent policy reforms.
While these entities had earlier shown interest in commercial real estate, they are increasing their investment portfolios with the opening up of an avenue for monetisation through REITs. In light of this, Blackstone-Embassy’s REIT is being followed closely by various stakeholders. REITs are entities that own, operate or finance income-producing real estate properties. Structured like mutual funds, REITs are listed and allow investors to earn dividend-based returns.