Embassy Group is all set to launch India’s first real estate investment trust, the Embassy Office Parks REIT, sometime in the next week to raise about Rs 4,750 cr. The REIT is a joint venture between the Bengaluru-based property developer and private equity firm Blackstone that holds around 33 million square feet of commercial office comprising of seven business parks and four city-centric buildings spread across Mumbai, Bengaluru, Pune and Noida.
REIT is an investment tool that owns and operates rent-yielding real estate assets. Individual investors can make investment in a REIT without owning it and earn an income. “REITs as an asset class is a far superior product and well accepted and understood globally where even small investors can invest in real estate without owning a physical asset,” said Nipun Goel, head, investment banking, IIFL. “Unlike InvITs, REITs in India will take off well,” he added.
Bankers said the launch of Embassy REIT was advanced due to demand from foreign portfolio investors and family offices. Many domestic mutual funds have not shown interest, they said.
Indicative yield for unit holders of Embassy REIT is expected at around 9.25 per cent per annum to be paid as premium on redemption. Embassy REIT reported a profit of Rs 260 cr for the year ended March 31, 2018 compared to Rs 177 cr a year ago.
Currently, the minimum investment in a REIT is Rs 2 lakh per investor. Once it gets listed, trading will be for a minimum lot of Rs 1 lakh. Income earned by REIT could be through rentals or capital gains or both, and it gets distributed to unit holders. SEBI rules state that REITs shall distribute not less than 90 per cent of the net distributable cash flows to its investors at least on a half yearly basis.
According to industry estimates, the rental yield from a commercial property is in the range of 7-9 per cent, while the capital appreciation can be expected to be between 4-7 per cent over a long term.
REITs norms were notified for the first time in September 2014 by the market regulator SEBI, but the concept is yet to take off. REITs norms have been modified five times since then. In September last year, Embassy filed an offer document for the REIT listing.