The Embassy Office Parks REIT's initial public offering (IPO) is India’s first real estate investment trust listing (REIT) and sponsored by American equity investor Blackstone Group and Indian developer Embassy Group. Blackstone and Bengaluru-based
Embassy Office Park are looking to raise Rs 4,750 crore from the IPO. The units will be listed on the National Stock Exchange of India and Bombay Stock Exchange.
Here are five reasons why it’s worth investing in the
Embassy Office Parks IPO. 1) Because you get to bite into India’s best in class blue-chip commercial portfolio. When it comes to office and commercial real estate, it can’t get better than what the Blackstone Embassy Office Park REIT offers. Here is a sample: up to 32.7 million square feet of seven global quality office parks in India’s fastest growing cities — Bengaluru, Pune, Mumbai and Noida; 160-plus marquee tenants such as JP Morgan, Google, Microsoft, Accenture, PWC, Rolls Royce. Almost half of this REIT’s portfolio is rented out of Fortune 500 companies on an average lease life of 7 years.
These are simply the best rent-yielding assets you can get in the country’s commercial real estate, which until this REIT came along, a retail investor couldn’t even dream of owning. What was available for investments in commercial were dodgy “assured” returns schemes from low-on-credibility builders who couldn’t even raise enough money from institutional investors to finish their building and hence took to wooing retail investors with unsustainable returns and often left them stranded with unfinished projects and broken promises. Now, you can dramatically upgrade in terms of quality with the Blackstone-Embassy REIT. Your money is well diversified over 75 grade A assets in prime locations.
2) You can count on decent returns. If you invest in the REIT, you get two kinds of returns. One is in the form of quarterly dividends on your units. Second will be the capital appreciation which will reflect in the market value of the listed REIT.
According to market regulator Sebi norms, 90 percent of the net income that the REIT earns has to be distributed to unit holders. If you add up the current rent income from the portfolio, make room for rent increases and rent revisions in line with the market when leases are renewed, plus account for future rent from new buildings which will get completed and occupied, the potential dividend yield investors could get could be in the range of 8-8.5 percent per annum.
The portfolio of REIT also has to be revalued every six months. If there is capital appreciation in the portfolio value, it would mean higher net asset value (NAV) and a bump up in the listed unit prices, taking your returns to 12-13 percent.
The question to ask is will these indicative returns pan out as expected. The current number gives you some confidence. There is a 95 percent committed occupancy, 81 percent retention rate of clients and the ability to charge high premiums for the quality of space they rent out. Barring a big economic upheaval, or a sudden surge in supply of Grade A office space in the country affecting rental yields (which is unlikely in the near term), the risks are contained.
3) This REIT is a strong play on India’s information technology story. Demand from some of the world’s biggest IT companies for high-quality office space has meant not just a huge outperformance of commercial realty vis-a-vis residential, but also returns which are comparable to equity. A recent Anarock report has pegged the commercial realty returns in India over the past five years at 14 percent. While the Embassy Office Park REIT might be the first one to be listed in India, there is already a value discovery of India’s IT office assets in Ascendas India Trust, which since its listing in Singapore in 2007 has outperformed Nifty 50 by 400 plus basis points! 4) Every fund promises you a professional management team. So does this one. But what sets this management apart is its “ Desi Budhee”. Tuhin Parikh has built a formidable portfolio for Blackstone in India, earning himself and his team well deserved respect for a deep understanding of the local market and skills to navigate its complexities.
Add this to razor-sharp acumen of Jitu Virwani, CMD of the Embassy Group, who prides himself on his Sindhi business astuteness. His ability to spot early trends and opportunities, move in swiftly and retain good talent has helped him build a solid leasing portfolio. One of his most trusted and experienced lieutenants, Mike Holland, has been appointed CEO to run the REIT.
All in all, it’s a credible and sharp team you will be trusting your money with.
In all probability, this Blackstone-sponsored Embassy REIT will get oversubscribed. It’s a fixed income cum capital appreciation play, which makes it a good investment bet for investors looking for surety of returns, steady income and safer than equities investment. For now, the minimum investment amount for a retail investor is Rs 2 lakh. Sebi’s decision against bringing it down to Rs 15,000 prior to the IPO is sensible. A new product is best tested by well informed retail investors who have the financial muscle to dip in. If you do, it’s well worth taking a bite of this one.
5) With the strategic and anchor investors, 55 percent of the books is already funded and the names on this list are comforting. The REIT has allocated units worth Rs 876 crore to US-based Capital Group. Other anchor investors who have taken large chunks include strong domestic and international investors such as Fidelity Funds, SmallCap World Fund, Aviva Investors, Radhakrishna S Damani and Kotak Mahindra Life Insurance.