Even as Asia’s biggest and India’s maiden REIT issue- Embassy REIT IPO kick off today, experts point out that Embassy the firm’s prospects look attractive for the firm going forward, and the offer may provide long-term investors with a good opportunity. The Embassy Office Parks REIT’s issue is sponsored by American equity investor Blackstone Group and Indian developer Embassy Group.
What is a REIT?
REITs (real estate investment trusts) provide an avenue to individual investors to buy shares in commercial real estate portfolios that receive income from a variety of properties, such as apartment complexes,healthcare facilities, hotels, infrastructure office buildings, retail centers etc. Therefore, after investing in REITs, investors can look forward to two forms of returns– quarterly dividends on units; and the capital appreciation which will reflect in the market value of the listed REIT.
Asia’s biggest REIT IPO
India’s first real estate investment trust, Embassy Office Parks REIT look to raise a whopping Rs 4,750 crore, making it Asia’s biggest REIT IPO. The issue will open for subscription on 18th Mar’19 and closes on 21st March 2019. The firm has set a price band of Rs 299-300. Blackstone and Bengaluru-based Embassy Office Park are looking to raise Rs 4,750 crore from the IPO. The units will be listed on NSE and the BSE.
Embassy REIT’s massive portfolio
Notably, Embassy REIT’s portfolio consists of seven best-in-class office parks and four prime city-center office buildings, totaling 32.60 million square feet as of 31st Mar’18. The total market value of all completed and under-construction/proposed assets is aggregates to a whopping Rs 37,400 crore.
The growth prospects
Taking stock of the firm’s attractive prospects going forward, Motilal Oswal said in a report that leasing income is expected to grow from Rs 1,800 crore in FY19 to Rs 2,500 crore in FY21 driven by embedded organic growth opportunities (MTM re-leasing), leasing of vacant space, on-campus development, acquisitions and ROFO with Embassy REIT’s sponsor. The manager for the REIT is Embassy Office Parks Management Services, which is led by Mr. Micheal Holland (ex JLL, Assetz), who has over 20 years of work experience in CRE).
Bid lot, minimum investment
The Bangalore-based Embassy Office Parks as well as Blackstone Group have set a price band of Rs 299 – 300, a bid lot of 800 units and in multiple of 400 units thereafter. Therefore, the minimum bid amount Rs 2,39,200 to Rs 2,40,000.
Yield to expect from Embassy REIT issue
According to SEBI norms, 90% of the total net income earned by the REIT must be distributed to unit holders. Adding up the current rent income from the portfolio, and accounting for rent increases and rent revisions in line with the market, investors could expect to get about 8-8.5% interest. “Launched at 20% discount to NAV, it offers 8.25% yield, to be distributed in the form of dividend and interest in 50:50 ratio,” noted Motilal Oswal in a report.
Choice Broking notes that it will take time to displace investors from other instruments to this investment instrument. “But with best in-class infrastructure and presence in high growth market, the REIT would continue to demand premium rentals. This coupled with low office vacancy, professional management; growth in the sector along with transparent & accountable structure would mostly appeal the investor,” the research firm noted.