Blackstone Group LP-backed Embassy Office Parks on Monday filed with Sebi an offer document to raise over 5,000 crore through a real estate investment trust (REIT). The REIT is likely to be listed early next year, said two people familiar with the development, requesting anonymity.

The portfolio, which includes Blackstone’s own assets as well as those in partnership with Embassy Group, comprises 33 million sq. ft across Mumbai, Pune, Bengaluru and Noida, 24 million sq. ft of which is completed and 95% leased. This includes 11 assets—seven office parks and four buildings. The aim is to raise 5,000 crore with an option to increase the fundraising by 20-25%.

On Monday, Credit rating agency ICRA Ltd assigned a rating of provisional AAA with stable outlook to the Embassy Office Parks REIT. “The assigned rating draws strength from the large and diversified leasing portfolio of Embassy REIT, which is spread across multiple office parks in different cities. The rating also benefits from the low initial leverage in the REIT group, which will be aided by prepayment of outstanding using the net proceeds from REIT listing," said Shubham Jain, group head at ICRA.

In July 2017, Embassy Office Parks REIT was registered with the Securities and Exchange Board of India (Sebi), making it the first such realty trust in India to be accorded registration.

Embassy Office Parks is an investment partnership between Jitu Virwani-promoted Embassy Group and Blackstone, along with other stakeholders.

Mike Holland, chief executive of Embassy Office Parks, will take over as CEO of the REIT. Vikaash Khdloya, who is managing director with Blackstone Group, will be deputy chief executive and the chief operating officer, one of the persons quoted above said.

The Embassy Office Parks REIT comes at a time when the Indian real estate sector, particularly the residential segment, has witnessed a prolonged slowdown owing to various regulatory changes and slow sales. The commercial office sector, however, has continued to see a spate of foreign investments and performed relatively better.

REITs are listed entities that primarily invest in leased office and retail assets, allowing developers to raise funds by selling completed buildings to investors. It allows investors to make securitised real estate investments in small amounts and works much like a mutual fund, pooling funds from various investors into one basket. Norms for both REITs and infrastructure investment trusts (InvITs) were notified in September 2014.

“In terms of growth, Embassy Office Parks will pursue third-party acquisitions, and may buy assets from Embassy with the latter having right of first refusal. Whatever Blackstone owned 100% is going into the REIT and there is no further commitment from it to include new acquisitions into the entity," said a second person.

The annual rental income of the portfolio is over 2,000 crore and is expected to go up by 50% in the next three years as rentals shoot up.

Blackstone Real Estate has committed to $5.3 billion across 31 investments in India. Out of this $3.9 billion is in office assets, it has invested in more than 100 million sq. ft of office space.

Globally, Blackstone has around $115 billion of assets under management. Senior managing partner Tuhin Parikh has built the firm’s real estate investment portfolio in India from scratch.

According to Shobhit Agarwal, MD and CEO of Anarock Capital, going-in yield, rental growth and cap rate compression are the three components that will determine the rental returns for investors. “While 6-7% could be the expected annual rental income, the total return could go up to 15%," said Agarwal.

While there has been no evident interest from any other developer to apply for a REIT any time soon, in June, financial services firm IIFL Holdings Ltd said it has registered an REIT with Sebi, without disclosing details.

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