Embassy Office Parks REIT, India’s first listed Real Estate Investment Trust (REIT), a joint venture between private equity giant Blackstone Group Lp and Embassy Property Developments, plans to acquire stressed office assets in India, while looking to expand its portfolio in Hyderabad and Chennai, said a top executive.
At present, the REIT portfolio includes of 25 million sq. ft of completed commercial real estate and another 8 million sq. ft of under-construction office space. These assets span across Mumbai, Pune, Bengaluru and the National Capital Region (NCR).
Michael Holland, chief executive of Bengaluru-based Embassy Office Parks REIT, said the ongoing liquidity crisis has thrown up a huge opportunity to buy out commercial assets in the market, particularly from builders who own both office and residential space, and want to raise funds.
“The tight liquidity today creates a lot more opportunity (for acquisition). We are looking to buy assets that add value to our REIT portfolio…and we have significant headroom in terms of our ability to raise further debt for those acquisitions," he said.
At present, Embassy Office Parks REIT’s net debt stands at ₹3,500 crore, which is 11% of the total enterprise value. According to regulatory guidelines, net debt can go up to 49% of asset value.
While Embassy Office Parks REIT will continue to look for opportunities in the existing four cities, it is also looking to expand in Hyderabad and Chennai. Holland, however, did not disclose the kind of investment and additional space the company is looking to buy.
Vikaash Khdloya, deputy chief executive and chief operating officer, Embassy Office Parks REIT, clarified that while looking to buyout assets, it should be free from any kind of litigation, or other major issues.
“When we say stressed assets, we mean those assets that are owned by someone, which has a scarcity of capital or owned by people who are not specialist in office. We would be looking at assets which the owner is not able to reinvest to improve rentals or assets that need correction in terms of their capital structure," Khdloya said.
Embassy Office Parks REIT, which announced its first quarterly result on Monday post its listing in April, said its revenue has improved by 19% to ₹535 crore, as compared to ₹449 crore for the quarter ended 30 June 2018, driven by continued leasing momentum across the portfolio. During the quarter, it also raised ₹3,000 crore through non-convertible debentures, which will mature in June 2022.
Considered to be the largest REIT in Asia by asset size, Embassy Office Park REIT was launched in March, raising around ₹4,750 crore. The proceeds will be used for partial or full repayment or prepayment of bank/financial institution debt of certain special purpose vehicles, as well as for payment of consideration for acquisition of Embassy One assets.
“Despite the ongoing liquidity issues, we are at an advantageous position given that we are pretty lowly levered. Eleven percent leverage at the balance sheet which is in stark contrast to the other residential and office developers. Hence, we are able to raise capital to invest in building new office spaces and achieve those organic growths," Khdloya said.
India’s commercial real estate market has become much more lucrative in the recent past due to an improved regulatory environment, apart from growing demand for office space in the country. According to JLL, India currently has around 294 million sq. ft of office space stock that are eligible for REIT.
“Regulation on Real Estate Investment Trust (REIT), entry of several foreign investors and strict disclosure norms under the real estate regulation (RERA) machinery are some of the indicators of this success," Vishal Ahuja, head (private wealth group), JLL India, said in a 12 August note.