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Embassy REIT IPO to open soon; know all about this ‘mutual fund’ of property investment

Sunil Dhawan
Embassy REIT, Embassy REIT IPO, India's first REIT, REIT in India, real estate, REIT Regulations

The long wait for India’s first listed REIT is going to end soon. Embassy Office Parks, a joint venture of US private equity firm Blackstone Group and Embassy Group is coming out with an IPO of Embassy REIT to raise up to Rs 47,500 million or Rs 4,750 crore.

It may not be wrong to say that REIT is a ‘mutual fund’ of property investment and could even become a big opportunity for investors to benefit from the real estate asset class. REITs are somewhat like a mutual fund wherein investors pool funds which are invested by the sponsor of the scheme into the real estate asset class which acts as the underlying securities. “Over the past few years, the government has taken several initiatives to boost investments in the real estate sector and the launch of India s first REIT is another step in this direction,” says Anshuman Magazine, Chairman & CEO, India, South East Asia, Middle East & Africa, CBRE.

During the launch offer, an investor may buy REIT units which can then be traded on the stock exchanges and to ensure liquidity. As a REIT investor, the earnings are in the form of regular income ( dividend) and capital appreciation, if any.

The price range has been set at Rs 299 to Rs 300 and the minimum application size is 800 units and 400 units thereafter. The bids for Embassy REIT are opening on March 18, 2019, and it ends on March 20, 2019. Being the first listed REIT, the post issue modification Period has been set as 22-Mar-2019. The listing of the units is expected to be on or around April 03, 2019 and are proposed to be listed on the National Stock Exchange of India and BSE.

The sponsors of the issue have clearly stated in their offer document that this being the first issue of units by the Embassy REIT, there has been no formal market for the units of the Embassy REIT. Therefore, no assurance can be given regarding the active or sustained trading in units or regarding the price at which the units will be traded after listing. Even the returns are not assured and as an investor, one needs to take all the risk factors into account before investing. The Embassy REIT has been given a long-term rating of [ICRA]AAA by ICRA. The outlook on the assigned rating is Stable .

As per the offer document, their Portfolio comprises of seven office parks and four city-centre office buildings totalling 32.7 msf as of December 31, 2018, with strategic amenities, including two completed and two under-construction hotels. The company has presences in Bengaluru, Pune, Mumbai and Noida.

As of December 31, 2018, approximately 80.9% of the Gross Rentals comes from 160+ tenant base which is contracted with leading multinational corporations and approximately 43.4% is contracted with Fortune 500 companies such as JP Morgan, Google and Microsoft.

The long-term contracted rentals have a weighted average lease length of 7.0 years. According to the company estimate, the market rents of our properties are 33.6% above in-place rents. The company has about 95.0% Committed Occupancy in their properties.

Under the REIT Regulations, the Embassy REIT is required to ensure the following:

* Invest not less than 80 per cent of the value of its assets in completed and rent or income generating properties

* Not more than 20 per cent of the value of its assets may only be invested in certain investments such as under construction properties, completed but not rent-generating properties, listed or unlisted debt of companies or body corporates in the real estate sector and unlisted equity shares of companies which derive not less than 75 per cent of their operating income from real estate activity.

* Not less than 51 per cent of the consolidated revenues of the Embassy REIT, and the Asset SPVs, other than gains arising from the disposal of properties, must at all times arise from rental, leasing real estate assets or other income incidental to the leasing of such assets.

Conclusion

Real estate has always been considered an illiquid and a big-ticket investment. REITs provide an opportunity to diversify across real estate as an asset class. REITs are primarily a hybrid investment-seeking capital appreciation and even income in the form of a dividend from the underlying securities of the sponsor. With twin benefits of REIT and the rules in place, one should expect the REIT to provide a new investment option to the Indian investors soon.