Blackstone Part-Sells Stake In Embassy Office Park REIT
Private equity major Blackstone Group has offloaded 8.7% of its stake in the Embassy Office Parks REIT, in block deals. The transaction, which saw 14 domestic and global players buying stake in India’s first and only REIT, helped the PE giant raise over $300 million. The sale bring Blackstone's stake in the REIT to 46.3%.
In April 2019, the REIT raised Rs 4,750 crore through an IPO and listed its units at Rs 300. The latest transaction, on the other hand, took place at Rs 341 per unit.
At Rs 461.8 crore, the Embassy Office Parks REIT reported a 10% year-on-year increase in net operating income, for the quarter ended March 2020. It also reported 8% growth in revenue at Rs 543.9 crore.
What is a REIT?
REITs are entities that own and operate commercial real estate by pooling in money from various stakeholders. Quite similar to mutual funds, REITs are traded on stock exchanges. Unlike stock investments, long-term investments are expected to earn much higher returns ─ typically, long-term investors gain between seven and nine per cent returns on their investments. The success of the REIT, which is the second-biggest commercial real estate listing in Asia in terms of square footage, is also crucial since it would be defining the global investors’ approach towards India’s commercial real estate.
In 2010, global alternative investment management company Blackstone joined hands with Embassy Group, to launch Embassy Office Park, in which they held a 65 per cent and a 20 per cent share, respectively. This venture led to a dramatic change that saw global companies rushing to get a pie of India’s commercial real estate ─ media reports say nearly $1 billion has been invested in India’s commercial real estate by global giants since then.
All about Embassy office Park REIT
Embassy Office Parks, a joint venture between US private equity company Blackstone Group and Bengaluru-based realtor Embassy Group was listed in April 2019, and has shown growth since then.
The company had an occupancy level of 92.8%t on 26.2 million square foot (sqft) operating office portfolio, and leased 3,89,000 sqft new area during the March quarter. The company said that despite the Coronavirus pandemic, its rent collections from office occupiers remained strong at 92% in April 2020.
Overall, Embassy Office Park owns and operates 33.3 million square foot of commercial space under the REIT spread across cities such as Mumbai, Pune, Bengaluru and Noida, through which it currently owns and earns Rs 2,000 crore annually as rent. More than half of company tenants are Fortune 500 companies, including Google, JP Morgan, Microsoft and Mercedes Benz.
Forming part of the REIT are premium properties owned by Blackstone, including the iconic Express Tower at Nariman Point, part of the International Financial Centre at the Bandra-Kurla Complex, 247 Park at Vikhroli, the Blue Ridge Special Economic Zone, Galaxy IT Park and Oxygen Boulevard in Noida.
In May, rating agency CRISIL also reaffirmed the ‘AAA/Stable’ rating on Embassy REIT's Rs 36.5-billion non-convertible debentures.
"The rating continues to reflect Embassy REIT’s comfortable loan-to-value ratio, driven by low debt levels and strong debt protection metrics, supported by a cap on incremental borrowing—and stable revenue from the underlying assets, given high-quality commercial assets, high occupancy levels, and geographical diversification. These strengths are partially offset by susceptibility to volatility in the real estate sector, resulting in fluctuations in rental rates and occupancy,” CRISIL said.
The REIT,which is listed on the National Stock Exchange, as well as the Bombay Stock Exchange, has generated an absolute return of almost 18% since its listing— from Rs 300 apiece, its share price is currently ar Rs 356 (as on June 25, 2020) .
Since it is not an equity fund but an asset class, a minimum three-year holding is advisable for stakeholders. Selling the units before three years would attract short-term capital gains tax while after three years, the proceeds will attract long-term capital gains tax.