India’s First REIT Launched; Should You Subscribe?
After opening the initial public offering of India's first real estate investment trust (REIT) on March 18, Embassy Property Development has become the second-most valuable real estate company in India on its stock market-debut on April 1. The three-day IPO that ended on March 20 saw robust demand and was subscribed 2.58 times on the final day of bidding. Embassy raised Rs 4,750 crore through the issue of units at Rs 300 a piece. It is likely to reduce its debt by 85 per cent after the issue.
Here is all you need to know about REIT-
What is REIT?
REITs are entities that will own and operate commercial real estate by pooling in money from various stakeholders. Quite similar to mutual funds, REITs are traded on stock exchanges. And, unlike stock investments, long-term investments are expected to earn much higher ─ 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 hold a 65 per cent and a 20 per cent share, respectively. This coming together of two titans 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.
What is on offer?
Embassy Office Parks, a joint venture between US private equity company Blackstone Group and Bengaluru-based realtor Embassy Group, plans to raise over Rs 5,300 crore through the REIT, which was registered in July last year.
Embassy Office Park will list 33 million square foot of commercial space under the REIT spread across cities such as Mumbai, Pune, Bengaluru, Hyderabad, Chennai and Noida which it currently owns and earns Rs 2,000 crore annually as rent. Twenty-four million sqft of this area is complete, with a 95 per cent occupancy rate. 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.
The operator of Hilton and Four Seasons brand hotels is targeting a market value of Rs 35,000 crore for the upcoming REIT.
How to invest?
Investor needs to bid for a minimum of 800 units (Rs 2.4 lakh approx.) and in multiples of 400 units. These units are listed on the National Stock Exchange as well as the Bombay Stock Exchange. Since it is not an equity fund but an asset class, a minimum of three-year holding is advisable. Selling the units before three years would attract short-term capital gain tax while after three years, the proceeds will attract long-term capital gain tax.