Blackstone-backed India REIT wins over investors amid low interest rates

India’s first ever real estate investment trust has outperformed peers since its debut in late March, helped by a low interest rate environment that’s forcing investors to look elsewhere for yield.

 

Blackstone Group LP-backed Embassy Office Parks REIT has risen 21 per cent since its listing, beating indexes that track REITs in Singapore and Japan.

 

“This kind of return isn’t usual from a REIT,” said K V S Manian, an executive director at Kotak Mahindra Bank Ltd. “A large part has to do with the benign interest rate environment in India now.”

 

Interest rates in India are on a downward trajectory after the central bank cut borrowing costs three times since January.

Economists say further easing is expected. REITs offer a fixed return from a pool of rent-yielding assets, along with the prospect of capital appreciation.

 

Embassy operates around 33 million square feet of office space and has marquee tenants including Microsoft Corp. and Rolls-Royce Holdings Plc. The REIT should see compound annual growth in rental income of around 16 per cent through 2023, analysts at Kotak Securities Ltd. wrote in a report last month.

 

Rental income will receive a boost from re-pricing of old contracts at higher amounts and a better mix of occupants as leases are renewed, the report said.

 

Embassy’s securities were rated outperform by Credit Suisse Group AG earlier this month, bringing buy recommendations on the REIT to six, versus one hold and zero sells.