Embassy-Blackstone to file for Rs 6,000 crore REIT this month

This is likely to be the only REIT of 2017, other investors wait & watch

The wait for real estate investment trusts, or REITs, in the country could end soon, with Embassy Office Parks — the joint venture (JV) between Bengaluru-based developer Embassy and US-based private equity group Blackstone — planning to file a draft red herring prospectus (DRHP) this month.

This will not only be the first REIT in the country, but is also likely to be the only one this year.

That does not mean interest for REITs has faded. Everyone is waiting and watching the first take-off before tapping the market themselves, a consultant dealing with REITs said.

Qatar Investment Authority-backed RMZ, Mumbai-based K Raheja Corp, where Blackstone has picked up stake, mall operator Phoenix Mills are among the potential REIT players, sources said.

Embassy-Blackstone JV is looking to hit the market by November and raise Rs 6,000 crore through the issue, Jitu Virwani, chairman and managing director (MD) at Embassy Property Developments, said. The JV will dilute 25 per cent in the issue.

“Hopefully, we will file DRHP by September-end, and hit the market by November,” said Virwani.

In July, capital markets regulator Securities and Exchange Board of India approved Embassy-Blackstone’s application for registration of the property trust.

Embassy Office Parks has office assets of 20 million sq ft in Bengaluru and other southern cities. Morgan Stanley is the banker for the issue. Blackstone’s other JV partner, Pune-based Panchshil, is also working on REITs, though the progress on the same could not be ascertained.
 

“We are looking at REITs. It (Embassy REIT) will be a good test case to work on, and the success of the issue is good for the industry,” said Thirumal Govindraj, MD-management at RMZ Corp.

While DLF, the country’s largest developer, was earlier looking at REIT, it may have changed its mind after the Rs 8,900-crore deal with Singaporean fund GIC, sources said.

The valuation that Embassy REIT gets will determine the pace of filing by other developers and investors.

“Since Blackstone is coming with a REIT, the fiduciary is high as they will do the right things. Depends on what happens to the first issue, other players will look at it,” said Shobhit Agarwal, MD-capital markets at JLL.

However, Agarwal said the issue must get a yield which is lower than seven per cent to become successful, as private deals fetch about eight per cent. It works on the principle of lower the yield, higher the valuations.

There are around 900 REIT-worthy properties, and close to 283 million sq ft of office space in the country, which can be brought under REITs, real estate management company JLL said earlier. As of 2016, there were over 500 REITs operating across the world, with total market capitalisation of more than $900 billion, estimates suggest.

DOSE OF REALTY

— Embassy Office Parks looking to hit the market by November

— To raise Rs 6,000 crore; to dilute 25% in the issue

— Sebi approved its application for registration of its property trust in July

— Embassy-Blackstone JV has office assets of 20 million sq ft in Bengaluru, other southern cities

— Morgan Stanley is the investment banker for the issue

— RMZ, K Raheja Corp, Phoenix Mills probable candidates for real estate investment trusts