Blackstone, Embassy file 1st REIT offer with Sebi, plan to mop up Rs 50 bn

Global investment company Blackstone and realty firm Embassy Group Monday filed its offer document with markets regulator Sebi to launch the country's first real estate investment trust (REIT) to raise over Rs 50 billion.

Embassy Office Parks, the joint venture firm of Blackstone and Embassy, has filed the draft red herring prospectus (DRHP) with the regulator to launch REIT, which would be Asia's largest in terms of portfolio size of 33 million sq ft, sources said.

The JV firm proposes to raise over Rs 50 billion through its REIT, with an option to raise further 25 per cent, they said. The issue is likely to hit the capital market this fiscal, depending on the regulatory approvals and market conditions.

Securities and Exchange Board of India (Sebi) had notified REIT's regulations in 2014, allowing setting up and listing of such trusts, which are very popular in some advanced markets. However, not a single REIT has been launched and listed so far.

REIT is an investment tool that owns and operates rent-yielding real estate assets. It allows individual investors to make investment in this platform and earn income.

According to sources, Embassy Office Parks, a leading player in commercial real estate, has put 33 million sq ft of office and hospitality assets under its proposed REIT comprising of 7 business parks and 4 city-centric buildings spread across Mumbai, Bengaluru, Pune and Noida.

Out of 33 million sq ft, about 24 million sq ft area is operational at 95 per cent occupancy and yielding rental income of over Rs 2,000 crore annually. Another 3 million sq ft area is under construction and 6 million sq ft area in pipeline.

Embassy Office Parks' rental income is expected to rise by 55 per cent in the next 3 years as it expects to lease area at a higher rent. Presently, its office spaces are leased at 35 per cent lower than the market rental and the same would be be revised while renewing the lease agreements with the clients.

The JV firm has top MNC clients in its commercial projects. More than 50 per cent of the rents come from Fortune 500 companies. Clients such as Microsoft, Google, Wells Fargo, JP Morgan etc have their base in the office parks.

The proposed REIT has an ability to bring in more assets, either inorganic or developed by Embassy to the tune of another 50 million sq ft in the next few years, sources said. The proposed REIT will have first right of refusal to acquire commercial projects developed by Embassy Group and it can buy properties of other developers as well.

Embassy Office Parks had last year registered its REIT with Sebi, sponsored by Blackstone and Bengaluru-based Embassy Group. Property consultant CBRE is the valuer of this proposed REIT.

Unlike housing segment, the commercial real estate sector is doing well and attracting huge investments from domestic and global investment firms. The rising demand for co-working space is also fuelling demand for office properties.

Apart from Blackstone-Embassy, India's largest realty firm DLF is a major player in commercial real estate with a portfolio of over 30 million sq ft and a rental income of about Rs 30 billion. Singapore's sovereign wealth fund GIC has invested Rs 90 billion in December last year in DLF's rental arm.

Brookefield, Canada Pension Plan Investment Board (CPPIB), Ascendas and Qatar Investment Authority are also investing in commercial real estate.

Many real estate developers have made plans to create a strong portfolio of commercial real estate. The success of Blackstone-Embassy group's REIT will further strengthen this trend.