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Salient features of the REIT:
* Global investment company Blackstone Group L.P through BRE/ Mauritius Investments and domestic realty firm Embassy Property Developments Pvt. Ltd. is coming up with India’s first real estate investment trust (REIT) i.e. Embassy Office Parks REIT (EOP) to raise up to Rs. 47,500mn. Post-listing EOP would be the Asia’s largest REIT in terms of area under management.
* 75% of the issue is allocated for institutional investors, while 25% is available for non-institutional investors.
* The issue is a primary issue. Of the net proceeds, around Rs. 37,100 will be utilized for partial or full repayment or pre-payment of certain debt availed by the SPVs. Another, Rs. 4,600mn will be used for the acquisition of Embassy One Assets.
Key competitive strengths:
* Located in India, a leading services hub for global corporates
* Best-in-class office properties with high quality infrastructure
* Occupied by a diversified, high quality, ‘sticky’ multinational tenant
* Simple business with embedded growth
* Strategically located in top-performing markets with high-entry barriers
* Highly experienced management team
* Renowned Sponsors with global expertise and local knowledge
Risk and concerns:
* Slowdown in the economy
* Adverse government regulations and policies
* Inability to maintain higher occupancy and inability to renew lease
* Poor rental growth opportunities
* Delay in execution of under construction properties
* Rise in interest rate
Valuation & recommendation
Currently there are no listed REITs in India, thus it is not possible to provide an industry comparison in relation to the EOP.
Below are few key observations of the issue:
* EOP is the owner of a high quality office portfolio in India. As of 31st Dec. 2018, its portfolio comprises of seven best-in-class office parks and four prime city-center office buildings totaling 32.7mn square foot (msf), including two completed and two under-construction hotels totaling 1,096 keys, food courts, employee transportation and childcare facilities. 89% of the assets have been completed and operational, while 11% are in construction stage. Under construction hotels are expected to be completed by middle of 2021.
* EOP’s office assets are in the best performing office markets of India namely Bengaluru, Pune, Mumbai and Noida. These markets have exhibited strong market dynamics with world leading absorption (from 2013 - Q1 2018) and constrained forecast supply resulting in high rent growth and low vacancy on average. As of 31st Dec. 2018, it has achieved a committed occupancy of 95%, which is 690bps higher than the average occupancy in the respective market. It has also demonstrated premium rent with superior growth of 6.9% CAGR over 2013-Q1 2018, which is approximately 4.5x higher than the competitors in the market.
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