India's first REIT issue: Blackstone-Embassy JV raises nearly Rs 1,750 cr from anchor investors

Global investment company Blackstone and realty firm Embassy Friday raised Rs 1,743 crore from anchor investors ahead of the country's first real estate investment trust (REIT) issue that opens on March 18. The REIT issue has elicited strong response from domestic and foreign investors.  Embassy Office Parks, joint venture of Blackstone and Embassy, has so far raised Rs 2,619 from anchor and strategic investors in its REIT, which is 55 per cent of the total issue size of Rs 4,750 crore.

Damani Trust, Fidelity, American Funds insurance, Aviva Investors, TT Emerging, Schroder, Citigroup, Kotak Mahindra Insurance, Wells Fargo, Lockheed Martin, Morgan Stanley France, Japan Trustee Services Bank are among 59 anchor investors. As per the regulatory filing, Embassy Office Parks has finalised allocation of 58,105,600 units to anchor investors at Rs 300 per unit, totalling 1,743.16 crore.

It had earlier entered into unit subscription agreements with strategic investors to allot them 2,92,08,800 units for Rs 876.3 crore. The strategic investors are American Funds Insurance Series, New World Fund INC and SMALLCAP World Fund Inc. The issue will open on March 18 with a price band of Rs 299-300 per unit. The issue closes on March 20. The total issue size is 12,95,56,000 units.

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. The Sebi had notified REIT's regulations in 2014, allowing setting up and listing of such trusts, which are popular in some advanced markets. Embassy Office Parks had in September last year filed the draft red herring prospectus (DRHP) with market regulator Sebi to launch REIT, touted as Asia's largest in terms of portfolio size of 33 million sq ft.

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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 seven business parks and four city-centric buildings spread across Mumbai, Bengaluru, Pune and Noida. Out of the 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 three years as it expects to lease area at a higher rent. Banking sources had earlier said the internal rate of return (IRR) for unit holders is expected at around 9 per cent in the first year and about 18 per cent in a five-year horizon.

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 and JPMorgan have their base in the office parks. Unlike the housing segment, the Indian commercial real estate sector is doing well and attracting huge investments from domestic and global investment firms. Rising demand for co-working space is also fuelling demand for office properties.