Blackstone’s wait to exit Embassy REIT gets longer

With valuations and pricing not matching up to its expectations, global private equity giant Blackstone has resigned itself to a longer wait to exit - fully or partially - its stake in Embassy Office Parks REIT.

In a recent conversation with businessline, Asheesh Mohta, head of real estate acquisitions at Blackstone, said with valuations being what they were, this was not the right time to look for an exit. They were in no hurry and were prepared to wait for 3-4 more quarters before deciding on an exit.

Separately, in response to an e-mail, a Blackstone spokesperson said, “At Blackstone, we have a long-term view and are not looking at exiting our office investment in the short-term.” Blackstone invests on behalf of some of the world’s largest investors, including sovereign wealth funds and pension funds, and its investments have a definite pay-off in the form of returns and profitable exits.

In January this year, when the US-based asset manager was in talks with Bain Capital to sell about half its stake in the REIT, the latter’s market capitalisation was around $4 billion, and it is now at $3.4 billion. Sources said the talks with Bain Capital had floundered on valuations and the pricing.  

Also read: Blackstone puts Embassy REIT exit on the backburner for now

A source with knowledge of the developments said Blackstone’s asking price at that time was at a significant premium to what Bain Capital was willing to fork up. Blackstone offered no response on this.

Bain Capital did not respond to an email seeking clarification on the talks.

After offloading shares in several rounds since Embassy REIT’s listing in 2019, Blackstone has brought down its stake in the REIT to 23.6 per cent now from 55.3 per cent in June 2019.

Embassy REIT, the first real estate investment trust to be listed in India, had a promising debut on the stock exchanges, and while listing gains were modest, the price soon shot up to Rs 512 in March 2020. Since then, however, the stock performance has been under par, and it is currently trading near its issue price of Rs 300.

Also read: Raising money. Blackstone may sell partial stake in Embassy REIT for ₹4,000 crore

The office sector globally is subdued and a significant portion of the companies occupying Embassy REIT’s offices are global Fortune 500 companies based in the US and Europe, where office occupancies are still low. Embassy REIT’s occupancy rates have remained in the mid-80s over the past year or so, with a negative bias. While its average in-place rents show a rising trend, its mark-to-market opportunity in terms of spreads has shrunk over the past year. There has been a distinct downward trend in the number of deals as well as the volume of new leases.

The headwinds in the IT sector are particularly affecting large new leases and global corporations are still taking time to sign off on leasing transactions. The lack of clarity on the SEZ policy with respect to denotification of such areas also contributes to the pressure on occupancies.

Property consultant JLL in a note on global real estate in August said, “Occupiers are maintaining a cautious approach with lengthy decision-making timelines, while the rising cost of capital and conservative underwriting from investors is also subduing transaction markets.” In key cities in the US, office vacancies were in double digits, while in Europe it was in high single digits.

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