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Monday will see a new asset class — real estate investment trust — entering the trading platform at the stock exchanges. Blackstone-backed Embassy Office Parks REIT will be listing on the bourses on April 1.
The Embassy Office Parks REIT, a joint venture between the Bangalore-based property developer and private equity firm Blackstone, closed on March 20, subscribed 2.57 times; through the issue, it raised ₹4,750 crore at an issue price of ₹300/unit. The market lot is 400 units.
This is not just India’s first REIT offering, but also the largest in Asia, according to Knight Frank India. Despite the high minimum investment amount, what is interesting is that over nine crore individuals have bought the units of the REIT during the IPO.
According to the unitholding pattern available with the exchanges, individuals hold 9.31 crore units or 12.07 per cent stake in the REIT; foreign portfolio investors, including anchor investors, hold 14.54 per cent. Mutual funds hold 0.69 per cent.
Ahead of the IPO, Embassy Office Parks REIT raised ₹1,743 crore by allotting 5.81 crore units to 59 anchor investors at ₹300 a unit. The allottees include Fidelity Funds, SmallCap World Fund, Signature High Income, Prusik Umbrella UCITS Fund, American Funds Insurance, Jupiter Asian Income, TT Emerging Markets Equity, Aviva Investors, DB International (Asia), Bottle Palm Private Beneficiary Trust, Mine Superannuation, Japan Trustee Services Bank, Wells Fargo, Morgan Stanley, Kotak Mahindra Life and National Westminster for their various schemes.
The net proceeds from the issue, said Embassy REIT, will be used for partial or full repayment or pre-payment of bank/ financial institution debt of certain SPVs, payment of consideration for acquisition of Embassy One’s assets currently held by Embassy One Developers, and for general purposes.
How the REIT works
REITs, or real estate investment trusts, are sponsored by companies that own or finance income-producing real estate properties. The company generates income which is then paid out to shareholders in the form of dividends. REITs must pay out at least 90 per cent of their taxable income to shareholders — and most pay out 100 per cent.
As Shishir Baijal, Chairman & Managing Director, Knight Frank India, says the listing of India’s first REIT was one of the most awaited events in the real estate sector as it has taken over a decade and half to come to fruition. “The oversubscription of the REIT is, therefore, a very encouraging sign for the real estate sector at large and specially for the commercial segment.”
This positive response to the REIT will help build confidence among global investors and attract them to consider India along with its global peers such as Singapore and Hong Kong. “We look forward to a promising future especially for the commercial space and are likely to see more companies coming into the market with REITs,” said Baijal.
At a time when the Indian real estate sector has been facing a liquidity crunch due to unsold inventory and low demand, REITs can help cash-strapped developers monetise their existing properties. Will REITs yield good results for investors and developers? All depends on the success of this IPO.
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