Embassy Office Parks Retail Estate Investment Trust will launch its three-day initial public offering on March 18 to raise up to Rs 4,750 crore as it looks to monetise its assets and reduce debt through India’s first such IPO.
The trustees are looking to sell around 15.83 crore units at Rs 299-300 apiece, according to its red-herring prospectus. Around 12.9 crore units worth Rs 3,873.7 crore are reserved for public investors, while Rs 876.3 crore worth of units will be offered to strategic investors at Rs 300 apiece.
The minimum lot size is 800 units, according to the offer document. Given the price band, it implies an investment of at least Rs 2.4 lakh. Thereafter, units can be bought in multiples of 400 or worth Rs 1.2 lakh. That will allow high-net-worth investors to buy units apart from institutions, but effectively rules out the participation of retail investors—categorised as those investing up to Rs 2 lakh by the market regulator.
REITs are mutual fund-liked listed instruments that pool in income-generating assets and allow investors to take exposure in real estate without physically owning it. India cleared such trusts in 2015 but the first public offer comes about four years later after several tweaks to the original rules.
The Embassy Office Park IPO, according to its prospectus, will help the trust repay debt worth Rs 3,710 crore, while the rest will go for general corporate purposes and acquisition of assets.
Business And Portfolio
- Sponsor: Embassy Property Developments Pvt. Ltd. and Blackstone Group’s Mauritius Investments
- Trustee: Axis Trustee Services
- Manager: Embassy Office Parks Management Services Pvt. Ltd., co-owned by the sponsors.
The trust is the owner and developer of offices in India for multinational tenants. It has a leasable area of 32.6 million square feet with total assets d at Rs 30,100 crore. It has 74 buildings in 11 commercial office complexes, and one operational and three under-construction hotels with 1,096 keys.
The properties are largely located in Bengaluru, Pune, Mumbai and Noida. Almost 81 percent of gross rentals come from about 160 tenants. The trust has long-term contracts and the weighted average term of a lease is seven years.
Financials
- Office rentals contribute around 80 percent of the total revenue, according to the prospectus, and maintenance services account for 8 percent.
- Its annualised revenue growth is expected to double to 10.1 percent in three fiscals through March 2021 from the previous three-year period, while the average margin is expected to remain above 80 percent till 2021.
The trust pays at least 90 percent of its net distributable cash flow to investors. The amount is expected to grow at an annualised rate of 8.3 percent to Rs 2,073.8 crore in three years ending March 2021.
Debt
After selling units in the IPO, the debt will fall from Rs 8,554 crore to Rs 4,795 crore, and its leverage will improve from 6.89 as of March 2018 to 3.16 times.
Michael Holland, chief executive officer of Embassy Office Parks, said in an interview with BloombergQuint that after the offer, debt will come down to 15 percent of the gross asset from 28 percent.
The REIT, according to the prospectus, is expected to offer an implied capitalisation rate—a measure of return on property—of about 8.2 percent in the next financial year.
What Experts Say
Return on commercial assets is around mid-teens through dividends and capital appreciation. This is a type of an equity product and has been globally successful with REIT returns outperforming pure-play equity returns by a fat margin.Shobhit Agarwal, MD & CEO, Anarock Capital.
A REIT’s maiden offer is being launched after three to four years of buzz in the realty space. Hopefully, it’s the beginning of many such issuances and initial hiccups will be addressed by regulators and banks.Pranav Haldea, MD, Prime Database Group
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