High Yield Draws Investors to Blackstone-Backed India REIT
Indian rupee banknotes of various denominations sit in a cash register. Image used for representation only.

High Yield Draws Investors to Blackstone-Backed India REIT

(Bloomberg) -- A dividend yield that’s higher than that on India’s benchmark sovereign bond is helping Blackstone Group-backed Embassy Office Parks REIT to entice investors during a pandemic that has shut down much of the economy.

Embassy, the nation’s only publicly traded real estate investment trust, is set to pay out 18.8 billion rupees ($250 million) to investors for the year ended March 31, its first 12-month period since listing. That puts its indicated dividend yield at 8.3% as of Thursday, versus 5.77% for the nation’s 10-year government debt.

While returns are projected to dip going forward as the pandemic forces businesses to re-imagine workplaces, the company is still seen by analysts as a place to get a high payout in a world of low bond yields. Embassy’s shares are rated “buy” by nine analysts tracked by Bloomberg, with just two “holds” and one “sell” rating. The stock rose 0.7% to 334 rupees at 9:45 a.m. in Mumbai in a second day of gains.

“Embassy’s low exposure to under-construction assets, strong balance sheet and attractive dividend yield should work in its favor,” Mohit Agrawal, an analyst at Mumbai-based IIFL Securities Ltd., wrote in a report this week. IIFL expects the yield to fall to 6.8% in the year to March before recovering to 7.5% in 2022.

High Yield Draws Investors to Blackstone-Backed India REIT

Kotak Institutional Equities forecasts yield of 7.7% for the year to March, with dividend payouts compounding at 11% annually between the fiscal period ended 2020 and 2023. Morgan Stanley is overweight on the stock and expects the yield to sustain in the 7.5% to 7.8% band over the next two years.

Still, REITs haven’t been immune to slashing dividends globally as commercial and residential tenants struggle to pay rent. Morgan Stanley estimates that 50 U.S. REITs have cut payouts due to the pandemic, joining more than 100 ‘Russell 1000’ members that have cut or suspended dividends.

Embassy REIT this week said it expects demand for office properties to decline significantly in 2020 before recovering as rising coronavirus infections prompt businesses to delay decisions on whether to lease new space. On the flip side, the company’s tech-focused portfolio may benefit from the supply crunch as new construction of top-quality buildings halts, Vikaash Khdloya, deputy chief executive officer, said on an earnings call on Wednesday.

The leasing of 1.4 million square feet of office space and the impact of the virus outbreak on vacancy at two of Embassy REITs hotels remain near-term headwinds for the company, according to Kotak Institutional.

Commercial premises are gradually reopening, especially in Bangalore where Embassy is based, as India takes steps to exit the world’s strictest lockdown. The company expects other business hubs of Noida and Pune to also move to a less restrictive regime in the coming weeks, Khdloya said.

“The focus toward better-managed, safer properties will work to our benefit as concern for employee safety for the best corporate occupiers will trump cost,” he said.

©2020 Bloomberg L.P.

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