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Embassy Office Parks, backed by private equity giant Blackstone and Bengaluru-based realty player Embassy on December 15 approved the launch of its mega fundraising plans with the first institutional placement by an REIT in the country.
Moneycontrol was the first to report the big-bang fund raise plans on November 9, 2020. Embassy is India’s first publicly listed Real Estate Investment Trust (REIT) and also the largest REIT in Asia by area. Listed in April 2019, it owns and operates a 33.3 million square feet (msf) portfolio.
“They are looking to raise between $500 mn to $600 mn to fund the recent acquisition of additional office assets to bolster the existing portfolio,” said a source familiar with the launch plans. A floor price of Rs 348.38 per unit has been approved by the firm for the institutional placement, according to a notification to the bourses.
“Morgan Stanley, BofA Securities, JP Morgan, and Kotak Mahindra Capital are the lead bankers for this fund raise,” added a second individual.
Both the individuals spoke to Moneycontrol on the condition of anonymity. Embassy Office Parks REIT, Morgan Stanley, BofA Securities, JP Morgan, and Kotak Mahindra Capital couldn’t be contacted for an immediate comment.
On November 17, Embassy REIT, announced that it had agreed to purchase Embassy TechVillage assets from affiliates of Embassy Sponsor, Blackstone Sponsor, and other selling shareholders for a total consideration of $1.3 billion, subject to unitholder and regulatory approvals.
The Embassy TechVillage acquisition comprises 6.1 million square feet of completed area, 3.1 msf of under-construction area, of which 36 percent is pre-leased to JP Morgan, and two proposed 518-keys Hilton hotels within the overall ETV campus, an official announcement said.
Embassy REIT is exercising its right under the ROFO agreement to acquire the asset, the firm added.
“The REIT proposes to fund this $1.3 billion acquisition by issuing equity of $812 million through a combination of an institutional placement of $500 million and by way of a preferential issue of units to third-party selling shareholders of $312 million," the firm had said as part of the announcement in November.
An REIT is a company that owns, and in most cases operates, income-producing properties or real estate. Modelled after mutual funds, REITs pool the capital of numerous investors and generate a steady income for their investors. REITs own many types of commercial real estate, ranging from office and apartment buildings to warehouses, hospitals, shopping centres and hotels.
The Embassy Office Parks strategy
In its 2019 annual report, Embassy Office Parks had outlined its strategy to maximise total returns by growing net asset value, increasing distributions and expanding the portfolio. “Judiciously acquire assets from our Right Of First Offer (ROFO) arrangement with Embassy Sponsor, as well as from third parties”, was one of the levers which formed part of the strategy. To be sure, a ROFO says that a rights holder can buy or bid for an asset before the owner tries to sell the same asset to a third party.
In November 2019, Embassy Office Parks REIT said it had received a ROFO invitation from Embassy Property Developments for the potential sale of 6.2 million sq ft of completed office premises and 2.5 million sq ft of under-construction area in Embassy TechVillage in Bengaluru.
Embassy REIT said it would evaluate this offer, but said "there can be no assurance that the Embassy REIT will enter into any definitive arrangements for the proposed acquisition".
Post the board meet on November 2, 2020, the results for the second quarter were announced and Mike Holland, Chief Executive Officer of Embassy REIT, had indicated further growth via the acquisition route.
“Embassy REIT continues to deliver amidst challenging conditions caused by the global pandemic. We have been successful in collecting rents, keeping expenses low, and maintaining a healthy balance sheet. Most notably, we are distributing cash flows to our unitholders that compares to the payouts of the top yield-paying Indian corporates. We also remain focused on growth through multiple channels including accretive acquisitions,” he said.
Blackstone also backs the Mindspace Business Parks REIT along with developer K Raheja. It also has plans for third REIT offering in India.
On October 17, 2020, Moneycontrol reported that Blackstone and Pune-based Panchshil Realty were evaluating an REIT listing of their joint venture assets. On June 23, Moneycontrol was the first to report that Blackstone had launched a block deal to sell some of its units in Embassy Office Parks REIT and raise around $300 million.
Embassy REIT’s portfolio consists of seven infrastructure-like office parks and four city‑centre office buildings in the markets of Bengaluru, Mumbai, Pune, and the National Capital Region (NCR).
Embassy REIT’s portfolio comprises 26.2 msf completed operating area, has an occupancy of 91.7 percent as of September 30, 2020, and is home to many of the world’s leading companies as occupiers. The portfolio also comprises strategic amenities, including two operational business hotels, two under‑construction hotels, and a 100MW solar park supplying renewable energy to park occupiers.
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