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Published on 15/03/2019 10:43:04 AM | Source: Motilal Oswal Securities Ltd

India`s first proposed listing of REIT to raise INR47.5b - Motilal Oswal

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India’s first proposed listing of REIT to raise INR47.5b

* India’s first real estate investment trust, Embassy Office Parks REIT, will open for subscription on 18th Mar’19, with target to raise INR47.5b, in the price band of INR299-300. The IPO will close on 20th Mar’19.

* Launched at 20% discount to NAV, it offers 8.25% yield, to be distributed in the form of dividend and interest in 50:50 ratio.

* Embassy REIT’s portfolio comprises seven best-in-class office parks and four prime city-center office buildings, totaling 32.6msf as of 31st Mar’18.Total market value of all completed and under-construction/proposed assets is INR340b.

* Leasing income is expected to grow from INR18b in FY19 to INR25b in FY21 driven by embedded organic growth opportunities (MTM re-leasing), leasing of vacant space, on-campus development, acquisitions and ROFO with Embassy REIT’s sponsor.

* Key sponsors include Bengaluru-based Embassy group and private equity firm Blackstone Group. Manager for the REIT is Embassy Office Parks Management Services, which is led by Mr. Micheal Holland (ex JLL, Assetz), who has over 20 years of work experience in CRE).

 

Capitalizing embedded organic growth and new development opportunities:

Contract revenues and re-leasing to existing tenants at market rents should see revenue from operations increase to 46.4% over FY20/ FY21. Due to significant mark-to-market re-leasing opportunity (29.3% area expiring over 4QFY19 –23) backed by strong fundamentals, Embassy expects additional rent of INR176m over FY20-21.

 

Leasing of vacant space over the next 15 months:

As at 31st Dec’18, the portfolio had 95.0% committed occupancy. The remaining 5.0% vacancy is primarily concentrated in Embassy Techzone in Pune, 152 Embassy One in Bengaluru and Embassy 247 and FIFC in Mumbai. Embassy expects to lease these over the next 15 months, resulting in INR1,124m of additional rental revenue over FY20-21.

Continue ‘on-campus’ development programs:

As at 31st Dec’18, its portfolio consists 7.9msf development pipeline (2.5msf under-construction) on land located within its parks. They also have two hotels, which are under construction, namely the ‘Hilton’ and the ‘Hilton Garden Inn’ at Embassy Manyata, together boasting of 619 keys. The ‘Four Seasons’ at Embassy One (with 230 keys) was completed recently and is expected to commence operations in 1H2019. Its other underconstruction hotels are expected to be completed after FY21; the construction plan is expected to add INR387m of rental revenue by FY21.

 

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