Embassy no. 2 realty co on REIT debut

Mumbai: The Embassy Office Parks REIT, India’s first share sale in a property collection under one operator, Monday became the country’s second-most valuable realestate company on its stock-market debut, highlighting the potential of an investment product that already finds favour with the uberrich in New York, Singapore or London.

After gaining as much as 8 per cent to Rs 324.50, compared with the offer price of 300, the REIT units ended at Rs 314.10, up 4.7 per cent. On Monday’s closing price, the Embassy REIT was valued at Rs 24,238 crore, bettered in the property space only by DLF, which has a market capitalisation of Rs 38,474 crore.

And analysts believe there is scope for immediate further appreciation. “The units are currently trading at a 20 per cent discount to the total NAV of Rs 375, based on the current market price of SPV projects,” said Anil R, analyst, Geojit Financial Services. “The company has invested in India’s key office markets of Bengaluru, Pune, Mumbai and Noida and these markets have exhibited strong dynamics…(High) absorption and constrained supply have resulted in high rental growth and low vacancy.”

At the current market price, the Embassy REIT units are traded at 12.6 times their estimated FY20 net distributable cash flow, yielding 8.25 per cent. “(This) has been a marquee and landmark deal: It is India’s first REIT and has best-in-class office assets across cities,” said Nipun Goel, head, investment banking at IIFL.

“Given the novelty of the product in India, the sponsorship of Blackstone and Embassy provided … comfort to the investors,” he added.

The three-day offer that ended on March 20 saw robust demand and was subscribed 2.58 times on the final day of bidding.

The Embassy REIT, backed by global private equity firm Blackstone Group LP and the Bengaluru-based Embassy Property Developments, raised Rs 4,750 crore through the issue of units at Rs 300 apiece. Embassy is likely to reduce its debt by 85 per cent after the issue.

“….It clocked 80.9 per cent of its gross rentals from ….corporates. Its revenues are expected to grow…on the back of rental escalation and better occupancies in certain assets” said Deepak Purswani, analyst, ICICI Direct. “(It) also enjoys a comfortable balance sheet, indicating potential for inorganic growth in the asset portfolio.”

Encouraging investor response and good listing of the Embassy REIT increase the probability of similar sales by real estate companies that have substantial portfolios of rent-yielding assets.

“We expect a slew of REIT offerings to hit the market in the coming months,” said Gaurav Dua, head of research, Sharekhan.

“The ability to raise resources through the monetisation of rentyielding properties at a relatively attractive cost is a re-rating trigger for not only the REIT issuing realestate companies, but also a boost for investor sentiment toward the entire sector.”

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