Embassy Office Parks REIT Issue – First REIT in India – Should you Invest?

Embassy Office Parks Ltd REIT Public Issue ReviewEmbassy Office Parks REIT Issue Review

Embassy Office Parks REIT Public Issue would hit the market on 18th March, 2019. Many of us might not be much aware about REIT Units or REIT Investments. Embassy Office Parks  are the owner of a high quality office portfolio in India that serves as essential corporate infrastructure to multinational tenants and has significant embedded growth prospects. What is REIT in India? What are the positive factors in Embassy Office Parks REIT Public Issue? What are the hidden factors in Embassy Office Parks REIT Public Issue? What is the tax aspect of investing in REIT IPO / Public Issue? Should you invest in Embassy Office Parks REIT Public Issue?

Also Read: 5 Best Midcap Mutual Funds to invest in India in 2019

What is REIT in India?

The REIT is like a mutual fund. Mutual Fund invests in stocks and debt instruments. However, REIT pools money from investors and invests in income producing real estate properties. Means investors are indirectly investing in real estate properties.

Here is the flow:

Investors invests in REIT à REIT Manager invests in Real Estate Properties à Rent Received / Capital Appreciation on assets à REIT Manager/Trust à Distribute dividend income/Rental income/Interest Income/Capital gains to Investors.

You can watch this video for more info.

About Embassy Office Parks Limited

They are the owner of a high quality office portfolio in India that serves as essential corporate infrastructure to multinational tenants and has significant embedded growth prospects. They expect to be the first listed REIT in India upon the listing of Units on the Stock Exchanges and believe that there is no other office portfolio of comparable scale, diversity and quality in India today. Over the last two decades, India has emerged as a leading services hub for global corporations, due to its large talent pool and cost advantage of high value services. This, along with expansion of domestic companies, has resulted in robust demand for commercial office space and strong growth across India’s major office markets.

Embassy Office Parks REIT Public Issue Issue details

IPO opening date: 18-Mar-2019

IPO closure date: 20-Mar-2019

Face Value: Rs 0 per share

Issue price band: Rs 299 to Rs 300 per share/unit.

Issue size: 4,750 Crores to Rs 5,000 Crores

IPO Lot size: 400 shares and 400 shares, there-off. The minimum order is 800 shares

Minimum investment: Rs 2.4 Lakhs on the higher price band (SEBI REIT guidelines say Rs 2 Lakhs for Retail, however 800 units would arrive at Rs 2.4 Lakhs).

Leading Managers: Axis Capital, Credit Suisse, Deutsche Equities, Goldmansachs, HSBC Securities, IIFL Holdings, JM Financials, Nomura Financial Advisory

Listing: BSE / NSE

Download Embassy Office Parks REIT Public Issue DRHP Prospectus at this link.

Objects of the Embassy Office Parks REIT Public Issue issue

The investment objective of the Embassy REIT shall be to make investments as a real estate investment trust as permissible in terms of the REIT Regulations. The investment of the Embassy REIT 61 shall only be in accordance with the REIT Regulations, including in such holding companies, special purpose vehicles or real estate properties (whether completed or otherwise), securities in India or transferable development rights as permitted under the REIT Regulations.

The principal investment objective of the Embassy REIT is to own, operate and invest in rent or income generating office real estate and related assets in India in accordance with the REIT Regulations. The Trustee shall ensure that the Capital Contribution (as defined in the Trust Deed) and other REIT Assets (as defined in the Trust Deed) shall be utilized solely for the purposes of making investments as stated above and for incurring the REIT Expenses (as defined in the Trust Deed), in accordance with the REIT Regulations.

Company Financials (Reinstated-Combined)

1) The company generated revenue of Rs 1,575 Crores for the year ended Mar-16 and Rs 1,766 Crores for the year ended Mar-18. Its revenues are Rs 1,493 Crores for 9 months ended Dec-2018.

2) The company posted a profit of Rs 93.1 Crores for the year ended Mar-16 and profit of Rs 256.9 Crores for the year ended Mar-18. It posted a profit of  Rs 212.1 Crores for 9 months ended Dec-2018.

Embassy Office Parks Ltd Financials FY2016-2018- REIT Public Issue

What are the key strengths of Embassy Office Parks Limited?

Here are the key strengths of the company.

1) Located in India, a leading services hub for global corporates.

2) Best-in-class office properties with high quality infrastructure.

3) Highly occupied by a diversified, high quality, ‘sticky’ multinational tenant base.

4) Simple business with embedded growth.

5) Strategically located in the top-performing markets with high barriers to entry.

6) Highly experienced management team.

7) Renowned Sponsors with global expertise and local knowledge.

What are the Strategies of Embassy Office Parks Ltd?

Here are the key strategies of the company.

1) Capitalize on our Portfolio’s embedded organic growth and new development opportunities

2) Disciplined acquisition strategy with strong balance sheet

3) Proactive asset management to drive value

4) Rent and Occupancy Analysis

What is the Grey Market Price (GMP) of Embassy Office Parks REIT Public Issue?

There is no Embassy Office Parks REIT Public Issue GMP trading happening in the market as it is REITs public issue.

What are the tax implications of investing in such REIT Public Issue IPO?

Here is the taxation aspect of any returns/capital gains from REITs.

1) REITs are supposed to distribute 90% of the distributable cash flow to unit holders by way of dividends. Such dividends are tax free for investors as the company would pay dividend distribution tax

2) REIT units would be listed on BSE/NSE and may trade at the higher price or lower price. If you sell them before 3 years from the date of allotment/holding, you need to pay short term capital gain of 15%. If you sell them after 3 years from the date of allotment/holding, you need to pay long term capital gain of 10% in excess of Rs 1 Lakh.

Reasons to invest in Embassy Office Parks REIT Public Issue

1) First REIT IPO Public Issue that has come up with a public subscription.

2) Consistent revenue growth in the last 3 years. Its revenues increased from Rs 1,575 Crores in FY16 to Rs 1,766 Crores in FY2018.

3) Margins are on the improvement mode i.e. it posted profits of 5.9% in FY2016 Vs 14.5% in FY2018.  However, all investments made till now would start yielding income going forward, hence past history may or may not be relevant here.

4) 90% of the distributable cash flow should be given to unit holders. Means, unit holders might get regular income by way of dividends though not guaranteed.

5) The Embassy REIT has been given a long-term rating of [ICRA] AAA by ICRA. The outlook on the assigned rating is ‘Stable’.

Risk Factors / Reasons not to invest in Embassy Office Parks Ltd IPO/Public Issue

1) The Formation Transactions will only be given effect to after the Bid/Issue Closing Date. Further, they will assume existing liabilities in relation to the Portfolio, which liabilities if realized may impact the trading price of the units and its profitability and ability to make distributions

2) After the completion of the Issue and the listing of the Units, they intend to obtain external debt financing to repay a portion of the debt of the Portfolio and to finance the Portfolio’s business and financing requirements. The terms of this financing may limit its ability to make distributions to the Unitholders.

3) They may utilize a significant amount of debt in the operation of its business, and its cash flows and operating results could be adversely affected by required repayments or related interest and other risks of its debt financing. Its inability to service debt may impact distributions to Unitholders.

4) They do not provide any assurance or guarantee of any distributions to the Unitholders. They may not be able to make distributions to Unitholders in the manner described in this Offer Document or at all, and the level of distributions may decrease.

5) The REIT Regulations impose restrictions on the investments made by us and require us to adhere to certain investment conditions, which may limit its ability to acquire and/or dispose of assets or explore new opportunities. Further, the regulatory framework governing real estate investment trusts in India is new and untested

6) The proposed holding and financing structure of the Portfolio may not be tax efficient.

7) Its business is dependent on the Indian economy and financial stability in Indian markets, and any slowdown in the Indian economy or in Indian financial markets could have a material adverse effect on its business

8) They have a limited operating history and may not be able to operate its business successfully or generate sufficient cash flows to make or sustain distributions.

9) Further, the Condensed Combined Financial Statements are prepared for the Offer Document and may not necessarily represent its consolidated financial position, results of operation and cash flows.

10) A significant portion of its revenues are derived from a limited number of large tenants, tenants in the technology sector and from a few integrated office parks.

11) Any conditions that impact these tenants, the technology sector or parks may adversely affect its business, revenue from operations and financial condition.

12) Tenant leases across its Portfolio is subject to the risk of non-renewal, non-replacement or early termination. Further, vacant properties could be difficult to lease, which could adversely affect its revenues.

13) For complete internal and external risk factors, you can refer the DRP of the company.

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Should you invest in a Embassy Office Parks Ltd REIT Public Issue?

Embassy Office Parks REIT Public Issue is the first REIT IPO that is coming up for public issue in India. Its revenues and profits are showing consistent growth, however these may not be relevant as new investments would keep fetching higher or lower returns. There is a some craze now about this REIT Public issue. However, minimum investment of Rs 2.4 Lakh makes this public issue unattractive. Dividend yield might be between 5% to 8% and don’t expect anything beyond this. Capital appreciation can also be limited to single digit.  REITs concept is still new and yet to get to some maturity. Unless you are clear on where you are investing, you should stay away from such investments as of now. High risk investors who understand how REIT work and want to compromise on single digit returns with a long term perspective can invest in this REIT issue.

Disclaimer: I do not have an interest in investing in this REIT Issue and above analysis is based on my personal views. The idea of giving positive and negative factors to investors in this article is to create awareness and education about this issue. One should NOT constitute this as investment advice to buy or not to buy. Please consult your investment advisor before you invest in such high risk investment options.

Readers, would you like to invest in this REIT Issue?

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Embassy Office Parks REIT Public Issue Review

Suresh KP


  • Pandri

    Thanks for the nice blog. Can you pl help me understand the following:
    a) Waht is the total market value of all the assets in the Portfolio?
    b) How many units will the REIT have after the ipo?
    c) Is the valuation of Rs 300/- per unit high or low or fair?
    d) 8% rental yield plus say about 5% cap appreciation according to me is a good yield. Your comment?
    Apprciate your response..(before close of IPO window today..

  • Arvin

    Can Retail investors apply for the Embassy REIT issue. There’s some confusion because as per SEBI guidelines a retail investors is one who invests 2 lakh and below but the embassy REIT works out above 2 lakh per application.

    • Hi Arvin, REIT minimum investment is Rs 2 Lakhs only. If it is IPO, yes Rs 2 Lakhs limit applies to retail investors. Hence you don’t need to worry about REIT

  • Hudaf

    Very good analysis – from offer documents, seems that Blackstone / Embassy revalued the properties being transferred to REIT sharply – which means that one probably will have to wait for 4-5 years to see any capital appreciation.

    • Kamal Garg

      That’s where the problem lies. Is it not a ploy on the part of developers to get out of their owned properties at a hefty valuation to some REIT Fund.

    • R Ramakrishna

      The issue was oversubscribed 2.5 times as on the last day.Seems OK.Investors are convinced with the credentials of the promoters behind the REIT.Hope they will stand upto the confidence reposed in them.

  • Kamal Garg

    You are the first one to have explained the entire concept very nicely and many thanks for it.
    The key takeaways are:
    1. The REIT Fund owns the property and rent it out.
    2. The original developer/owner (in this case Embassy Group) transfers the title of the property to the REIT fund at a certain price and therefore the REIT becomes the legal owner of the property.
    3. Income in the hands of investor is by two ways : first, appreciation of the property but this can be realized only when the property is sold by the REIT Fund or this can be reflected in the market price of REIT units quoted on the stock exchange. Second, by way of dividend – subject to DDT.
    I have summarized the above points only to confirm whether my understanding is correct or not.
    Please give your comments.

    • You are correct Kamal. REIT investments are just evolving, hence we are still not 100% sure about the various risk that may evolve as of now

      • Kamal Garg

        Every where what I am reading is that it will give a 90% distribution in the form of dividend, etc.
        What I am more interested in “what about my principal amount invested”. Do I/my REIT Fund Asset Company have legal ‘right of ownership’ on the properties. Does the REIT Fund become legal owner of the property.
        No body is answering this question.
        Please understand in case of a mutual fund, the mutual fund scheme (or the AMC) becomes the owner of these shares which it has bought/subscribed and even have the voting rights as a legal owner of those shares.

        • Hi Kamal, To answer your query in simple terms, yes. Instead of you buying a property, this company is purchasing with your money and giving you the share. I would not say your principal amount is safe. What happens if you buy a real estate property and when you want to sell there are less buyers or buyer is asking for a price which is below your purchased price ? Same happens here.

  • R Ramakrishna

    From its financials, we can observe satisfactory performance what with office spaces in Nariman point and Banglore.No mention of litigation from tenants.We can give it a try keeping in mind Risk-Reward ratio

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