In-depth Analysis of India’s first REIT: Embassy Office Parks


Embassy Office Parks, a joint venture between real estate developer Embassy Group and US-based private equity giant Blackstone Group, has filed its Draft Red Herring Prospectus (DRHP) with markets regulator SEBI to launch the India’s first real estate investment trust (REIT) to raise over Rs 5,000 crore. The REIT is likely to be listed early next year.

Before going into the details, what exactly is a REIT? Understand it in a simplified form – What is REIT and the concept of blockchain based global REIT?


The Embassy REIT was settled on March 30, 2017 as an irrevocable trust under the provisions of the Indian Trusts Act, 1882 pursuant to a trust deed dated March 30, 2017 as amended on September 11, 2018. The Embassy REIT was registered with SEBI on August 3, 2017 as a real estate investment trust. Its principal place of business is at Royal Oaks, Embassy Golflinks Business Park, Off Intermediate Ring Road in Bengaluru, Karnataka, India.

Embassy Golflinks Business Parks

The issue will propose to raise an aggregate of Rs.5,250 crore through its IPO, and an offer for sale, quants of which are undisclosed. Each bidder (other than an Anchor Investor and a Strategic Investor) is required to bid for a minimum bid size of Rs.0.2 million (Rs. 2 lakh).


The net proceeds from the issue are proposed to be used in accordance with the details provided in the following table:


Credit rating agency ICRA has assigned a rating of provisional AAA with stable outlook to the Embassy Office Parks REIT. “The assigned rating draws strength from the large and diversified leasing portfolio of Embassy REIT, which is spread across multiple office parks in different cities. The rating also benefits from the low initial leverage in the REIT group, which will be aided by prepayment of outstanding using the net proceeds from REIT listing,” said Shubham Jain, group head at ICRA.


Embassy Office Parks Management Services Private Limited (EOPMSPL) is the Manager of the Embassy REIT. The Manager is a private limited company incorporated in India under the Companies Act, 1956 on January 31, 2014 at Bengaluru, Karnataka. The board of directors of the Manager is entrusted with the responsibility for the overall management of the Manager. The following table sets forth details regarding the board of directors of the Manager:

The REIT will be managed by the Manager, led by Michael Holland (CEO of the Manager, founder and former country head of JLL India, ex-CEO of Assetz Property Group) and Vikaash Khdloya (who will be the Deputy CEO / Chief Operating Officer of the Manager prior to the listing of the Units). Their senior management team comprises eight people and has an average experience of 20 years in operating, developing, leasing and managing the commercial real estate in India. The Manager is well regarded in the real estate community and has extensive relationships with industry stakeholders such as brokers, owners, tenants, contractors and lenders. The Manager and the Asset SPVs together have over sixty employees, many of whom have demonstrated active asset management expertise across the Portfolio.

Embassy REIT is externally managed, in accordance with REIT Regulations. They have focused on keeping their management fees in line with costs in order to align the management with unitholders’ interests, so their management fee structure is one of the lowest amongst key comparable Asian office REITs.

Trustee of Embassy REIT

Axis Trustee Services Limited is the Trustee of the Embassy REIT. The Trustee is a registered intermediary with SEBI under the Securities and Exchange Board of India (Debenture Trustees) Regulations, 1993, as a debenture trustee. The Trustee is a wholly-owned subsidiary of Axis Bank Limited.


Embassy Office Parks had last year registered its REIT with SEBI, sponsored by Blackstone Group and Bengaluru-based Embassy Group. The Embassy Sponsor is a private limited company incorporated in India under the Companies Act, 1956. It is one of the leading real estate developers in India. As of March 31, 2018, the Embassy Sponsor (directly or through its associates) has developed over 45 mm sq ft of area in the commercial and residential segments. It also owns properties in the hospitality segment and is developing industrial parks and warehouses across India. In addition, the sponsor has over 25 years of experience in various aspects of real estate development business such as land identification, land acquisition, development, conceptualization, design, project management, property management, facilities management, interior development, sales, corporate leasing and marketing of real estate assets.

The Blackstone Sponsor is a private limited company incorporated under the Mauritius Companies Act, 2001 on September 15, 2008. In 2011, the Blackstone Sponsor acquired 36.97% shareholding in MPPL which holds Embassy Manyata. Embassy Manyata is located in Bengaluru and as of September 12, 2018 comprised approximately 10.95 million sq. ft. of completed commercial real estate and approximately 1.83 million sq. ft. of under-development commercial real estate. Embassy Manyata is proposed to form part of the Portfolio Assets.

The Embassy Sponsor and the Blackstone Sponsor have a net worth of Rs. 18.36 billion and Rs. 24.46 billion, respectively, based on their respective latest available audited financial statements.


The portfolio of Embassy Office Parks comprises seven office parks and four prime city-center office buildings totaling 32.6 msf (million square feet) as of March 31, 2018, with strategic amenities, including one operational and three under-construction hotels totaling 1,096 keys, food courts, employee transportation and childcare facilities. These assets are of the highest quality and are located in the best performing submarkets of India’s top office markets of Bengaluru, Pune, Mumbai and Noida. These markets have exhibited strong market dynamics with high rent growth and low vacancy on average. The annual rental income of the portfolio is over ₹ 1,600 crore and is expected to go up by 40-%50% in the next three years as rentals shoot up.

They own one of India’s largest office portfolios. As of March 31, 2018, approximately 81.4% of the Gross Rentals from their 160 marquee tenant base is contracted with leading multinational corporations and approximately 43.8% is contracted with Fortune 500 companies, such as JP Morgan, Google and Microsoft. Their high-quality tenant base, along with long-term contracted rentals (weighted average lease length of 6.9 years) provides considerable stability to the portfolio.

Portfolio of Embassy REIT (3 Hotels of the REIT are currently under construction)

While the Portfolio is highly stabilized at 95.0% committed occupancy, they are well positioned to achieve further organic growth through a combination of contracted revenue, re-leasing at market rents (it is estimated that the market rents of our properties are 34.5% above in-place rents), lease-up of vacant space and new construction within the Portfolio to accommodate tenant expansion. It has been claimed in the offer documents that rental properties achieved 86.3% tenant retention rate, with 6.8 msf of office space renewed by the current tenants, without incurring material tenant improvement capital expenditure. Portfolio revenue from operations is projected to grow by 54.3% over the projections period primarily due to these factors. It is believed that the scale and quality of their business that has given them a market leading position, make their properties a preferred office location in each of their respective submarkets and allows them to offer consolidation and expansion options for their tenants. This has enabled them to attract, retain and grow multinational tenants in their parks leading to tenant stickiness. As a result, they have grown revenue from operations by 15.4% over FY2016 to FY2018.

The market value of their portfolio as of March 31, 2018 as per the valuer is Rs. 301 bn.


Their revenue from operations comprises the following sources: (1) facility rentals (2) income from maintenance services (3) income from finance lease (4) room rentals at the Hilton at Embassy Golflinks (5) sale of food and beverages at the Hilton at Embassy Golflinks (6) other operating income at the Hilton at Embassy Golflinks and at our other Portfolio and (7) income from the generation of renewable energy from Embassy Energy.

Other income comprises the following sources: (1) interest income on (i) inter-corporate deposits (ii) fixed deposits with banks (iii) security deposits (iv) loan to others (v) other statutory deposits (vi) income-tax refunds, and (vii) others; (2) dividend income; (3) profit on the sale of investments; (4) liquidated damages; (5) liabilities no longer required written back; (6) net changes in fair value of financial assets; (7) property tax refund and (8) miscellaneous.


The average in-place rent across the portfolio is Rs. 58 psf compared to market rent of Rs. 79 psf, resulting in mark to market upside of 31.4% on Gross Rentals. This is attributable to the long-term nature of their existing leases and strong market rent growth.

“High quality assets backed by professional asset management has resulted in strong outperformance of our Portfolio both in terms of rent growth and occupancy levels. Rents for our assets have increased by 6.9% since 2013 compared to a growth of 4.2% in the markets we are in. Portfolio occupancy for our assets has remained above 92.8% at the end of each of the last five fiscal years. As at March 31, 2018, committed occupancy for our portfolio is 95.0% as compared to 85.6% for the markets where we have a presence (higher by 940 bps)”, the offer document of the REIT read.

Majority of the REIT’s rental income is from the technology sector


  • After the completion of the issue and the listing of the units, the REIT intends 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 their ability to make distributions to the unitholders.
  • They may utilize a significant amount of debt in the operation of its business, and their cash flows and operating results could be adversely affected by required repayments or related interest and other risks of debt financing. Their inability to service debt may impact distributions to unitholders. Also, they provide no guarantee of any distributions to the unitholders.
  • The REIT Regulations impose restrictions on the investments made by them and require them to adhere to certain investment conditions, which may limit their 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.
  • 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 their business.
  • They have a limited operating history and may fail to operate the business successfully or be unable to generate sufficient cash flows to make or sustain distributions. Further, the condensed combined financial statements are prepared for the Draft Offer Document and may not necessarily represent our consolidated financial position, results of operation and cash flows.
  • A significant portion of the REIT’s revenues are derived from a limited number of large tenants, tenants in the technology sector and from a few integrated office parks. Any conditions that impact these tenants, the technology sector or parks may adversely affect their business, revenue from operations and financial condition.
  • Tenant leases across their portfolio are subject to the risk of non-renewal, non-replacement or early termination. Further, vacant properties could be difficult to lease, which could adversely affect the revenues.
  • The valuation reports obtained for their portfolio are based on various assumptions and may not be indicative of the true value of our assets.

Thus, we can say that there might be considerable risks associated with investments in the REIT, which are part subjective and part objective, but there is always a scope for betterment and it wouldn’t be completely correct to say that the risks overpower the benefits of the REIT.


Embassy REIT owns seven best-in-class office parks and four prime city-center office buildings totaling 32.6 msf of Leasable Area, making them the largest REIT amongst comparable Asian office REITs. Their properties are among the largest and highest quality assets in their submarkets and are infrastructure-like. They provide a complete business ecosystem with campus-style infrastructure, world-class facilities and amenities such as food courts, day care centers and gymnasiums. This enables them to provide their tenants and their estimated 200,000+ employees with a safe, efficient and sustainable working environment. Some of its office parks also include hotels which provide an additional amenity for the occupiers and their visitors as well as drive incremental revenue due to captive demand.

The quality and scale of their portfolio makes them the landlord of choice within their portfolio submarkets for both domestic and multinational corporations, resulting in its properties commanding a rental premium to other properties within the submarkets on average. They have leased 5.3 msf to blue-chip multinational and domestic tenants over the last three fiscal years and also renewed 6.8 msf of leases with the existing tenants without incurring material TI capex (tenant improvement capital expenditure). They can construct built-to-suit premises and provide expansion options to their tenants, thanks to entitled land within the portfolio. In fact, over the last three fiscal years the existing tenants have grown by 3.4 msf within their assets.

Although Embassy’s properties have world class infrastructure and high-quality tenants, capital values for their assets as per CBRE’s (Commercial real estate services and investment company) valuation are $150 per square foot, implying a 82.9%-95.2% discount to Grade A properties in New York, Tokyo and Hong Kong. Moreover, capitalization rates for such properties in India at 7.5%-8.5% represent a 175-575 bps (100 bps = 1%) premium to capitalization rates for assets of similar quality and tenant profile in countries like the United States, Japan and China.


As of March 31, 2018, the REIT’s Portfolio has a 95.0% committed occupancy. The remaining 5.0% vacancy is primarily concentrated in Embassy Techzone in Pune, Embassy One in Bengaluru and Embassy 247 and FIFC in Mumbai, which comprise 23.6%, 20.6%, 18.0% and 17.0% respectively of the remaining 5.0% vacancy. Most of this vacancy is due to recent construction completion or transitional factors, such as ongoing repositioning and strategic upgrades. They have healthy leasing prospects and expect to lease it up over the next 18 months resulting in Rs 2,086 mn of additional rental revenue over the next three fiscal years.

It is believed that their portfolio is well positioned to achieve further organic growth through a combination of re-leasing to existing tenants at market rents (they believe the market rents of our properties are 34.5% above in-place rents), lease-up of existing vacancy, and delivery of planned development projects in our parks. As illustrated below, 53.0% of the increase in revenue from operations for the projections period is expected to come from contracted revenue and re-leasing to existing tenants at market rents. Moreover, it has limited development risk, with only 7.4% of portfolio revenue increase due to on campus development over the Projections Period, with 36.5% of this already secured through pre-leasing.

With 36.5% of their area expiring over the next five fiscal years, and strong fundamentals in our markets, they expect to add Rs 399 mn of additional rent over the projections period due to the significant mark-to-market re-leasing opportunity at lease expiry.


Embassy Office Parks is the first REIT in India, but historically, global REITs have delivered competitive total returns, based on high, steady dividend income and long-term capital appreciation. Their comparatively low correlation with other assets makes them an excellent portfolio diversifier that can help reduce overall portfolio risk and increase returns. The greatest advantage offered by such investments in liquidity, that is otherwise not available in real estate investments. Since the REIT’s performance is monitored by independent auditors, analysts and auditors, oversight, and hence transparency, is a crucial feature. With the background that Embassy Office Parks portrays, it is quite worth a bet for investors, especially taking into account the fact that India is emerging as a leading services hub for global corporations due to its large talent pool and cost advantage for high value services. The listing may prove to be a critical move in terms of exposure to the real estate market, that too when the regulatory framework governing real estate investment trusts in India is new and untested. Conservative investors might want to take a miniscule part in this REIT or vigilantly wait until its performance has been validated in the Indian market.