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Embassy Reit mulling option to buy Rs 6,500-crore office assets

Embassy TechVillage tenants include Flipkart, Morgan Stanley and Wells Fargo.

, ET Bureau|
Updated: Nov 13, 2019, 08.54 AM IST
Bengaluru: Embassy Property Developments could raise as much as Rs 6,500 crore from the sale of office space to Embassy Office Parks Reit, its real estate investment trust joint venture with Blackstone, said people aware of the matter. The space is in Bengaluru’s Embassy TechVillage project.

“We have received the offer from the Embassy sponsor and have some time to decide on it,” Embassy Office Parks Reit CEO Michael Holland told ET. “However, I cannot comment on the valuation.”

If the deal takes place, it will be one of the biggest in the space. The Reit may have to raise the amount either through equity or debt or both if it decides to go ahead with the proposed offer, company executives said. The Reit has about 45 days to accept the offer and sign a nonbinding agreement.

Bengaluru-based real estate firm Embassy Property Developments and Blackstone Group LP are the main sponsors of the Reit, which was launched earlier this year.

“The manager will evaluate the opportunity including, pursuant to the terms of the Rofo (right of first offer) deed, applicable laws and any approvals and consents as may be required,” Embassy Office Parks Reit said in its results announcement. “There can be no assurance that the Embassy Reit will enter into any definitive arrangements for the proposed acquisition.”

Embassy Office Parks Reit confirmed that it had got the Rofo notice from the Embassy sponsor for the potential sale of 6.2 msf of completed office premises and 2.5 msf of under-construction area in Embassy TechVillage.

“At 8.5 per cent cap rate, the assets are valued at Rs 12,000 per sft. Currently, land in Outer Ring Road itself is going at Rs 60 crore per acre,” said a real estate consultant.

Embassy TechVillage tenants include Flipkart, Morgan Stanley and Wells Fargo.

In October, the Embassy Group said it was in the process of raising Rs 4,000 crore through the divestment of assets to retire debt and invest in co-working spaces operator WeWork’s India expansion.

The developer has debt of about Rs 7,000 crore. Embassy Office Parks Reit, India’s first listed real estate investment trust, has 25 msf of completed assets and 8 msf of campus development pipeline in four major cities, including Bengaluru and Mumbai. “Embassy Reit has 40 msf of Rofo opportunity with Embassy Group that are expected to be completed over the next 10 years,” Holland said. The Reit raised Rs 3,000 crore earlier this year through listed nonconvertible debentures maturing in June 2022, with a yield of 9.4 per cent.

“We are 94.7 per cent leased across our portfolio and continue to see strong performance in office leasing,” said Holland.

Currently, 80 per cent of its clients are multinational firms.

According to various industry estimates, the net office space absorption in the country is expected to record a new high of 42 msf by the end of 2019.

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