Is Embassy Office Park A Good Investment Option?

Is Embassy Office Park A Good Investment Option?

Embassy Office Parks is the dream come true after its IPOs got subscribed in March 2019, and the company got listed into stock market on 3rd April 2019. “Embassy REIT” is India’s first Real Estate Investment Trust (REIT). It’s IPO has been issued on 18th-Mar’19, remained open till 20th-Mar’19. Through this IPO, Embassy REIT wanted to raise capital worth Rs.47,500 million (Rs.4,750 Crore).

What is Embassy Office Park?

Embassy Office Parks Private Limited is a Bangaluru based company established in 2012 that deals with selling, buying, renting and operating leased or self owned real estate properties. It’s the joint venture of the Blackstone group L.P, New York based largest alternative investment firm in the world. The entrance of real estate company like this in stock market gives rise to the specific industry of its own type in India as well known as REIT (Real Estate Investment Trust).

 It’s a company which owns and operates real estate properties.Owning Embassy Office Park shares is like owning a proportionate claim in the “company’s” profits.

It owns high quality “office spaces” in India. They own several such office spaces in Bangalore, Pune, Mumbai, and Noida. All these office properties makes up their ‘asset portfolio’.

Are REITs safe and secure?

The office spaces offered by Embassy Office Spaces are generally taken on rent/lease by Multinational Companies (MNCs). Names of few companies who have rent/leased the properties of Embassy in India are:

  • IBM.
  • Cognizant.
  • Cerner.
  • PwC etc.

How REIT can make money for its investors?

REIT can earn money for its investors in two ways:

Dividend: he rent / lease income REIT generate will be distributed among the shareholders in the form of a dividend. The frequency of dividend delivery may be applicable monthly / quarterly / annually.
Appreciation of value: REIT shares are quoted in the Indian stock market. Therefore, the price of REIT shares will follow its own course. When the basic principles of the REIT business improve, its market value will also increase (like any other listed company). When the share price is considered desirable, shareholders can sell their units and make profits.

How the high quality tenant are of significance to the investors?

REIT revenues will be primarily from rental income. Rents will be paid by the tenants who will occupy the premises for commercial use.

When these tenants are global giants like IBM, Microsoft, Google, JP Morgan and other Fortune 500 companies, REIT’s future revenues are going to very secure.

Let’s look at the general profile of Embassy REIT tenants in India:

Total number of tenants at Embassy offices in India: over 160 issues:

80.4% are multinationals
43.4% are Fortune 500 companies.
The average lease term is 7.0 years.
The occupancy rate is 95% +

Where the REIT invests your money?


SEBI rules specify the areas where investor money can be invested by a REIT. Under the rules, at least 80% of the value of the REIT’s assets must be complete revenue-producing properties. The remaining 20% can be invested in buildings under development, mortgage-backed securities, real estate debt securities and corporate shares that generate not less than 75% of their operating income from real estate activities. , government securities and money market instruments or cash equivalents.

Conclusion

REIT is one of the better investment option for income generation. Though it is equity, but its potential to generate regular income is what makes it useful also for the income-investors. REITs provide easier access to funds to builders and an opportunity to retail investors to diversify portfolio by investing in real estate. Hence, as the REITs are highly secure options to be invest in, it make it a must buy.

In USA and Europe, REIT has been in existence since decades. For people who does not have huge capital to buy real estate property, can buy shares in REIT as a worthy investment asset.

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