Embassy REIT: Blackstone launches block deal to raise $257 mln

Real Estate sector has witnessed several disruptions in the recent past. As if it was not enough, the Covide-19 pandemic outbreak seems to have sealed their fate. The pressure points are clearly visible on the sector’s valuations. The pain is witnessed on rental collection as well, which makes real estate investment trusts (REITs) be vary of their future.

Against this backdrop, the decision of Embassy Office Parks REIT to launch offer for sale (OFS) deserves a special mention. It’s bold step, knowing that the market conditions are unfavourable.
Blackstone, the world’s largest alternative assets manager, aims to sell Embassy REITs units worth $257 million through a block trade. The sale represents a 7% stake of the Embassy REIT. The trade is happening in a price band of Rs 340-350 per unit, which is a discount of 3.5-6.7% to the closing price of Tuesday.
As per an industry study, a staggering Rs 37,072 crore worth of annual rent from office leases will be at risk 12 months hereon as technology and financial services tenants consider a permanent shift to remote work amid the coronavirus pandemic.

As the trend gathers pace, property developers are worried that it may severely cramp their ability to exit REITs, a company that manages a pool of rent-yielding assets and allows developers to monetize them.
Technology and financial services firms occupy the bulk of top-grade commercial real estate assets. They are also at the forefront of the trend of shifting permanently to remote work.
Around 391 million sq. ft of commercial space will be stake after a year, according to a report by real estate data provider CRE Matrix released in May. Of these, around 186 million sq. ft have completed the lock-in period and will see leases expire within 12 months.

IBM – the global IT firm has stated that it may reassess and exit half of its long-term tenancies in India
IBM is the biggest tenant of Embassy Office Parks REIT, contributing to 12% of the REIT’s annual rental income and covering 3.6 million sq. ft of office space, according to exchange filings.
Embassy derives almost 50% of its rental income from IT firms.

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