Embassy REIT To Raise Equity of ₹2,500 Cr & Acquire 5 msf Embassy Splendid TechZone Asset, Chennai
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Embassy Office Parks REIT (NSE: EMBASSY / BSE: 542602) (‘Embassy REIT’) announced today that it has agreed to purchase Embassy Splendid TechZone (‘ESTZ’), a Grade-A business park, from Embassy Sponsor, for an Enterprise Value of ₹1,269 crores. The proposed acquisition marks Embassy REIT’s entry into Chennai, one of India’s top performing office markets. Embassy REIT intends to raise unit capital of ₹2,500 crores, primarily to finance the acquisition and reduce the current 30% leverage of the portfolio, providing flexibility for future growth.
ESTZ comprises 1.4 msf of completed area, which is 95% occupied and leased to large global companies such as Wells Fargo and BNY Mellon, among others. It also comprises 1.6 msf of under-construction area, of which 0.4 msf is pre-leased, and 2.0 msf of future development potential.
The Board of the Manager to Embassy REIT has approved the ESTZ acquisition and an institutional placement via an enabling resolution of up to ₹3,000 crores, subject to unitholder approval.
Jitendra Virwani, Chairman & Managing Director, Embassy Group, said, “At Embassy Group, our priority is to develop world-class office assets and support the expansion of the REIT’s portfolio through a pipeline of opportunities that will help it to grow inorganically over the coming years. After the successful acquisition of Embassy TechVillage and Embassy Business Hub in Bengaluru by the REIT, we’re pleased to provide another premier office park in a prominent market like Chennai and contribute to the continued growth of Embassy REIT.”
Aravind Maiya, Chief Executive Officer, Embassy REIT, said, “The proposed accretive acquisition of Embassy Splendid TechZone will mark the addition of another quality asset to our existing office portfolio, which continues to benefit greatly from the demand that Global Capability Centres (GCCs) are demonstrating for Indian office space. ESTZ is a top-notch business park in a leading Chennai micro market that will take our portfolio to over 50 msf. This acquisition further diversifies our India presence, enhances our scale and ability to deliver embedded growth to all our stakeholders.”
Transaction Highlights
Acquire ownership in the completed and under-construction portions of ESTZ, along with economic interest of 61% of the lease revenues and 100% of the property management business of the asset
Facilitates entry into Chennai, one of the fastest growing office markets in India
Stable cash flows from 95% occupancy on 1.4 msf completed buildings; and embedded growth from 1.6 msf of on-campus development, of which 0.4 msf is already pre-leased, and 2.0 msf future development potential
Enhances Embassy REIT’s commercial portfolio by 11% to 50.5 msf, positioning the REIT as one of the largest office REITs worldwide
Enterprise Value of ₹1,269 crores implies NOI yield of 8.5% for completed portion and 10% on development portion
Transaction is at a 6.7% discount to the average of two independent valuation reports
Proposed to raise unit capital of ₹2,500 crores via an institutional placement
Accretion of 2.9% to Net Operating Income (‘NOI’) and Distribution Per Unit (‘DPU’) on a proforma basis (as compared to the mid-point of the management guidance for FY2024)
Strong governance framework in place, including unitholder approval for the acquisition
The acquisition is subject to certain conditions precedent, regulatory and other approvals.
IIFL Securities Limited, Kotak Mahindra Capital Company Limited, and Morgan Stanley India Company Private Limited are serving as joint financial advisors to Embassy REIT. S&R Associates is acting as legal advisor to Embassy REIT. Ernst and Young LLP conducted financial and tax diligence. Jones Lang LaSalle Property Consultants (India) Private Limited provided a fairness opinion to the independent directors of the Manager to Embassy REITf or the proposed acquisition.
