Blackstone exits Embassy REIT, but analysts bullish on growth; stock recoups losses

Blackstone’s exit from Embassy REIT marked the second biggest block trade in FY24 so far.

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Private equity firm Blackstone Group exited India’s first real estate investment trust Embassy Office Parks REIT on December 20 in the second-biggest block trade of FY24. Despite the exit of the company’s major sponsor, brokerages stay in upbeat on Embassy REIT due to strong growth prospects, improvement in leasing trends, better occupancy and new developments.

All of the 14 brokerages covering the scrip have a ‘buy’ recommendation on Embassy REIT, with the average target price indicating a 9 percent upside. Embassy REIT stock shrugged off the initial knee-jerk fall after the deal, and recouped nearly all losses for the day.

According to CNBC-TV18, a block deal involving 22.36 crore shares, making up a 23.6 percent stake in Embassy Office Parks REIT, changed hands on the exchanges at a floor price of Rs 319.65. The company’s sponsor, Blackstone was the seller in the Rs 7,148-crore block deal.

Blackstone checks out, other marquee investors stay on

Moneycontrol had reported, citing multiple sources, that private equity firm Blackstone was planning a mega exit from Embassy Office Parks REIT, through a block deal of $833 million.

Back in 2020, Blackstone sold another 8.7 percent stake in Embassy REIT in a deal worth around $300 million after being a key investor in the company since its listing in 2019.

Now with Blackstone’s likely exit, other marquee names like Abu Dhabi Investment Authority, Capital Group, and Bain Capital remain invested in Embassy REIT.

The company owns and manages a substantial portfolio spanning 45 million square feet, consisting of nine office parks with infrastructure-like features and four office buildings situated in the city centres of Bengaluru, Mumbai, Pune, and the National Capital Region (NCR).

Embassy REIT future looks bright

Despite the multi-million-dollar block deal, analysts stand by Embassy REIT forecasting a strong growth trajectory for the company. The stock has given largely flattish returns in the year so far, largely on the back of lower occupancy due to new space addition and weak non-office income.

However, the company’s Q2 earnings reflected an improvement in gross leasing momentum which had propelled the management to increase its full-year leasing guidance. The company increased its leasing guidance for FY24 from 6msf to 6.5msf. JP Morgan also sees an improvement in leasing trends as an incremental positive for Embassy REIT.

Making the case for an upbeat growth trajectory even stronger is deal sizes that have also started improving and so have decision-making timelines, paving the way for the upgraded guidance.

Also read | Embassy REIT slumps 5% after Rs 7,148-cr block deal, Blackstone likely seller

The company has recently delivered a new office tower with a leasable area of 1msf at Embassy Manyata. “From H2FY24-27, Embassy has an active development pipeline of 7.1 msf spread across Embassy Tech Village, Embassy Manyata, Embassy Business Hub (all three in Bengaluru) and Embassy Oxygen (Noida), which upon stabilisation will generate Rs 8oo crore incremental net-operating income,” JM Financial Services stated in a note.

On the back of these expansions, the occupancy levels for Embassy REIT are also expected to go up. The management has guided for the overall portfolio occupancy and same-store occupancy to be at 85 percent and 87 percent by FY24. For context, the company’s overall portfolio occupancy and same-store occupancy level were at 83 percent and 85 percent in Q2.

Club all that up with the prospects of easing interest rates in FY25 and it further improves the growth potential for Embassy REIT.

Stock outlook: Analysts positive on ‘buy’ call

The Embassy REIT stock has emerged as an analysts’ darling. All of the 14 brokerages covering the scrip have rolled out a ‘buy’ tag on the stock. The 12-month average price target too comes to around Rs 365, indicating an upside potential of nearly 9 percent from the previous close.

The stock recovered much of its losses from the initial fall arising from the mega block trade. The stock had slumped around 5 percent in opening trade on December 20 after the block deal was executed. At 12.54pm, shares of Embassy Office Parks REIT were trading 0.1 percent lower at Rs 335.49 on the NSE.

Also read | Blackstone plans mega $833 million exit from Embassy Office Parks REIT

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