Phoenix buys back SEZ stakes from Embassy

Industry:    May, 2019

Real estate company Phoenix Group has bought back 50% stake in three special economic zones (SEZs) located in Hyderabad from the Embassy Group for an undisclosed amount. The total investment in these projects is around Rs 2,000 crore over the next five years.

The projects, of about 10 million sq ft, were part of a joint venture between the Embassy Group and Hyderabad’s Phoenix. Phoenix plans to develop and finance these projects after Embassy’s exit.

“The projects did not fit in with Embassy’s recent REIT, so they exited. Phoenix is now looking to have a strong commercial portfolio,” said three people aware of the development.

The Embassy Office Parks REIT, a joint venture between private equity firm Blackstone and the Bengaluru-based property developer, raised Rs 4,750 crore from the primary market in March. Embassy REIT’s portfolio comprises about 33 million sq ft of office space across major cities in the country.

“Embassy is focussed on growth and expansion plans in the following core markets — Bengaluru, Chennai, Mumbai, Gurgaon, Pune and Trivandrum. Hence, we have taken a decision to exit Hyderabad at present,” said Aditya Virwani, chief operating officer, Embassy Group. Phoenix Group could not be reached for comments.

Embassy was an equity partner, while Phoenix provided the land in the joint venture, called Phoenix Embassy Tech Zone. Both were involved in project construction.

In 2017, Piramal Finance gave Rs 450 crore as construction finance to the joint venture, for approvals and development of the SEZs.

“The projects are expected to be completed over a period of five years. So far, around Rs 150 crore has been invested by Piramal. The remaining amount will come over the project lifecycle,” said another person aware of the deal.

Separately, the Phoenix Group has a large portfolio of commercial office projects, with nearly 15 million sq ft under construction.

Last year, Phoenix Ventures entered into a forward purchase agreement with Ascendas Property Fund Trustee, the trustee-manager of Ascendas India Trust, to acquire two buildings in Hyderabad with a combined leasable area of around 1.85 million sq ft. The purchase price was Rs 1,400 crore, inclusive of construction funding.

It also sold an office complex, Phoenix Trivium, in suburban Hyderabad to Indiabulls Dual Advantage Commercial Assets Fund for Rs 470 crore.

Hyderabad overtook Bengaluru for the first time as the dominant office market, driving quarterly space take-up on the back of completion of several pre-commitments, according to a CBRE report.

In the first quarter of 2019, gross leasing touched 12.8 million sq ft, a growth of 3% on a quarterly basis. Hyderabad, Bengaluru, Mumbai and Delhi-NCR accounted for more than 75% of the leasing activity.
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