Embassy REIT guides for lower leasing in FY25

April 25, 2024

Embassy Office Parks REIT has guided for 5.4 msf of gross leasing in FY25, despite exceeding its FY24 target by 35 per cent, indicating a flat growth in office leasing. It has however guided for a higher net operating income in the range ₹3210-3350 crore and higher distribution in the range ₹22.4-23.10 per unit, compared to ₹21.33 seen in FY24, which was down 2 per cent on year.

Of the total lease guidance, new lease-up is 3.8 msf, pre-commitment of 1 msf and renewals of 600,000 square feet. The current fiscal year will also see 2.2 msf of expiries, leading to the lower leasing number. Officials said that pre-commitment will be front-ended with the remaining coming later in the year.

The NOI, a key metric for REITs, rose 8 per cent on year to ₹2982 crore in FY24 while revenue also rose 8 per cent to ₹3685 crore.

The country’s first REIT leased 8.1 msf across 99 deals in FY24, exceeding its full year guidance of 6 msf. Over 65 per cent of the leases were to global capability centres. The leases were at 31 per cent leasing spreads of which 4.4 msf of new lease-ups had 28 per cent spreads and 1.3 msf of renewals were at 37 per cent spreads.

Four large deals accounted for 2.4 msf space and this included leading multinationals. It ended the year with occupancy of 85 per cent, a bit lower than the occupancy of 86 per cent achieved in FY23. Average monthly in-place rent also showed a growth to ₹87 per square feet from ₹80 psf year ago.

In the March quarter the REIT reported a 13 per cent rise in NOI while revenue rose a modest 9 per cent with 1.5 million square feet being leased led by financial services and co-working operators.

It reported NOI of 765.6 crore on revenue of ₹945.8 crore in the quarter. Commercial office margins were at 84 per cent and hotel margins at over 50 per cent.

Distribution during the quarter at ₹5.22 per unit for a total of ₹494.8 crore fell 7 per cent on year primarily due to an increase in costs and other working capital changes.

The REIT’s EBITDA in Q4 moved up 16 per cent to ₹758 crore with a margin up 500 basis points to 80 per cent. For the full year EBITDA margin was at 81 per cent compared to 79 per cent year ago.

Embassy Parks has new developments of 6.1 msf that will come up over the next four years, which will contribute ₹700 crore to NOI at around 20 per cent yield. It has 10 msf of right of first offer opportunities.

The REIT’s presentation showed that of the 4.7 msf project deliveries expected over the next 24 months, 84 per cent is already pre-leased to marque tenants.

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