Release Date: October 24, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Embassy Office Parks REIT (BOM:542602, Financial) achieved its highest ever leasing performance, with 4 million square feet leased in Q2, including 1.3 million square feet of new leases.
- Occupancy rates increased to 87% by area and 90% by value, marking a 4% year-over-year improvement.
- The company raised its leasing guidance for the full year from 5.6 million square feet to 6.5 million square feet.
- Net Operating Income (NOI) grew by 12% year-over-year, and Distributable Per Unit (DPU) increased by 5%, aligning with annual guidance.
- Embassy Office Parks REIT successfully delivered a 0.6 million square feet office tower in Bangalore, which is 100% pre-leased to ANZ.
Negative Points
- The company experienced 0.6 million square feet of tenant exits in Q2, primarily from IT service occupiers.
- Despite increased leasing, Pune's leasing traction remains slow, with significant vacancy in Embassy Quadron.
- Interest costs have increased, with 51% of the debt book now at floating rates, potentially impacting future financial performance.
- The REIT's solar revenue declined due to a reduction in government tariffs and seasonal reductions in solar unit generation.
- Embassy Office Parks REIT noted a 0.3 million square feet additional exit notice from an IT services tenant in Pune, highlighting ongoing challenges in this sector.
Q & A Highlights
Q: Can you explain the divergence between NOI growth and DPU growth, especially for Manyata and TechVillage?
A: Abhishek Agrawal, CFO: The divergence is due to the property tax payment for Manyata being made in this quarter. The loans taken are mixed between SPVs and the REIT, affecting DPU calculations. Overall, we expect to be at the lower end of the NOI range but at the higher end of the DPU range by FY25 end.
Q: What is driving the dividend growth for GolfLinks, and how should we view it for the next quarters?
A: Abhishek Agrawal, CFO: The distribution depends on cash availability. The run rate from Q1 should be considered for the full year, landing around INR260 crore.
Q: How do you view the leasing pipeline in Chennai, especially with the upcoming availability of 1.6 million square feet at Splendid TechZone?
A: Amit Shetty, COO: We have a strong pipeline in Chennai, driven by demand from GCC sectors. We see this as an opportunity to consolidate our position in the market.
Q: With IT services now less than 10% of your portfolio, when do you see the pain ending in that sector?
A: Aravind Maiya, CEO: IT services have stabilized below 10% and will drop further with upcoming exits. The work-from-home issue is resolved, and there is some demand for more space. However, IT services remain conscious of rent costs.
Q: Can you elaborate on the restructuring of SPVs holding Quadron and hospitality assets?
A: Aravind Maiya, CEO: We are evaluating the best long-term strategy for Quadron due to stress in the asset. The restructuring is to prepare for potential divestment opportunities and to separate hotel assets structurally.
Q: What is your view on the increasing share of flex operators in your portfolio?
A: Aravind Maiya, CEO: The increase is strategic, with demand primarily in Manyata. We aim to keep flex operators below the industry average in our portfolio, as they are growing faster than other sectors.
Q: How do you see the leasing trajectory in Pune and Noida?
A: Aravind Maiya, CEO: Noida is expected to reach mid-80s occupancy in the next 6-12 months. Pune will see a drop in occupancy due to exits, with marginal leasing expected in TechZone and Qubix.
Q: With increased leasing guidance and exits, how do you expect to achieve 88% occupancy by FY25 end?
A: Aravind Maiya, CEO: Of the 1.9 million square feet being delivered, 1.3 million is pre-leased, which will contribute to occupancy. The remaining lease-up will be factored into the balance.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
