The Embassy Office Parks REIT (Embassy REIT) delivered a resilient FY22 performance with rental collections of over 99% (similar to FY21) and new leasing of 1.0msf. With an expected recovery in physical occupancy levels to 40-50% of pre-covid levels in H1FY23, the REIT manager has given guidance for 5.0msf of leasing in FY23E vs. 2.2msf in FY22 (including 1.2msf of pre-commitments and 1.7msf lease-up of vacant area). For FY22, while NOI grew 23% YoY to Rs24.9bn primarily owing to ETV acquisition completed in Dec’20, FY22 Distribution per Unit (DPU) grew 1% to Rs21.8/unit, marginally higher than the revised REIT manager guidance of Rs21.7/unit in Jan’22. The REIT manager has given FY23E DPU guidance of Rs20.6-22.8/unit (mid-point of Rs21.7) vs. Isec estimate of Rs21.6/unit. We retain our BUY rating with a revised target price of Rs442/unit (earlier Rs440) based on Mar’23E NAV owing to Golflinks CAM business acquisition. Key risks are a slow recovery in office leasing and higher vacancy levels.
- Stable Q4FY22 performance, improved outlook going ahead: The REIT saw overall portfolio occupancy remaining flattish QoQ at 87% with Q4FY22 NOI of Rs6.3bn (flat YoY and QoQ). For FY22, while NOI grew 23% YoY to Rs24.9bn primarily owing to ETV acquisition completed in Dec’20, FY22 Distribution per Unit (DPU) grew 1% to Rs21.8/unit, marginally higher than the revised REIT manager guidance of Rs21.7/unit in Jan’22. With physical office footfalls expected to rise to 25% by Jun’22 from 10% as of Mar’22, leasing outlook is bullish heading into FY23E.
- FY22 expiries factored in, all eyes on FY23E expiries: The REIT had total lease expiries of 1.9msf in FY22E, of which 0.5msf has been renewed along with 1.4msf of exits, resulting in overall portfolio occupancy declining to 87% as of Mar’22 from 89% in Mar’21. The REIT has scheduled expiries of 3.1msf in FY23E of which the REIT manager expects to renew 1.9msf with 1.2msf of likely exits. However, against the 1.2msf of exits, the REIT manager has given FY23E leasing guidance of 1.7msf for lease-up of vacant area in operational assets implying an uptick in portfolio occupancy for the year. The REIT manager is also targeting 1.2msf of pre-commitments for under-construction assets and has an overall FY23E leasing guidance of 5.0msf across renewals, new leasing and pre-commitments vs. 2.2msf of leasing in FY22.
- FY23E DPU to remain flattish owing to ZCB conversion: In FY22, the REIT manager has successfully refinanced these ZCBs as coupon bearing NCDs at an annual coupon of 6.5% on the amortised cost of Rs45bn. The conversion of the ZCBs to coupon bearing bonds will likely result in lower REIT NDCF distribution of Rs3.2bn each in FY23E and FY24E (Rs3.3/unit). While the REIT delivered FY22 DPU of Rs21.8/unit, the REIT manager has given FY23E DPU guidance of Rs20.6-22.8/unit (mid-point of Rs21.7) vs. Isec estimate of Rs21.6/unit.
Shares of Embassy Office Parks REIT was last trading in BSE at Rs. 383.91 as compared to the previous close of Rs. 385.83. The total number of shares traded during the day was 8389 in over 440 trades.
The stock hit an intraday high of Rs. 394.95 and intraday low of 380.00. The net turnover during the day was Rs. 3231585.00. |
