Axis Direct has released a report on India’s first and only REIT Embassy Office Parks REIT. Here are some key excerpts from the report.
Embassy Office Parks is the owner of premium office portfolio in India that serves as corporate infrastructure to multinational tenants. The portfolio comprises of seven office parks and four city-center office buildings totaling 33 million square feet of total area
The portfolio is strategically located in India’s four key office markets of Bengaluru, Pune, Mumbai and Noida which are amongst the top-performing in India and account for 72% of total Grade A office stocks. In the last 5 years these markets have seen one of the highest absorption of premium office space in the world beating New York, San Francisco, Shanghai, Central London and Tokyo
The occupancy of the REIT is at 94.7% with weighted average lease expiry of 7.2 years. They have 165 tenants comprising a mix of blue-chip multinational and Indian corporates, such as JP Morgan, DBS, Swiss Re, Google, McKinsey, IBM and L&T Technology Services. Approximately 45% of Gross Rentals come from Fortune 500 companies.
Embassy REIT is backed by strong sponsors; Blackstone LLP, the largest alternative investment firm in the world and Embassy Group which is a local expert
Key risks in Embassy Office Parks REITs
Tenant concentration risk: Tenants in the technology and financial services sector amount to 64% of gross rentals and any adverse impact on these sectors will affect Embassy REIT
Property concentration risk: High revenue concentration remains in one integrated office parks (41% of revenue from operations from on Bengaluru property: Embassy Manyata). Any impact on Embassy Manyata will impact overall performance significantly
Inability to lease at market prices: Leasing & rental growth depends on supply-demand conditions in micro-markets, portfolio attractiveness and landlord reputation among other factors. Any impact on these, will affect growth adversely
Regulatory changes: Any adverse alterations on taxation of interest and dividends will have an impact on company’s operations and return expectations of investors