There’s no doubt that India has become the office market of the world, partly thanks to its rapidly growing economy and relatively younger population. India is well-positioned to drive global offshore demand due to the sufficient availability of a skilled workforce, favorable demographics and high-quality workspaces.
A player that is capitalizing on this opportunity is Embassy Office Parks REIT (NS:EMBA) which owns and operates office buildings and other commercial real estate assets, having a market capitalization of INR 32,216 crores.
Image Description: Debt bifurcation of Embassy Office Parks REITs
Image Source: Embassy Office Parks REITs investor presentation
It reported a 12% YoY growth in Q1 FY24 revenue to INR 985.99 crores, while the net income jumped 11.5% to INR 234.04 crores in the same period. The trust is efficiently managing its debt and recently it raised INR 2,100 crores at an average rate of 7.8% which is roughly a mere 120 bps rate spread over G-Secs. More importantly, out of its INR 15,300 crores of total debt, the interest rate on 67% of it is fixed which reduces the impact of volatility in the interest rate cycle.
Bangalore which is home to many tech companies, is touted as the leading office market in Asia and Embassy Office Parks’ concentration of assets in there gives it a good competitive edge. 28% of the total 25 msf leasing demand in H1 CY23 had come from Banglore alone.
Talking about its occupiers, its revenue stream is highly diversified based on sectors. The top 10 of its occupiers cater to 8 different sectors comprising technology, consulting, telecom etc., however, 57% of all occupiers are either in the technology or financial services industry. Some of the prominent names in the occupiers’ list are JP Morgan, Wells Fargo (NYSE:WFC), Jefferies, Flipkart etc.
Image Description: Distributions by Embassy Office Parks REITs for the last 3 years
Image Source: Embassy Office Parks REITs investor presentation
Coming to its main attraction - Distributions. In Q1 FY24, it announced a distribution of INR 5.38 per unit, the record date of which is 3 August 2023. For FY24, the management has given a guidance of INR 20.5 - INR 22 per unit which is a decent 6% - 7% yield on the CMP and currently also, it is at a lucrative 6.39%. For those seeking a consistent income by way of rent from commercial real estate, Embassy Office Parks seems a good option.
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