Retain ‘add’ on Embassy Office Parks REIT with fair value of Rs 400/share

By: |
August 8, 2020 8:31 AM

Embassy was able to achieve 14% contractual escalations on 1.8 million sq. ft along with leasing of 0.5 million sq. ft with a spread of ~20% in 1QFY21 on re-lease/ renewals.

Embassy Office Parks, REIT, covid 19 pandemic, NDCF, Embassy Office Parks revenue growthLower contribution from the hospitality segment as well as improvement in margins of the commercial business helped improve blended margins to 89% with NOI of Rs 4.5 billion.

Resilient core; hospitality drags. Embassy REIT demonstrated robust performance in a challenging environment with NOI of Rs 4.5 billion (+1% y-o-y) even as the ailing hotel portfolio made losses during the quarter. Embassy was able to achieve 14% contractual escalations on 1.8 million sq. ft along with leasing of 0.5 million sq. ft with a spread of ~20% in 1QFY21 on re-lease/ renewals. Maintain ‘add’ rating with an unchanged fair value of Rs 400 per share.
Embassy REIT reported resilient operating performance with revenue of Rs 5.1 billion (-4% y-o-y, -5% q-o-q), NOI of Rs 4.6 billion (+1% y-o-y, -1% q-o-q) and NDCF of Rs 4.5 billion (+7.6% y-o-y, -15.4% q-o-q) in 1QFY21.

Lower revenues were on account of shut down of two hotel properties (reopened on 15th June) which reported revenues of Rs 18 million (-92% y-o-y) and NOI loss of Rs 111 million, additional receipts of Rs 300 million on account of pre-termination of a lease in 1QFY20, and rental waivers of Rs 90 million given in 1QFY21, primarily to F&B related tenants. Adjusted revenue growth would have been higher at 8% y-o-y.

Lower contribution from the hospitality segment as well as improvement in margins of the commercial business helped improve blended margins to 89% with NOI of Rs 4.5 billion. Management highlighted that the impact of Covid-19 has primarily been on ( the operational performance of the hotel segment, and construction activities for projects to be commissioned over the next few years.

Further, risk sectors (retail, hotel, aviation) account for only 6% of the overall portfolio of Embassy REIT.

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