Embassy REIT Q2 Results Review - Leasing Traction Intact; On Track To Achieve FY25 Guidance: ICICI Securities

ICICI Securities Report

The Embassy Office Parks real estate investment trust clocked Q2 FY25 net operating income of Rs 8 billion (up 6.2% QoQ) and NDCF of Rs 5.5 billion with a distribution of Rs 5.8/unit (up 4% QoQ). Overall portfolio occupancy, as of Sep’24, increased 200 bps QoQ to 87%, including infusion of 1.4 million square feet Splendid Techzone, Chennai asset of 1.4 msf from June 01, 2024.

Driven by a combination of filling up of special economic zone vacancy and pre-leased assets, we estimate portfolio occupancy of more than 90% by FY26E, resulting in FY25E distribution per unit of Rs 22.5/unit versus Rs 21.3/unit in FY24 with FY26E DPU of INR 26.9/unit. The REIT manager has given FY25 guidance for 6.5 msf of total leasing in FY25 and expects 10% NOI and 7% DPU growth in FY25.

We retain our Add rating with an unchanged target price of Rs 415/unit based on one time Mar’25E net asset value.

Key risks are slower recovery in leasing and higher portfolio vacancy levels.

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