Embassy Office Park REIT, the country's first Real Estate Investment Trust (REIT) on May 19, announced distribution of Rs 531.67 crore for its unit holders for the quarter ended March.
"Declared distribution of Rs 5,316.77 million/Rs 6.89 per unit for the quarter ended March 31, 2020," the company said in a statement.
The distribution comprises of Rs 2.49 per unit in the form of interest, less taxes if any, Rs 4.17 per unit in the form of proceeds of Asset SPV loan amortisation and Rs 0.23 per unit in the form of dividend, it added.
"Together with distributions already made during the three previous quarters, the distributions for full year ended March 31, 2020 total to Rs 18,820.92 million/Rs 24.39 per unit," it added.
The REIT was launched last year by realty firm Embassy group and global investment firm Blackstone to raise nearly Rs 5,000 crore. The REIT is listed on the stock exchange.
The distribution for the fourth quarter represents 100 per cent payout ratio and full year cumulative distribution represents 99.8 per cent payout ratio.
"Embassy REIT is focused on delivering quarterly distribution to unit holders, with minimum 90 per cent of Net Distributable Cash Flows (NDCF) required to be distributed," it said in a presentation.
The record date for the 4Q FY2020 distribution is May 28, 2020 and the distribution will be paid on or before June 3, 2020.
The revenue from operations for the fourth quarter of FY20 grew year-on-year by 8 per cent to Rs 543.4 crore. For the full last fiscal, it rose 14 per cent to Rs 2,144.9 crore. Net operating income for the fourth quarter grew by 10 per cent to Rs 461.8 crore. For the full 2019-20 fiscal, it grew by 15 per cent to Rs 1,817 crore.
Since Embassy REIT listed in April 2019, the company has delivered a total return of 25 per cent. On operational front, the REIT achieved an overall occupancy of 92.8 per cent on 26.2 million sq ft operating office portfolio. The company leased 2.4 million square feet during the last fiscal
Embassy Office Park CEO Michael Holland said that “Since Embassy REIT listed in April 2019, we have delivered a total return of 25%. Our fourth quarter income and distribution payout once again illustrate the stability and resilience of Embassy REIT delivering cash flows that are backed by the covenants of our 160+ largely multinational occupier base.”
He said that while the COVID-19 pandemic has resulted in an uncertain near-term outlook for many businesses worldwide, “we are uniquely positioned to weather this pandemic-induced storm with our best-in-class office portfolio and strong balance sheet. While demand is likely to moderate considerably through 2020, we believe that in this environment, Grade-A supply will reduce considerably over the medium term, consolidation in the office market will continue and high-quality institutional landlords, such as Embassy REIT, will gain market share.”
Going forward, there may be a two-quarter delay in new supply.
He said that significant number of existing projects will struggle to recommence after lockdown for reasons such as liquidity and labour. There has been a 40% fall in supply reported by JLL and for sure there will a two quarter delay in new products coming online, he told reporters.
On the demand side, numbers are down by 13% as occupiers are deferring their decisions in COVID times and not wanting to take up new space or incur capital expenditure on that. “Demand will be subdued, it will pause for sometime but eventually once things normalize, demand will be similar to what we saw during the global financial crisis,” said Vikaash Khdloya, Deputy CEO and COO.
Holland said that the company’s properties remained open to support core business functions throughout the national lockdown within the parameters laid out by the government and rent collections from office occupiers remained strong at 92 percent for the month of April 2020.
“We have had a number of requests for leniency from our smaller tenants particularly those that help our occupiers - they run creches or operate food courts. These account for less than 1 percent of our revenue. As they are facilitating our overall ecosystem, we have shown some leniency but the reality is that for our 160 tenants of which 75% are international corporations, we have delivered our side of our contractual obligation and we expect the same from our occupiers. Hence the 92% collections,” he told reporters.
Not worried about work-from-home phenomenon
On the issue of work-from-home, Holland said that the general view is that it is competent but not comfortable. “It is not just the issue of digital infrastructure at home. For some occupiers, productivity of their staff has gone down because of weak broadband connection. Their staff instead of eight hours are taking 12 hours to complete their tasks as a result of which they are paying 3X overtime bill,” he explained.
Yet another message that came through was the young demographic was single and lived in PG or shared accommodation.
For these people “the office is their home, a place where they can network, interact to learn and progress. The conclusion is that there will be more flexible work styles but the office is definitely at the heart of business for companies for cultural and operational reasons.
"We are not worried about the WFH phenomenon, we think it is part of the normal evolution of this market as it becomes more sophisticated. We believe what will happen is that companies would want to be in high quality, less dense offices, in better environments that offer a total business ecosystem,” he said.
On future acquisitions
The focus of the company for the last two months has been on business continuity for tenants and "we are now moving towards opening up of different parks and getting things going. We have paused looking at acquisition but we will return to look at them in due course once we get out of the storm," Holland told reporters.
The company is having ongoing discussions with various lenders and banks to continue to finance some on campus developments or extensions of existing parks.
"We will undertake selective raise of monies from lenders for these ongoing development projects. In the context of new developments, we will do capital raise in the form of construction financing from banks," added Khdloya.
Embassy REIT comprises 26 million square feet of completed and operational commercial properties across India. With approximately 7.1 million square feet of on-campus development in the pipeline, the total portfolio spans 33.3 million square feet across seven Grade A office parks and four city-center office buildings in Bengaluru, Mumbai, Pune and the National Capital Region (NCR).