Embassy Off.REIT — Q1 FY26 earnings call

Call held 31 Jul 2025

Management summary

Embassy REIT reported a strong Q1 FY26 with robust leasing activity, significant pre-leasing for upcoming deliveries, and healthy revenue and NOI growth. Strategic debt refinancing improved the cost of debt, while a planned divestment aligns with capital recycling goals. However, increased interest expenses and muted solar performance impacted DPU growth.

Highlights

  • Revenue from Operations grew 13% YoY to ₹1,060 crores, driven by new leasing and rental escalations.

  • Net Operating Income (NOI) increased 15% YoY to ₹872 crores.

  • Achieved highest ever Q1 leasing of 2.0msf across 25 deals, up 9% YoY.

  • Portfolio occupancy improved to 88% by area and 91% by value, up 300 basis points YoY.

  • Successfully pre-leased 84% of FY26 deliveries, including full pre-leasing of Block 10 (0.43msf) in Chennai.

  • Refinanced ₹4,225 crores of debt at a blended coupon of 7.18%, reducing in-place coupon to 7.55%.

Concerns

  • Interest expenses increased, partially offsetting NOI growth and working capital changes, leading to DPU growth of 4% YoY compared to 15% NOI growth.

  • Solar performance remained muted due to lower unit generation and reduced tariffs in Karnataka.

  • Geopolitical events in the Middle East disrupted travel plans, impacting the hospitality portfolio.

Key financials

  1. Revenue from Operations ₹1,060 Cr +13%YoY
  2. Net Operating Income (NOI) ₹872 Cr +15%YoY
  3. Distributions Per Unit (DPU) ₹5.8 +4%YoY
  4. Net Debt ₹20,183 Cr
  5. In-place Coupon 7.5%

What they filed

Q1 FY27: revenue up 17.1%, net profit up 25.8% against the same quarter last year.

₹ Cr · quarterly
Line itemQ2 FY25Q3 FY25Q4 FY25Q1 FY26Q2 FY26Q3 FY26Q4 FY26Q1 FY27
Revenue997 1,022 1,086 1,060 1,124 +13%1,193 +17%1,205 +11%1,241 +17%
EBITDA628 763 310 821 868 +38%917 +20%903 +191%959 +17%
Net profit1,530 158 -243 155 232 −85%381 +141%-430 −77%195 +26%
How to read this

₹ crore, as filed. The percentage beside a figure is the change against the same quarter a year earlier — never the quarter before, which would make every seasonal business look like it collapses and booms each year.

Order book

high confidence

Total value

2 msf

as of 2025-06-30 quantified

9% YoY

Inflow this quarter

2 msf

Composition

  • GCCs (client type) 64%

Pipeline

other

Potential commercial project in Whitefield, Bangalore

The leasing momentum continues in both markets. We have done some exciting work in Noida as well. We have already leased about 225k sf. We have got an active pipeline of about 1.5 msf. The market is seeing potentially about 12 msf of active RFPs and we are participating in about 90% of these RFPs. So, the story cannot be greater for us.

Source: Prepared remarks

Capital allocation

high confidence
  • Debt Net ₹20,183 Cr Cost 7.5%
    • New borrowing Raised debt at a blended coupon of 7.18% to refinance higher cost debt, including NCD issuance of ₹750 crores at 6.97%. ₹4,225 Cr
    • New borrowing Raised a 10-year NCD at an effective coupon of 7.33%. ₹2,000 Cr
    Our net debt stands at ₹20,183 crores as on June 30, 2025, implying a leverage ratio of 33%, with an average in-place coupon of 7.59%. Following the debt refinance post quarter closure, our in-place coupon now stands at 7.55%, reiterating our strong balance sheet position with dual AAA credit ratings.
  • Dividend ₹5.8/share (interim)
    We declared distributions of ₹550 crores or ₹5.80 per unit for the quarter, representing a growth of 4% YoY.
  • M&A Embassy Manyata blocks Divestment · Signed

    Divestment of ~376ksf comprising two strata owned blocks, including a vacant vintage block requiring significant capex, aligning with capital recycling strategy.

    Occupancy ~60%, will drop to ~32% post exits, rentals ~₹8 crores, ~2% NOI yield post exits.

    We've entered binding documents for divestment of ~376ksf at Embassy Manyata, comprising two strata owned blocks, including a vacant vintage block that requires significant capex. The exit aligns with our capital recycling strategy. The deal is expected to close in the coming quarter, subject to conditions precedent.
  • M&A Potential commercial project in Whitefield, Bangalore Acquisition · Pending regulatory

    Evaluation of an invitation to offer from Embassy Developments Limited (EDL) for a potential ~3.3msf commercial project.

    In addition, we've received an invitation to offer from Embassy Developments Limited (EDL), for a potential ~3.3msf commercial project in Whitefield, Bangalore. The opportunity is under evaluation in line with applicable regulations and governance protocols.

Guidance & targets

Profitability

  • NOI Profitability · FY26 · High confidence ₹3,589 to ₹3,811 crores
    We continue to expect our NOI to be in the range of ₹3,589 to ₹3,811 crores

    — Abhishek Agrawal, CFO

Dividend

  • DPU Dividend · FY26 · High confidence ₹24.50 to ₹26.00 per unit
    and DPU to be in the range of ₹24.50 to ₹26.00 per unit.

    — Abhishek Agrawal, CFO

Occupancy

  • Portfolio Occupancy by Area Occupancy · end of FY26 · High confidence 90-91%
    We continue to expect portfolio occupancy to be between 90% and 91% by area

    — Abhishek Agrawal, CFO

  • Portfolio Occupancy by Area (ex-Quadron) Occupancy · end of FY26 · High confidence 93-94%
    or between 93% and 94% excluding Quadron at the end of FY26

    — Abhishek Agrawal, CFO

Hospitality

  • Hotel NOI Growth Hospitality · FY26 · High confidence ~9% YoY
    Hotel NOI is expected to grow by ~9% YoY, supported by steady improvements in both occupancy and ADR

    — Abhishek Agrawal, CFO

Debt

  • Interest Costs Increase Debt · FY26 · High confidence 10-12% YoY
    Interest costs are anticipated to rise by 10%-12% YoY, primarily due to the impact of the asset deliveries in FY25 and the planned deliveries during the remainder of FY26

    — Abhishek Agrawal, CFO

Taxation

  • Cash Taxes as % of EBITDA (Medium Term) Taxation · medium term · High confidence 5%
    So, the expectation is that for medium term, cash taxes will remain similar to 5%

    — Abhishek Agrawal, CFO

Pre-leasing

  • Block 4 (Chennai) Pre-leasing Pre-leasing · before delivery · High confidence at least 50%
    We are confident that at least 50% of the building will be pre-leased before delivery.

    — Amit Shetty, COO

What to watch in Q2 FY26

Embassy Manyata Divestment Closing

Next quarter (Q2 FY26).
Current Binding documents signed, pending conditions precedent.
Target Deal closed.

Why it matters

Completion of this divestment is key to the capital recycling strategy and will free up proceeds for debt repayment or future acquisitions.

The deal is expected to close in the coming quarter, subject to conditions precedent.

Risks & concerns

  • Increased Interest Expenses

    medium

    Interest costs are anticipated to rise by 10-12% YoY in FY26, partially offsetting NOI growth and impacting DPU.

    Management acknowledged

  • Muted Solar Performance

    low

    Solar performance remains muted due to lower unit generation and reduced tariffs in Karnataka.

    Management acknowledged

  • Geopolitical Events Impacting Hospitality

    low

    Geopolitical events in the Middle East disrupted travel plans, impacting the hospitality portfolio in Q1 FY26.

    Management acknowledged

  • Potential Impact of US Tariffs/IT Job Cuts on GCC Demand

    low

    Management believes the market noise around tariffs is not a structural threat to GCC demand in India, citing cost advantages and talent pool.

    Analyst downplayed

Q&A highlights

6 direct
Rationale and details of Embassy Manyata divestment Direct
These are, let us say 20-year-old blocks facing an occupancy risk and will require a substantial refurbishment if we were to bring them up to the occupancy we are seeing in Embassy Manyata now. Second, someone was willing to pay us 2.2% higher than the independent valuation.

Clarifies the strategic rationale for divesting older, riskier assets at a premium, and how proceeds will be used for capital recycling.

Asked by Puneet

Status and future plans for Embassy Quadron (Pune) asset Direct
I think for now, we are content to keep Embassy Quadron. I will be totally transparent, looking at the portfolio and the numbers of the portfolio ex Embassy Quadron for a bit, it is just a fraction of the value of the portfolio and the contributing analysis of the business.

Indicates a shift from previous contemplation of divestment, with management now opting to hold the asset, expecting a future turnaround.

Asked by Puneet

Discrepancy between NOI growth (15%) and DPU growth (4%) Direct
So, there are total three parts to it. One is the interest portion. The second is the payment of property tax. So, the property tax of Bangalore properties was paid for the full year in the first quarter itself. And the third impact is the properties that we delivered in the last year, last quarter. The non-cash NOI has kicked in right now. However, the cash NOI will kick in from Q2 and Q3 onwards.

Provides a clear breakdown of factors impacting cash flow and DPU, highlighting the temporary nature of some impacts (non-cash NOI, upfront property tax).

Asked by Puneet

Outlook on pre-leasing for Embassy Splendid TechZone Block 4 in Chennai Direct
Block 4 (0.6msf) in Chennai has been 14% pre-leased, including the expansion option, to Dexian. ... We are confident that at least 50% of the building will be pre-leased before delivery.

Gives specific pre-leasing progress and a forward-looking target for a key upcoming delivery, indicating strong demand in Chennai.

Asked by Pritesh Sheth

Impact of SEBI consultation papers on REIT classification and mutual fund investment Direct
I have always thought of REIT as being high dividend paying stock. At the end of the day, the way that REIT has been structured worldwide is that they actually operate as companies, they enter equity indices... I just think that to make the asset class attractive, in turn, for India, you have got to treat it with that whole thing about being a stock and having that same mindshare.

Highlights management's strong view on REITs being treated as equity for broader market participation and liquidity, and potential structural changes needed.

Asked by Vishal Parekh

Impact of US tariff issues and IT job cuts on GCC demand in India Direct
I think very frankly, it is too early to call. I think these conversations on tariffs generally point to the fact that the US administration is always looking to make a deal... what we are seeing in our portfolio is that there is massive migration towards GCCs and companies from other parts of the world.

Addresses a macro concern, providing management's perspective that while there's noise, the underlying demand for GCCs in India remains strong due to talent and cost advantages.

Asked by Parvez Qazi

Sensitivity of cost of funds to interest rate cuts Partial
The total debt book is around Rs.20,000 crores 58% is fixed now. Out of fixed portion only Rs.2,000 crores come up for refinance this year. So, any rate cut from here on, we will get benefit only on those. On balance 42% it depends because as of now, we have not received the benefit from the last 50 bps reduction till now, because the MCLR of the bank has not gone down, still to bake in. But to give you a range, it can be, let us say, 20 to25 basis points lower from here as at 30th March 2026.

Provides a detailed breakdown of debt structure (fixed vs. floating) and explains the lag in benefit from rate cuts, offering a forward estimate for cost of funds.

Asked by Harsh Modi

2 min read 6 chapters

Detailed narrative

Strong Q1 FY26 Leasing and Occupancy Growth

Embassy REIT reported its highest ever Q1 leasing with 2.0msf across 25 deals, representing a 9% YoY increase. This robust performance contributed to an improved portfolio occupancy of 88% by area and 91% by value, marking a 300 basis points YoY increase. Notably, all Bangalore assets are now over 90% leased, with 10 of 14 properties exceeding 90% occupancy and six at 100%.

Significant Pre-leasing for Upcoming Deliveries

The REIT demonstrated strong pre-leasing momentum, with 84% of its 3.2msf FY26 deliveries already committed. This includes the full pre-leasing of Block 10 (0.43msf) at Embassy Splendid TechZone in Chennai to a global healthcare company, scheduled for Q2 FY26 delivery. Additionally, Block 4 (0.6msf) in Chennai is 14% pre-leased to Dexian, with management confident of reaching at least 50% pre-leased before delivery.

Financial Performance and Strategic Debt Management

Embassy REIT delivered a solid financial performance with Revenue from Operations growing 13% YoY to ₹1,060 crores and Net Operating Income (NOI) increasing 15% YoY to ₹872 crores. The company strategically raised ₹4,225 crores of debt at a blended coupon of 7.18% to refinance higher-cost debt, reducing its in-place coupon to 7.55%. A 10-year NCD of ₹2,000 crores was also issued at 7.33%, marking the first such issuance by an Indian REIT.

Capital Recycling and Inorganic Growth Opportunities

In line with its capital recycling strategy, Embassy REIT entered binding documents for the divestment of ~376ksf at Embassy Manyata, comprising two strata-owned blocks, expected to close next quarter. This move aims to divest older assets requiring significant capex. The REIT is also evaluating an invitation to offer for a potential ~3.3msf commercial project in Whitefield, Bangalore, signaling potential inorganic growth.

FY26 Guidance and Outlook

The REIT reaffirmed its FY26 guidance, projecting NOI in the range of ₹3,589 to ₹3,811 crores (13% YoY growth at mid-point) and DPU between ₹24.50 to ₹26.00 per unit (10% YoY growth at mid-point). Key assumptions include portfolio occupancy of 90-91% by area (93-94% ex-Quadron) and a 9% YoY growth in Hotel NOI. However, interest costs are anticipated to rise by 10-12% YoY due to recent and planned asset deliveries.

Management's View on Market Dynamics and REIT Classification

Management expressed confidence in the overall leasing market, noting robust demand and rising rental rates in micro-markets. They downplayed concerns about US tariffs or IT job cuts impacting GCC demand, emphasizing India's talent pool and cost advantages. The REIT also advocated for REITs to be classified as equity for mutual fund schemes, believing it would enhance market liquidity and participation.

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