Embassy Off.REIT — Q4 FY25 earnings call

Call held 29 Apr 2025

Management summary

Embassy REIT reported a strong Q4 and full year FY25, with distributions growing 8% and leasing exceeding targets. The company provided optimistic FY26 guidance for NOI and DPU, driven by robust leasing, new deliveries, and a strong development pipeline. While facing challenges with NAV growth and specific assets like Embassy Quadron, management remains confident in the long-term demand for Indian office space and is actively evaluating acquisition opportunities.

Highlights

  • FY25 distributions grew 8% to ₹2,181 crores, with FY26 projected for double-digit growth.

  • Leasing activity was strong, with 6.6 msf leased in FY25, exceeding original guidance of 5.4 msf by 22%.

  • Revenue from Operations reached a highest-ever annual total of ₹4,039 crores, and NOI ₹3,283 crores, both up 10% YoY.

  • The development pipeline of 6.1 msf includes 3.2 msf scheduled for FY26 delivery, already 68% pre-leased, with an 18% yield on cost.

  • Hospitality business outperformed with EBITDA up 25% YoY, occupancy up 700 bps to 63%, and RevPar up 26%.

Concerns

  • NAV growth was only 5% YoY, partially impacted by a reduction in GAV for Embassy Quadron and lower solar tariff.

  • The DPU growth guidance for FY26 (10%) is lower than NOI growth guidance (13%) due to increased interest costs and noncash NOI.

  • Embassy Quadron in Pune continues to be a drag on overall portfolio occupancy, with IT services exits being the biggest factor.

Key financials

  1. Revenue from Operations ₹4,039 Cr +10%YoY
  2. NOI ₹3,283 Cr +10%YoY
  3. Distributions ₹2,181 Cr +8%YoY
  4. DPU ₹23.01 +8%YoY
  5. Net Debt ₹19,650 Cr
  6. Leverage Ratio 32%
  7. Average In-place Interest Rate 7.9%
  8. Gross Asset Value ₹61,200 Cr +10%YoY
  9. NAV per unit ₹423.22 +5%YoY

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.

Segment breakdown

  • Hospitality
    25% EBITDA Growth63% Occupancy700 bps Occupancy Increase26% RevPar Growth

Order book

high confidence

Total value

6.6 msf

as of 2025-03-31 quantified

Inflow this quarter

1.6 msf

Composition

Mix 3 others
  • New Leases 4 msf 60.6%
  • Renewals 1.6 msf 24.2%
  • Pre-commitments 1 msf 15.2%

Share of order book by other, derived from disclosed amounts

Pipeline

other

Development pipeline total

Leasing activity was strong, exceeding guidance, with a significant portion going to GCCs. The development pipeline is also substantially pre-leased.

Source: Prepared remarks

Capital allocation

high confidence
  • Capex Capex disclosed
    • Development pipeline cost for 6.1 msf ₹3,130 Cr
    The 6.1 msf development will cost us around ₹3,130 crores and result in an incremental stabilized NOI of ₹627 crores, which implies around 18% yield on cost.
  • Debt Net ₹19,650 Cr Cost 7.9% · Maturity: 49% of total debt at floating rates, additional 29% due in next 12 months
    • New borrowing Raised commercial paper at 7.75% ₹425 Cr
    • Refinance Refinanced debt at average rate of 7.98% ₹6,300 Cr
    • New borrowing Raised Commercial Paper at 7.1% ₹650 Cr
    Our net debt book now totals around 19,650 crores, implying a 32% leverage ratio and a 7.90% average in-place interest rate. 49% of our total debt book is at floating rates and an additional 29% is due for maturity in the next 12 months, which positions us well to take advantage of any rate cuts in the future.
  • Dividend ₹23.01/share (interim)
    This takes our total FY2025 distributions to ₹23.01 per unit, marking a remarkable 8% growth YoY
  • M&A Deal Acquisition · Announced

    To enhance portfolio and grow asset base for distributions

    Must be accretive, fundable, right price, good market, provides distribution/growth

    In addition to our organic growth plans, we are also evaluating sponsor and third-party acquisition opportunities to enhance our portfolio. These potential transactions are subject to market and pricing conditions.

Guidance & targets

Dividend

  • Distributions per unit Dividend · FY26 · High confidence ₹24.50 to ₹26.00 per unit
    We expect our NOI to be in the range of ₹3,589 to ₹3,811 crores and our distributions to be in the range of 24.50 to ₹26.00 per unit. At mid-point, this guidance implies a NOI growth of 13% and a DPU growth of 10%, on a YoY basis.

    — Abhishek Agrawal, CFO

Profitability

  • NOI Profitability · FY26 · High confidence ₹3,589 to ₹3,811 crores
    We expect our NOI to be in the range of ₹3,589 to ₹3,811 crores and our distributions to be in the range of 24.50 to ₹26.00 per unit. At mid-point, this guidance implies a NOI growth of 13% and a DPU growth of 10%, on a YoY basis.

    — Abhishek Agrawal, CFO

  • Hotel NOI Profitability · FY26 · High confidence 9% YoY increase
    We expect our hotel NOI to increase by around 9% YoY on the back of occupancy and ADR growth and expect an improved contribution from our solar portfolio.

    — Abhishek Agrawal, CFO

Occupancy

  • Portfolio Occupancy by area Occupancy · Mar'26 · High confidence 90%-91%
    We expect our Mar'26 portfolio occupancy to be in the range of 90%-91% by area, which is 93%-94% ex-Quadron.

    — Abhishek Agrawal, CFO

  • Portfolio Occupancy by area (ex-Quadron) Occupancy · Mar'26 · High confidence 93%-94%

    — Abhishek Agrawal, CFO

Debt

  • Interest costs Debt · FY26 · High confidence 10-12% YoY increase
    Finally, we expect a 10-12% YoY increase in our interest costs, assuming no further changes in the interest rate during the year. The expected increase is mainly due to the impact of new buildings delivered during FY2025 as well as the planned deliveries for the next year.

    — Abhishek Agrawal, CFO

Tax

  • Cash tax as % of revenue Tax · FY26 · Medium confidence 4-5%
    And the way we have modelled is, let's say, on the tax, cash tax will remain in the range of 4% to 5% of revenue.

    — Abhishek Agrawal, CFO

Other

  • GLSP Payout Other · FY26 · Medium confidence ₹270 crores
    The third point on GLSP, there are three things to be considered, dividend, interest payment and the loan repayment. All three taken together for the last year was around INR 270 crores. We think that it will be in the similar range of INR 270 crores for the year.

    — Abhishek Agrawal, CFO

SEZ Conversion

  • Additional SEZ area to be converted SEZ Conversion · Ongoing · High confidence 1.2 msf
    So SEZ conversion, as we speak, we have converted about 6.4 msf of SEZ. And we are on track to convert another 1.2 msf, which is in advanced process with the authorities.

    — Amit Shetty, COO

What to watch in Q1 FY26

FY26 DPU Growth

Next quarter (Q1 FY26 results)
Current FY25 DPU ₹23.01/unit (8% YoY growth)
Target FY26 DPU ₹24.50-₹26.00/unit (mid-point 10% YoY growth)

Why it matters

DPU growth is a key return metric for REIT investors, and tracking progress towards the 10% target is essential.

We expect our NOI to be in the range of ₹3,589 to ₹3,811 crores and our distributions to be in the range of 24.50 to 26.00 per unit. At mid-point, this guidance implies a NOI growth of 13% and a DPU growth of 10%, on a YoY basis.

Risks & concerns

  • Underperformance of Embassy Quadron

    medium

    Embassy Quadron in Pune is a drag on overall portfolio occupancy, primarily due to IT services exits, and management has not been able to backfill perfectly.

    Management acknowledged

  • Volatility in interest rates affecting debt costs

    medium

    Management notes market volatility and a lag in MCLR rate cuts, but states they are well-positioned with debt maturities to take advantage of rate cuts.

    Management acknowledged

  • Impact of global tariffs on Indian office space demand

    low

    Management believes tariffs will not have a long-term impact on structural demand for Indian office space, and the GCC thesis remains intact.

    Management downplayed

Q&A highlights

6 direct, 1 evasive
Impact of global tariffs on Indian office space demand and leasing Direct
Look, the bottom line, from a tariff perspective is that it is really very early to call... Now how this actually translates into what it means for India, and India's tariff regime? It's pretty clear that everything is open for negotiation, but nothing on the services side seems to be impacted as yet. And quite frankly, I don't think that in our conversations with tenants, we are seeing the impact of tariffs as yet or if at all...

Addresses a macro concern, management provides a clear stance that tariffs are not impacting Indian office space demand or their leasing outlook.

Asked by Puneet Gulati

Reasons for DPU growth being lower than NOI growth in FY26 guidance Direct
The two major reasons are, one is the increase in the interest cost, because of all the deliveries during the current year, which is FY2025 and deliveries of 3.2 msf during next year... And the second reason is as we lease up, there will be some noncash NOI, which will start coming in as we increase the leasing for the next one to two years, this noncash NOI, is one of the reasons for decrease in this rate also.

Explains the divergence between NOI and DPU growth, highlighting the impact of interest costs on new deliveries and non-cash NOI.

Asked by Puneet Gulati

Factors limiting NAV growth to 5% YoY despite positive market conditions Partial
One, even though the interest rates are moving down slightly, it doesn't generally impact the cap rate or the WACC rate so easily, because in India, the cap rates move in a very, very tight spread. And there is no change in the cap rates that the valuers have taken. Secondly, the GAV has increased, one major reason for this is that we have spent a lot of money on the capitalization. The loans have also increased. And hence, the NAV has increased by 5% only... there was a reduction in the GAV of Embassy Quadron, because of which you can see some impairment that we have been taken in the current financial.

Clarifies the factors limiting NAV growth, including stable cap rates, increased capitalization spend, and specific asset impairments, which might be a concern for investors.

Asked by Puneet Gulati

Leasing outlook and occupancy guidance for FY26, specifically for Pune/Embassy Quadron Direct
The drag here being roughly Pune, which is around 2.5 msf... The rest of about 3.5 msf to 4 msf is effectively the vacant area, and which we back ourselves to fully lease up... So, occupancy ex-Embassy Quadron and Pune getting to those 90s levels, where the rest of the portfolio is firing on all cylinders, to be frank.

Provides detailed insight into the occupancy strategy, acknowledging Pune/Quadron as a key challenge while expressing confidence in other assets.

Asked by Mohit Agrawal

Strategic options and timeline for resolving issues at Embassy Quadron Direct
There are two options. One is own it and own the economics, and the other is to get rid of it for a price... I think at this point in time, the economics of monetizing it just does not make sense to us... But we are not under heavy pressure to sit here and sell at a price that we don't want to.

Reveals management's strategic thinking on a problematic asset, indicating a patient approach to maximize value rather than a distressed sale.

Asked by Mohit Agrawal

Rationale for considering acquisitions despite a large internal development pipeline Direct
If we had not put Embassy TechVillage in there, you have got to think about this from a dynamic perspective. That if there are opportunities to buy whether it comes again from a sponsor or a third party, if it makes sense for the portfolio in a micro market that is growing and there is a competitive bid to put people in these spaces, we should have a look at it, because it is just a fiduciary duty to grow this asset base to make sure that it gives you the distributions.

Explains the strategic imperative for M&A, emphasizing growth, fiduciary duty, and specific criteria for evaluating potential deals.

Asked by Kunal Lakhan

Plans for equity fundraise and potential pricing Evasive
I can't give you the price at which I am going to do that. That needs to be something that is really a question of where the markets are at this point... So I have always been a proponent of thinking about using equity as more of a strategic weapon and making sure that we can use it. But that's it. I think those are the broad parameters. So, beyond that, I don't really have too much of an update. It's not that we are out there right now actively looking at a fundraise, but we will update the market if we are.

Management acknowledges the strategic importance of equity but is non-committal on timing or pricing, suggesting no immediate plans or sensitivity to market conditions.

Asked by Puneet Gulati

Status of SEZ conversion and occupancy breakdown for SEZ vs non-SEZ portfolios Direct
So SEZ conversion, as we speak, we have converted about 6.4 msf of SEZ. And we are on track to convert another 1.2 msf, which is in advanced process with the authorities... So currently, we have about 19.5 msf of SEZ portfolio with about 20.8 msf of non-SEZ portfolio. The SEZ portfolio is at about 82% occupancy, and the non-SEZ portfolio is at 93% occupancy.

Provides specific operational updates on SEZ conversion progress and current occupancy levels for both SEZ and non-SEZ portfolios, which is crucial for understanding future revenue potential.

Asked by Pritesh Sheth

2 min read 6 chapters

Detailed narrative

Strong FY25 Performance Driven by Leasing and NOI Growth

Embassy REIT concluded FY25 with robust financial results, reporting a 10% YoY increase in Revenue from Operations to ₹4,039 crores and NOI to ₹3,283 crores. Distributions for the year grew 8% to ₹2,181 crores, translating to a DPU of ₹23.01 per unit. This growth was primarily fueled by strong leasing momentum, rent escalations, and the delivery of new buildings, with the hospitality segment also contributing significantly with a 25% YoY EBITDA increase.

Exceeding Leasing Targets and Robust Development Pipeline

The REIT significantly surpassed its FY25 leasing guidance, securing 6.6 msf of leases, 22% above the 5.4 msf target. This included 4.0 msf of new leases and 1.6 msf of renewals, with over 60% leased to GCCs. The development pipeline stands at 6.1 msf, with 3.2 msf slated for delivery in FY26, already 68% pre-leased, and projected to generate an 18% yield on cost from an investment of ₹3,130 crores.

FY26 Outlook: Double-Digit DPU Growth Projected

For FY26, Embassy REIT projects NOI in the range of ₹3,589 to ₹3,811 crores, implying a 13% YoY growth at the midpoint. Distributions are guided between ₹24.50 and ₹26.00 per unit, indicating a 10% YoY growth. Key assumptions include achieving 90%-91% portfolio occupancy (93%-94% ex-Quadron) by March 2026 and a 9% YoY increase in Hotel NOI, despite an anticipated 10-12% YoY increase in interest costs.

Capital Structure and Valuation Updates

The company's net debt stands at ₹19,650 crores, with a leverage ratio of 32% and an average in-place interest rate of 7.90%. Significant refinancing activity occurred, including ₹6,300 crores at 7.98% and recent commercial paper raises at 7.1%. Gross Asset Value increased 10% YoY to ₹61,200 crores, while NAV per unit grew 5% YoY to ₹423.22, driven by leasing momentum and new deliveries, though partially offset by specific asset impairments and stable cap rates.

Strategic Approach to Acquisitions and Asset Management

Embassy REIT is actively evaluating sponsor and third-party acquisition opportunities, guided by strict criteria for accretion, funding, pricing, and market quality. Management emphasized a patient approach, particularly regarding Embassy Quadron, which remains a drag on occupancy due to IT services exits. They are exploring options for Quadron but are not pressured to sell at an unfavorable price, anticipating potential market improvements with upcoming infrastructure.

Resilience Against Macro Headwinds and SEZ Conversion Progress

Management expressed confidence that global tariff frameworks would not have a long-term impact on Indian office space demand, with the GCC growth thesis remaining intact, supported by increasing demand and talent availability. The company also reported significant progress on SEZ conversions, having converted 6.4 msf and being on track to convert another 1.2 msf, which will enhance leasing flexibility and revenue potential. The SEZ portfolio currently has 82% occupancy, compared to 93% for non-SEZ assets.

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