https://tijorifinance.com/company/embassy-office-parks-limited/
Overview section > Operational metrics > Cost of borrowing.
Here you can compare it with other peers also.
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Hi Rajesh, a good Q. I am also wondering the same.
Why has Blackstone pledged their holdings?
Is it something to do with Embassy taking on India Bulls Real Estate?
Please can anyone throw light on this?
Regards,
Vikas
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Hi Guys, Can anybody please point me to the like for like (same-store) performance? Couldn’t find it in the results’ presentation? Also, was this discussed in the concall, and what was the mgmt’s response?
TIA.
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My analysis on Embassy REIT. Do let me know your feedback.
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Thanks - this is a good one Chirag. I like the comparison of returns in the American market and long series data on occupancy. My additional 2 cents:
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Some analysis of distributable cash flows and distribution yield (pre / post-tax) would be good to add. These trust instruments (REITs / InvITs) more often than not trade based on yields and the volatility in cash flows also impacts the yield. E.g. You would notice that IRB Invit is trading in double-digit yield currently while Indigrid is around 8% or so (do understand Invit is slightly different from REIT). So what factors impact the yield/reasons for variation.
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This I know is difficult to take a call on but this is what separates good from the great. I am yet to come across a good commentary on what are the mid/long-term impacts of COVID on commercial RE (esp. office). Some say it’s negative (intuitive view) because of WFH; others say it is positive because of occupiers wanting more space per person and tech acceleration. The thing is we are almost 2 years into this and a lot of analysts are not sure as to which way it’s going to go over 3-5 years. So covering this aspect would really make your thing stand out.
I am from the industry working in corporate interiors segment. My 2 cents,
- Most of the non IT / non Big corporates are back to work from office.
- Demand for small offices are back with a vengeance. It doesn’t help Embassy but just an indicator.
- Many IT companies have lock in of five to ten years and they have heavily invested in interiors, they won’t go away in a hurry. Plus to a foreign brand having a large office is also a brand status symbol to attract talent.
- WFH issues are slowly emerging and corporates are taking cognizance of it. Recently some frauds got reported in UK about people doing simultaneous jobs in two corporates. Sooner or later, we will hear such issues in India as well. I know that a few of my friends from IT segment have taken up free lancing work assignments.
- Quite a few of my friends are roaming around all tourist destinations, attending crowded weddings, etc. but write in their corporate survey about Covid fears as reason to not return to office. They don’t see virus at weddings or beaches but only in their offices. Due to talent shortage, companies are not able to enforce discipline as much as they would like to. However, they are aware of such misuse and may take action once demand supply situation of talent availability stabilises.
- On the other side, some of the genuine hardworking people are now complaining that their workload has gone up and the line between office and personal time has got diminished.
- New joiners are finding it difficult to build bridges in new organisations.
- Many corporates have enforced 2 days a week ‘work from office’ rule or are in the process of getting it implemented from January 2022.
- Governments have taken cognisance of the fact that many poorer sections of the society who were getting their employment by providing ancillary services to IT campuses are struggling. These people form the vote bank and therefore some governments have started to build pressure on IT companies to resume work from office. Hyderabad IT secretary had written a new paper oped on this and Bangalore Central MP had make public statements on the same. Eventually, govt may use SEZ rules, etc. to force companies to resume offices. Societal harmony is required.
- My conclusion, by mid 2022 or early 2023, things should be back to normal. Hybrid mode will be neutralised by massive hiring and eventually demand will come back.
These are my generic and optimistic observations. I am biased as my main work depend on corporate interiors and I am also invested in both Embassy and Mindspace REITs.
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Good to know the details form someone working in related field. Agree to almost all your points. Regarding your investment in REIT - does it hold a place as a seperate asset class or a part of Real Estate. Do you see it as part of your equity portfolio for dividend or as part of long term story to benefit from commercial Real estate?
Lastly, what are your thoughts on the sponsors of some of them, like Embassy being Real estate players - the history of which have not been very good, baring few from solid business houses like Godrej in India? Thanks
Asset Class: I am treating it as part of my Debt allocation. Distributions are largely tax free and at 5.5 to 6% yields + annual increases built in, this is good for me in current interest rate scenario. Any capital value appreciation will be optionality for me. (Distribution comprise of Dividends and interest, interest is fully taxable at marginal rate while dividends from REITs are tax free as of now).
Thoughts on Sponsors: Embassy and Raheja are in the business for long and are reputed but they have their issues like any Indian real estate developer might have. However Blackstone is a large investor in both and that is a comforting factor. Lastly, as the assets are 80% + developed, rent yielding with all cashflows to be distributed out, I think that governance related risks are relatively lower.
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How about the risk in the process of acquiring new assets/lands for developing to show & achieve growth. Sponsor quality would come into picture here to ensure that new deals benefit retail investors or not…thoughts welcome
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Yes, some risks are there specially since they would mostly buy new assets from their own sponsor companies. However, with many marquee names like Blackstone, etc. are big share holders, I would assume that due diligence will happen.
Q3 results are out. Dividend for the quarter is Rs 5.2/unit.
Full presentation link - https://www.bseindia.com/xml-data/corpfiling/AttachLive/f6a0cea7-8516-4e78-aee5-729a9825ce86.pdf
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Good results…
Guidance raised, JP Morgan campus delivered, ETV campus integrated and new developments announced along with a potential ROFO opportunity in Chennai.From mid 2022 onwards Hotels will start generating better revenues as well.
Overall the sector is coming out of Covid disruptions and future looks better. Let’s hope for the best!
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What will be the impact of Inflation on REITs? Tried finding historical behaviour of REITs in inflationary periods from other markets but in vain. Any pointers in that direction?
Inflation alone doesn’t have much impact on REITs as REITs do not have any major expenses. But high inflation can lead to increase in interest rates. Since REITs borrow a lot and majority of these borrowings are based on floating interest rates, the interest payment can increase. Historically, REITs have been able to pass these costs to their clients.
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in the 70s during high inflation in the US REITS were the best performing asset class of the decade. REITS usually do well in a high inflation environment as the asset price of property which they own tends to increase beyond inflation. Stable assets like realty, gold etc perform well during inflationary periods.
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A beginner qus, as the report says 83% of distribution is tax free. How the unit holders will declare dividends in ITR that denotes this tax advantage.
Eg. Before declaring it needs to be calculated and declare only remaining 17%?
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After every distribution, they send a detailed break up of the same for tax calculation purposes. Your CA should be able to work with that very easily.
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Can anyone please explain why has interest cost (SPV level + REIT level; basis cash walkdown in results ppt) has seen such a sharp increase on y-o-y basis despite a reduction in interest rate? I noticed the increase in debt isn’t that high on a y-o-y basis.
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Can someone help me with a simple definition of these three terms in the Embassy distribution.
Interest
Amortization of SPV level debt
Dividend
Since the distribution is basically rental income from underlying properties, how does that fit into or reconcile with the above three heads conceptually.
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