Embassy Office Park REIT, one of the largest players in the office space segment, was able to maintain robust rental collections of 97 per cent during the June quarter of FY21, despite the lockdown. According to the latest operational update by the Bengaluru-based company, while revenues from office space — which contributes to 92 per cent of overall revenue — in the June quarter remained steady, its hospitality segment (contributing about 5 per cent to revenue) took a sharp hit due to Covid-induced travel restrictions.

The stock inched up 1 per cent, post the operational update, but is still down nearly 19 per cent since the beginning of this year.

Stable rental collection

During the June quarter, Embassy was not only able to maintain strong rental collections but also escalate its rent by 14 per cent on 1.8 million square feet across 22 office leases. According to the management, Embassy’s properties remained open, as over 90 per cent of the company’s occupiers were operating their core business functions in June 2020.

Given the quality of Embassy’s clients and the location of its office properties, it was able to collect 98 per cent of its rent for the months of April and May and 95 per cent for June.

The June quarter performance appears sanguine considering the heightened challenges during the quarter amid the pandemic-led lockdown.

The Q1 performance follows a healthy show put up by the company in the March quarter. Embassy had delivered revenue growth of around 8 per cent y-o-y to ₹543 crore in the March quarter, driven mostly by strong leasing momentum and rental escalations. The company reported a profit of ₹58 crore during the March quarter (versus a loss of ₹9.4 crore in the same period last year).

The company was able to maintain about 93 per cent occupancy across its office properties (data as per March 2020). Over 40 per cent of the revenue is contributed by the top 10 clients. During the March quarter, the company released 75,000 sq ft and renewed lease contracts for about 1,38,000 sq ft. It also entered into new lease contracts of 2.4 million sq ft to over 25 occupiers. It has contractual lease escalation of 15 per cent every three years.

Challenges ahead

However, challenges remain. In the March quarter, according to the management, the construction was halted on 2.6 million sq ft of new development as per government orders. Whether this has resumed remains to be seen. The delivery timeline is also expected to be impacted with delay by 1-2 quarters. Similarly, rental pre-commitments from corporates too need a watch, with shift towards work from home.

Embassy has a strong balance sheet with moderate debt levels — debt to equity ratio is 0.17 times as of March 2020.