Embassy REIT to invest Rs 3,800 cr in 4 yrs to complete construction of 61 lakh sq ft office space

New Delhi: Bullish on demand for premium workspace, Embassy Office Parks REIT will invest Rs 3,800 crore over the next four years to complete its ongoing office complexes as part of its strategy to expand rental portfolio.

Embassy REIT, which is India's first publicly listed Real Estate Investment Trust (REIT), currently has 36.5 million (365 lakh) square feet of completed office space across Bengaluru, Mumbai, Pune and Delhi-NCR.

In an interview with PTI, Aravind Maiya, Chief Executive Officer of Embassy REIT, said the company's business has been growing from strength to strength.

To expand its portfolio, he said the company is constructing 6.1 million (61 lakh) square feet of premium office space in Bengaluru to cater to rising demand from global capability centres (GCCs) and also domestic players.

That apart, Maiya said the company has signed an agreement to purchase Embassy Splendid TechZone (ESTZ), a Grade-A business park, from sponsor Embassy Group for an enterprise value of Rs 1,269 crore.

"We are currently constructing 6.1 million square feet of Grade A office space. These will get completed over the next four years," he told PTI.

Asked about the total cost to build this 6.1 million square feet space, he said, "We have already invested some amount. The pending construction cost is estimated to be around Rs 3,800 crore to complete these office buildings."

The company would fund the planned investment mainly through debt.

Out of 6.1 million square feet, he said 2.5 million (25 lakh) square feet would get completed this fiscal, 2.2 million (22 lakh) square feet in 2025-26, 0.4 million (4 lakh) square feet in 2026-27 and the remaining 1 million (10 lakh) square feet in the 2027-28 fiscal.

Asked about the acquisition of new assets in Chennai, Maiya said the deal is expected to be completed by end of the next month.

The business park ESTZ comprises 1.4 million (14 lakh) square feet of completed area, which is 95 per cent occupied and leased to large global companies such as Wells Fargo and BNY Mellon, among others.

It also comprises 1.6 million (16 lakh) square feet of under-construction area and 2 million (20 lakh) square feet of future development potential.

Embassy REIT plans to raise up to Rs 2,500 crore to fund this acquisition, reduce its leverage and grow business further.

The operational portfolio could expand to 40.5 million square feet this fiscal from current 36.5 million square feet from organic and iroganic routes.

On the performance of last fiscal, Maiya said, "Overall, FY24 was really good for us. Growth in revenue and net operating income (NOI) was almost 8 per cent year-on-year." The occupancy level stabilised at 85 per cent, he said.

The company achieved a gross leasing of 8.1 million square feet last year, which is an all-time high.

Considering a positive outlook on the Indian office market, Maiya said the company has given guidance for 2024-25, which includes 5.4 million square feet of total leasing.

The distribution to unitholders will grow by 7 per cent this fiscal, he said, but added that the guidance would change if the acquisition gets completed by the end of the first quarter.

Recently, Embassy Office Parks REIT reported a 13 per cent increase in its net operating income to Rs 765.6 crore and announced distribution of Rs 494.8 crore to unit holders in the fourth quarter of the last fiscal year.

Its net operating income stood at Rs 680.2 crore in the year-ago period.

Embassy REIT has posted an 8 per cent annual increase in its net operating income to Rs 2,981.9 crore during the last fiscal year.

Its net operating income (NOI) stood at Rs 2,766.3 crore in the preceding year.

The Board of Directors of Embassy Office Parks Management Services, which is manager to Embassy REIT, declared a distribution of Rs 495 crore or Rs 5.22 per unit for Q4 FY24.

With this, the cumulative distribution for the entire 2023-24 totals Rs 2,022 crore or Rs 21.33 per unit.

Besides office spaces, Embassy REIT also has four operational business hotels, two under-construction hotels, and a 100 MW solar park supplying renewable energy to tenants.