Embassy Office Parks REIT (EMBASSY) Earnings Call Transcript & Summary

Good afternoon, unitholders. I'm Aditya Virwani, a Non-Executive Director on the Board. I'm attending this meeting from Embassy Oxygen, Noida.

The purpose of this meeting is to give you our unitholders an update on the key developments at the Embassy REIT and seek approvals on the matters stated in the annual meeting notice. Seven years ago, we pioneered India's first listed REIT with the belief that India would emerge as one of the most important office markets. Today, that belief stands validated more strongly than ever. Since listing, the Embassy REIT has transformed the scale and depth and resilience of this platform. Since listing, Embassy REIT has transformed -- our portfolio has grown since our listing from 33 million to 52.5 million today. Year 2026 was another year of very strong performance and meaningful progress. We delivered double-digit growth across revenue, NOI and distributions and increased our portfolio occupancy to 94% by value. This performance reflects the continued demand of high-quality office space across markets and the strength of the Embassy REIT's platform. I will now hand over to Amit Shetty to present our business highlights for the year and forward our outlook and strategy.

Thank you, Jitu. Good afternoon, everyone. Before diving into FY '26, let me briefly reflect on our 7-year journey since listing. We have grown our operational portfolio by about 75% to 43.5 million square feet through 17 million square feet of acquisitions and 11 million square feet of new office deliveries. Our leasing engine has delivered 32.6 million square feet of total gross leasing. And to our unitholders, we've distributed over INR 14,400 crores and delivered 12% annualized total returns in the past 7 years. Moving on to FY '26 highlights. It was a stellar year of broad-based execution for us. We leased 6.4 million square feet at 17% rental spreads with around 60% driven by GCCs. We added 7 new GCCs, bringing our total GCC count to 102. We've added 3.2 million square feet through acquisitions and new office deliveries. And on this expanded base of 43.5 million square feet, we grew our occupancy by 300 basis points to 90%, a strong signal of demand depth. Next, moving on to the market rent growth. The rental growth story this year is compelling as well. Our portfolio market rent grew by 8% year-on-year. Bangalore portfolio was up 7%, Mumbai by 14% and Noida by 17%. This drove our mark-to-market potential to double digits now at 10%, providing a significant embedded upside to our NOI. Moving on to the re-leasing spreads. We achieved 24% re-leasing spreads during the year, including a 5% premium to the market rents, suggesting that tenants are paying a premium for our assets across cities. Next, moving on to the occupancy growth. We increased our portfolio occupancy by 300 basis points year-on-year to 90% by area and 94% by value. Bangalore portfolio was up 300 basis points to 95% and Noida was up 700 basis points to 93%, a strong turnaround story. Our [ marquee ] assets, Embassy Manyata and Embassy TechVillage representing around 60% of our portfolio by value, grew occupancy by 400 basis points and 500 basis points, respectively. So the anchors of our portfolio are firing on all cylinders. Moving on to the office deliveries. FY '26 marked our highest ever single year delivery, a total of 3.3 million square feet of office buildings across Bangalore and Chennai. Importantly, these buildings were already 86% pre-leased primarily to global companies in retail, health care and banking sectors amongst the others. So tenants are committing even before the buildings were complete. That says everything about the demand for our platform. Next, I'll move on to acquisitions. We completed 2 strategic capital allocation transactions this year. We acquired Pinehurst Block at Embassy GolfLinks, a 300,000 square feet building at a total enterprise value of INR 852 crores, implying a 7.9% forward NOI yield and 100% leased to a global financial firm. Next, moving on to divestments. We also completed the first-ever divestment by an Indian REIT, a landmark for the industry. We strategically divested 2 strata-owned blocks totaling to 376,000 square feet in Embassy Manyata for INR 530 crores. This demonstrated both our ability to recycle capital and the strong market appetite for quality office assets. Moving on to our financial performance. We delivered double-digit growth across all key metrics and delivered fully on our annual guidance. We grew our revenue by 13% year-on-year to INR 4,582 crores and our NOI by 15% to INR 3,760 crores. We distributed in FY '26, INR 2,396 crores, translating to INR 25.28 per unit, delivering a 10% DPU growth year-on-year. Moving next on to our GAV and our NAV. We increased our GAV by 15% year-on-year to INR 70,540 crores, the highest among all listed Indian REITs. Also, we grew our NAV by 16% during the year to INR 491.62 per unit. Next, we'll move on to our debt. We raised last year INR 11,000 crores during FY '26, including INR 3,400 crores through 2 10-year NCDs at a blended rate of 7.40% and became the first Indian REIT to issue a 10-year paper. This doubled our average fixed debt maturity from 22 months to 45 months, significantly reducing our refinancing risk. Our net debt as of March ' 26 stood at INR 21,000 crores, implying a 30% leverage with 60% at fixed rates. Next, moving on to the unitholder base. We remain widely held with a 92% free float, one of the highest in Indian REITs. Our investor base has grown to 135,000 plus as of March and has crossed 150,000 as of today. I'm delighted to report that in FY '26, we delivered a total of 22% total returns, outperforming the broader markets for the second consecutive year. This comprised 15% of price appreciation and 7% of distribution yield. Next, moving on to hospitality. Our hotel portfolio occupancy held at 63% and the ADRs grew by 8% year-on-year, showing resilience despite the global geopolitical headwinds. Next, I'm further happy to report that we have launched a new hotel last month, a 211-key Hilton Garden Inn at Embassy TechVillage ahead of its schedule. The 308 (sic) [ 318 ] key 5-star Hilton at the same campus is on track for delivery later during the year. Next, moving on to India office demand and supply. On the macro front, the macro tailwinds for our business have never been stronger. Quarter 1 of this calendar year saw the highest ever office absorption of 20 million square feet against only 8 million square feet of new office supply, a highly favorable demand-supply equation for us. On the GCC story, GCC's absorption hit a record 9 million square feet in Q1 alone. Bangalore accounted for about 48% of this GCC leasing, cementing its position as the GCC capital of India. Crucially, GCC are no longer just a Fortune 500 story. 50% of Q1 GCC leasing came from mid-markets -- mid-market GCCs broadening the demand base. The mid-market GCCs are forecasted to grow at a 9% CAGR, surpassing 950 by FY 2030, a multiyear structural tailwind. Next, moving on to the FY '27 guidance. We enter FY '27 with a strong conviction and have guided to a double-digit NOI and DPU growth for the second consecutive year. At midpoint of the guidance range, this implies a 13% NOI growth and a 10% DPU growth year-on-year. Also, we expect to exit FY '27 at 92% to 93% occupancy by area, continuing our upward trajectory. Next, moving on, the embedded rent growth levers. Looking further ahead, we have significant embedded growth locked in. The key organic levers for this growth will be an occupancy uptick to the mid-90s, 6.2 million square feet of new office deliveries and rental growth through contracted escalation as well as mark-to-market potential on the expiring leases. Over and above this, we have up to 12.6 million square feet of potential acquisition opportunities from third party and the Embassy Group. In closing, I'd like to summarize that FY '26 was a year of strong execution and milestone achievement. The platform is larger, stronger and better positioned than ever. Our guidance reflects our confidence in FY '27 and beyond. Before I close, I would also like to give an update on the regulatory tailwinds for the Indian REIT sector with multiple positive changes announced in the last year alone. The key ones include SEBI's classification of REITs as equity, RBI allowing bank lending at the REIT level, further relaxation of NPS schemes to invest in REITs, launch of BSE's new REITs and Commercial Real Estate Index and the likely inclusion of REITs in NIFTY Mainstream indices in the upcoming September rebalancing. These are all landmark regulatory steps and will drive deeper capital formation in the REIT sector, and we welcome them wholeheartedly. Finally, on behalf of the team at Embassy REIT, I would like to thank our unitholders, occupiers, bondholders, partners and all our stakeholders for their continued trust and support. We are now happy to address any questions from our unitholders and we will commence the Q&A session.

Thank you, Amit. We'll now conduct the Q&A session for the next 15 minutes. As I mentioned at the start of the meeting, unitholders who wish to express their views or ask any query may do so by clicking on the Q&A tab on the respective video conferencing screens. Please note that Embassy REIT may limit the number of unitholders asking questions depending on the availability of time. We'll now first answer the questions that we have received prior to the meeting over e-mail from our unitholders. The first question is from [ Dr. Murali Basa ] and he asks, could the management please explain the sensitivity of the portfolio valuation to any changes in cap rates, specifically if the cap rates were to increase by 25 to 50 basis points across the portfolio, what would be the approximate impact on the overall portfolio valuation, NAV per unit and the LTV ratio? I will request Abhishek to answer this question.

Good afternoon, everyone. So the independent valuers perform the valuation every 6 months, and we also do a sensitivity analysis for this. Now if I have to take only the cap rate sensitivity, what it means is that if I have to keep all other variables at same and only the cap rate sensitivity analysis, then for every 25 basis point increase in the cap rate, what would happen is the GAV would decrease by 1.4% to 1.6% because of which the NAV will get a hit of 2.2% to 2.4%. If I have to take the impact of this 25% basis point increase in the cap rate on the LTV, it would be around 0.4 to 0.5 basis -- sorry, percentage increase.

Thank you, Abhishek. The next questions are from Mr. Lokesh Malik, and he asks, it's a triple question together. First is, what are management's views around underperforming assets like Embassy Quadron in Pune and Four Seasons Hotel at Embassy One in Bengaluru? Has any formal review being done to consider their divestiture? Secondly, he asks, does Embassy REIT envisage hitting the 35% LTV ceiling due to construction CapEx requirements in FY '27? And is there any requirement to raise funds through equity issuance? And finally, he asks that with the high free float that we have, how will inclusion into equity indices help Embassy REIT's unit price? I would request Amit to take these questions.

Sure. On the first question on Pune as well as Four Seasons. In Pune, the focus is to increase the occupancy from the current 62%. Much of the demand in the city is seen in the Eastern and in Central Pune versus the Western Pune where our assets are present. The demand is still muted in the western side of Pune. However, the upcoming infrastructure upgrades in Hinjewadi, such as the metro coming online and as well as the Link Road or the Express road opening up could boost the leasing demand. We're already seeing early signs of this as we've leased around 0.6 million square feet in Pune in FY '26. The rental arbitrage would eventually be favorable to us as the rentals are reaching out to almost about INR 100 in East Pune and about INR 80 in the Central versus Western Pune, which is about INR 50, INR 55. It could be a waiting game for us, but we are very positive on this. On both Embassy Quadron and the Four Seasons, we are doing detailed evaluation of all possible options and working on a few solutions as well. We will come back with an update in due course. On the second question on LTV, currently, our LTV is at about 30%, and we have unitholder approval to go to about 35%. We have budgeted and analyzed our CapEx requirements for the year, and we're confident that we will not reach the 35% limit. We're delivering about 6.2 million square feet in the coming years with a total CapEx outlay of about INR 3,500 crores. And as these buildings get delivered, our GAV would also increase, which in turn will reduce our LTV. On the equity issuance, we are not in any rush and we'll continue to monitor the markets. We do not need to raise any equity to fund our CapEx requirement and would like to back any equity raise with an acquisition. On the third question on index inclusion, we're already part of some of the global indices like FTSE, S&P, MSCI, et cetera. And based on that, over 7% of our units are held by global passive investors. With inclusion in the mainstream domestic equity indices, we hope to see further passive capital inflows. This should help with increasing the liquidity, visibility and also accessibility of the product. REIT-focused indices such as the NIFTY REIT and Reality Index and the BSE REIT and Commercial Real Estate Index have already been formed. And as more investment vehicles are structured on these indices, REITs will become accessible to more investors.

Thank you, Amit. Next, certain queries have been received from Mr. [ Mayank Sharma ] pertaining to the status of the litigation proceedings involving [ MSC ]sponsor and the sponsor directors in respect to the fit and proper person criteria. And he asks, what has been the REIT's response, actions and disclosures on the same? I would request Vinitha to answer this question, please.

Good afternoon, unitholders. We have earlier received similar queries from the same unitholder and the appropriate responses have already been provided by Embassy REIT. Embassy REIT is committed to ensuring compliance with the requirements prescribed under the REIT regulations. The recent amendments to the SEBI intermediaries regulations have revisited the fit and proper person criteria and clarified that the mere pendency of criminal complaints, FIRs or chart sheets should not by itself impact fit and proper criteria. Accordingly, the proceedings referred to in the queries do not have any bearing on the sponsor or the directors' compliance with the prescribed standards. Embassy REIT has also appropriately disclosed matters required under applicable law in this regard, including at the time of registration with SEBI as a REIT and subsequently as prescribed by the applicable law.

Thank you, Vinitha. Considering we do not have any other questions, we'll consider that as the last question. Thank you all. I trust that we have responded to all your questions. In case we haven't been able to answer any questions due to time considerations, you're welcome to get in touch with us and the Investor Relations department of Embassy REIT at ir@embassyofficeparks.com. I will now pass it over to Ms. Vinitha again, our Head Company Secretary and Compliance Officer, to take over compliance matters and resolutions.

Thank you. Pursuant to the SEBI master circular dated July 11, 2025, REITs are allowed to hold a general meeting through the video conferencing or other audiovisual means without the physical presence of unitholders at a common venue. Since the physical presence of the unitholders have been dispensed with, the appointment of proxies is not permitted. In compliance with the provisions of SEBI REIT regulations, we have extended remote e-voting facility through NSDL to the unitholders to transact the business set out in the notice of the meeting. The said facility was available from Monday, July 20, 2026, from 9:00 a.m. to Thursday, July 23, 2026, till 5:00 p.m. The relevant documents for inspection, as mentioned in the notice of the annual meeting, remain open and accessible to the unitholders for inspection during the course of this meeting. The unitholders can also request for an extract of the same by sending a request mentioning the name, demat account number and mobile number to secretarial@embassyofficeparks.com. The notice dated July 2, 2026, convening the eighth Annual Meeting has been made available to you in advance of this meeting. Further, the auditor's report did not have any qualifications. With the concurrence of the unitholders and the Chairman, I shall take the same as read. Ms. Rupal D. Jhaveri, Practice and Company Secretary, has been appointed as a scrutinizer for scrutinizing the remote e-voting facility as well as the e-voting during the meeting in a fair and transparent manner. Unitholders who have not cast their votes by availing the remote e-voting facility will have an opportunity to cast their votes through e-voting during the meeting in the manner described in the notice. The results would be declared after considering the e-voting during the annual meeting and the e-voting already completed. The results would be submitted to the stock exchanges within 2 working days of the conclusion of this meeting and the relevant resolution shall be deemed to be passed on the date of this meeting, subject to receipt of the requisite number of votes in favor of the relevant resolutions. The results declared, along with the scrutinizer's report would be placed on the website of Embassy REIT and NSDL. The recorded transcript of this meeting shall also be made available on our website. Now I would like to inform the unitholders present at the meeting about the resolutions that are proposed in the notice for unitholders approval. Item #1 of the notice to be passed with simple majority relating to consideration, approval and adoption of the audited stand-alone financial statements and audited consolidated financial statements of Embassy REIT together with the report of the auditors thereon with the annual report on performance of Embassy REIT for the year ended March 31, 2026. Item #2 of the notice to be passed with simple majority relating to consideration, approval and adoption of the valuation report issued by Ms. L. Anuradha, MRICS, independent valuer for the valuation of Embassy REIT's portfolio as at March 31, 2026. The text of the resolutions and the notes is provided in the notice circulated to unitholders. I now request Mr. Jitu Virwani, the Chairman of today's meeting, for his concluding remarks.

With this, the eighth Annual Meeting of the Embassy REIT comes to a conclusion. On behalf of the Board, I would like to express my sincere gratitude to all of you unitholders for your presence, participation and continued trust. I also extend my heartfelt thanks to those who could not join us today, but have been the integral part of our growth journey. My sincere appreciation goes to the Board of Directors, this management team, our occupiers, employees, partners and all other stakeholders whose commitment and support continue to strengthen the Embassy REIT. We remain fully committed to the business and to deliver to our unitholders. I now authorize Vinitha Menon to conduct the voting procedure and conclude the meeting. Unitholders who are present in this meeting and who have not yet cast their votes can do so now by availing the remote e-voting facility. The e-voting facility shall remain open for the next 15 minutes. The requisite quorum was present throughout the meeting, and the results of the annual meeting will be announced by the Embassy REIT on or before July 28, 2026. [Technical Difficulty].