Embassy REIT: Keep ‘purchase’, decrease TP to Rs 380

4QFY21 taking whole emptiness elevated by 170bps q-o-q (370bps q-o-q on a same-store (SS) foundation) to 11.1% (and 13% on a SS foundation).

Whereas collections remained regular, rental escalations continued, and vacancies elevated by 370bps on a SS foundation. We imagine MPPL presents a dilemma, with a possibility to lease at 100% increased hire at the price of elevated vacancies. Keep ‘purchase’, however decrease TP to Rs 380 (from Rs 390).

The nice: Hire collections for FY21 remained regular at 99.8%. Rental escalations have remained clean in FY21, with c8.4msf of space attaining 13% escalation and there’s nonetheless room for one more 10% mark-to-market (MTM) on present market hire for these new leases. EOP has simplified the holding construction of Manyata (MPPL) SPV, which has resulted in an improved share of distribution within the type of dividends, leading to 78% of the distribution now being tax-free for unitholders vs 55% earlier. Two-year ahead provide estimates by CBRE proceed to come back down, now at c89msf, of which EOP believes solely 13msf is in comparable/competing markets.

The complicated: Manyata—The crown jewels or crown of thorns. MPPL accounts for c36% of adjusted NOI. From nearly a zero emptiness charge six quarters again, its emptiness charge has elevated to six.5%. Over FY22 and FY23, one other 14% of the realm leased is up for expiry. There may be one other 1msf (though c60% pre-committed) that’s below building and now more likely to be accomplished by December 22 (earlier June 22). This means a complete space that can should be leased over the following two years of upwards of 3msf. The expiring leases of legacy tenants had common leases of Rs 40psfpm vs present market leases of Rs 90psfpm, providing a 100% MTM alternative for this a part of the portfolio. MPPL was among the many most wanted workplace places and therefore commanded leases increased than the Bangalore common. The important thing problem is whether or not to refill quick at low leases or wait to realize market leases for this marquee asset. We assume emptiness charges rise to c14% by FY23e for MPPL.

The ugly: 4QFY21 taking whole emptiness elevated by 170bps q-o-q (370bps q-o-q on a same-store (SS) foundation) to 11.1% (and 13% on a SS foundation). Additional, the corporate has guided that out of 6% of leases which can be up for expiry, solely 2% are more likely to be renewed and the stability should be leased out recent.

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