Embassy Office Parks: GCCs keep the lights on; yields keep us Neutral

Research evidence excerpt

Embassy Office Parks: GCCs keep the lights on; yields keep us Neutral

400098,J.P. MorganSEBI

in 1Q; with GCCs contributing 81% of this demand. 86% of the new leasing Registration: INH000001873, (91-22) 6157-3000.

was to 10 new entrants, providing comfort on the breadth of demand; and of

this, 21% was driven by AI-related sectors spanning semiconductors,

Style Exposure

cybersecurity, robotics and networking. New leases were signed at an 8%

premium to market rents and at 11% re-leasing spreads. Broader leasing trends

across the country in June-quarter hit a record ~23msf (up 14% q/q, up 12%

y/y), with GCCs at 44% share and Bangalore at ~30%. On the call,

management reiterated a return to secular, business-as-usual demand, noting

that the earlier conflict-led travel and decision deferments have normalised.

• Margins holding up: Consolidated NOI margin was steady at ~82% (flat y/y,

up 120bps q/q), with office NOI margin at ~86%. The drivers that led to

divergence in NOI and NDCF were: 1) property taxes and insurance (up 74%

y/y); 2) cash taxes (up 130% y/y to Rs970mn, which includes ~Rs300mn

pertaining to the prior year; adjusted for which cash tax was at 5.5% of revenue,

in line with the ~6% guidance for FY27/28); and 3) higher external debt

servicing, with REIT-level interest up 38% y/y. These kept DPU growth of 9%

y/y below NOI growth of 17% y/y. On hospitality, hotel NOI grew 6% y/y on

a 100bps occupancy uptick to 61% and 5% ADR growth. Embassy also opened

the 211-key Hilton Garden Inn at Embassy TechVillage, achieving Rs19k+

ADR and GOP breakeven within its first month. However, Four Seasons (230

keys) will exit Embassy One effective Feb 28, 2027, with a new operator still

under evaluation. This could mute the hospitality contribution in FY28 despite