Embassy REIT to invest Rs 850 cr to develop 1.9 mn sq ft office space in Bengaluru

Embassy Office Parks REIT will invest Rs 850 crore to develop nearly two million square feet office buildings in Bengaluru as the company remains bullish on demand for premium workspace, a senior company official said.

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Embassy Office Parks REIT, the country's first public listed real estate investment trust (REIT) sponsored by Blackstone and realty firm Embassy group, is also evaluating the acquisition of a five-million-square-feet IT park in Chennai.

In an interview with PTI, Embassy REIT Deputy CEO and Chief Operating Officer Vikaash Khdloya said, "We have started a new growth cycle by starting new development of 1.9 million square feet area in Embassy Tech Village in Bengaluru."

"As demand has started to rebound, we are now focusing on growth. We will develop 1.9 million square feet in one shot across four buildings," he told PTI.

Currently, Embassy REIT is developing a total of 4.6 million square feet area, including the new 1.9 million square feet office buildings.

Asked about the investment, Khdloya said the total construction cost is estimated at around Rs 850 crore for the new 1.9 million square feet area.

Moreover, he said the pending investment in the remaining 2.7 million square feet is Rs 750 crore.

The construction of the ongoing 4.6 million square feet will be completed over the next three years.

"We are very positive on organic growth," he added.

Apart from the organic route, Khdloya said the company has recently received 'Right of First Offer' (ROFO) from its sponsor Embassy group for the acquisition of the five million square feet area at Embassy Splendid TechZone in Chennai.

"We will evaluate whether to buy or not this five million square feet portfolio in Chennai for acquisition," Khdloya said, adding that around 1.5 million square feet in the Chennai IT park has already been completed."

In 2020 also, Embassy REIT acquired an IT park 'Embassy TechVillage' at a total enterprise value of Rs 9,782.4 crore ( USD 1.3 billion).

Khdloya said the demand for Grade-A office is picking up and the company leased around 4,30,000 square feet area during the December 2021 quarter, of which 3,50,000 square feet is new leasing and rest renewals.

He said the demand for quality office space remains strong, especially from the IT/ITeS sector, which has seen a lot of hiring even during this pandemic.

The spread of the Omicron variant of COVID-19 has delayed the return of the corporate workforce to the office by few weeks, he pointed out.

Last week, Embassy REIT has reported a 30 per cent increase in its net operating income to Rs 621.3 crore and will distribute Rs 493 crore to unitholders for the quarter ended December.

Its net operating income (NOI) and distribution to unitholders stood at Rs 478 crore and Rs 431.3 crore in the year-ago period.

Based on the robust Q3 performance, Khdloya said the company has revised its FY22 guidance for the NOI, distribution to unitholders and leasing number.

He said the company expects the NOI at around Rs 2,450 crore and distribution to unitholders at around Rs 2,050 crore.

The guidance for the new leasing area has been increased to one million square feet for the full financial year from 4,00,000 square feet earlier.

Already, new leasing of seven lakh square feet has already been achieved in the first three quarters, he highlighted.

Khdloya said the company's rental collection is almost 100 per cent while the vacancy is around 13 per cent.

Embassy REIT got listed on stock exchanges in April 2019, after raising Rs 4,750 crore through the initial public offering.

Currently, Embassy REIT owns 42.6 million square feet portfolio of eight large office parks and four city-centre office buildings in Bengaluru, Mumbai, Pune and the National Capital Region (NCR).

Out of the total portfolio, Embassy REIT's assets comprise 33.6 million square feet completed operating area, 4.6 million square feet under construction and 4.4 million square feet of future development potential.

Its IT parks are home to over 200 of the world's leading companies.

The portfolio also includes two operational business hotels, four under-construction hotels, and a 100-megawatt (MW) solar park.