Embassy Office Parks REIT: Delivering on distribution targets 🏢

The DPU (distribution per unit)  promised for this year by Embassy Office Park REIT was Rs. 24.5/- per unit; year end results are out and they delivered Rs. 24.39/- per unit (before tax) for FY 19-20✨✨

28 May is the record date fixed for the distribution (to determine which shareholders are eligible to receive the distribution) and the money will be in the bank for the shareholders on or before 3 Jun 2020 as per the company announcements. All this is good news !!

Embassy REIT CMP Rs. 336.85/-

Numbers snapshot for Embassy Office Park REIT, Source: Company disclosures
Numbers snapshot for Embassy Office Park REIT, Source: Company disclosures

A look at the numbers released by the company for FY 19-20 show one red flag – the net profit for Q4. This drastic reduction in profit is due to an impairment loss of Rs. 1775.98 mn in their hospitality segment – Hilton and Four Seasons hotels because of the low occupancy as a result of the COVID 19 pandemic and lockdown in Q4. “But the hospitality segment contributed only 0.6% of the Net Operating Income (NOI) – a very small proportion whether you look at it from an NOI, Gross Asset Value or distribution contribution perspective.” company sources. They have also stopped construction activity and hotel operations to comply with the lockdown rules. But good news, impairment is a non-cash item i.e no loss of actual cash.

So this year has been good for REIT investors, but what are the prospects going forward? We are going to to be living with the virus for sometime and every company is talking about Work From Home solutions. Does that mean a slow death for office REITs?

Here is the perspective from the Embassy Office Park REIT (EOPREIT):

  • EOPREIT’s hardest hit segments due the pandemic are co-working, hospitality, aviation, and retail; but together they constitute only 6% of the occupiers.
  • Their top 10 occupiers comprise very strong global names and they contribute a significant 42% of our total revenues. More here 👉A better way to add rental income to your portfolio
  • Supply is expected to drop significantly in the mid-term due to supply chain disruptions, labor relocation challenges and liquidity pressures. This will further consolidate demand for institutional quality projects with healthy financing and project completion predictability to their benefit.
  • Global companies will increasingly prefer the best properties, with high levels of compliance and service and landlords with strong financial and operational qualities. Occupiers are likely to have an increased focus on wellness and enhancement of safety protocols for property management, which we believe will drive demand to our high-quality portfolio.
  • Net debt of Rs. 47.9 billion represents very low leverage of 15% of total enterprise value (TEV) and provides additional debt headroom of Rs. 114 billion. Existing cash and undrawn committed facilities comprised Rs.13.5 billion with only 1.3% debt maturing in next two years.
Source: Company website
Source: Company website

One new reason why investors can consider EOPREIT as an additional income source is that the government has taken away the dividend distribution tax (DDT) which means more dividend income to investors.

Till next post, take care !!

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