embassy reit earnings call transcript q1fy27 with qa

Operator

Good evening, everyone. A very warm welcome to all for Embassy REIT’s first quarter FY2027

Earnings Conference Call. Currently, all participants are in listen-only mode. Our speakers will address your questions during the question-and-answer session at the end. As a reminder, this conference call is being recorded.

I would now like to introduce your host for today’s conference – Ms. Sakshi Garg, Head of Investor

Relations & Strategy for Embassy REIT. Mam, you may begin.

Sakshi Garg

Head of Investor Relations & Strategy

Thank you. Welcome to the first quarter FY2027 Earnings call for Embassy REIT.

Embassy REIT released its financial results for the quarter ended June 30, 2026, a short while back. As is our standard practice, we have placed our financial results, earnings presentation discussing our performance, and a supplemental financial and operating databook in the Investors section of our website at www.embassyofficeparks.com.

As always, we would like to inform you that management may make certain comments on this call that one could deem forward-looking statements. Please be advised that the REIT’s actual results may differ from these statements. Embassy REIT does not guarantee these statements or results and is not obliged to update them at any time. Specifically, any financial guidance and proforma information that we will provide on this call are management estimates, based on certain assumptions and have not been subjected to any audit, review, or examination procedures. You are cautioned not to place undue reliance on such information and there can be no assurance that we will be able to achieve the same.

Joining me today are Amit Shetty, our CEO, and Abhishek Agrawal, our CFO. We will start off with brief remarks on our business and financial performance and then open the floor to questions.

Over to you, Amit.

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Q1 FY2027 Earnings Call Transcript

Amit Shetty

Chief Executive Officer (CEO)

Thank you, Sakshi.

Good evening and thank you all for joining us today to discuss our Q1 results.

We are happy to report a strong start to FY2027 with another successful quarter.

We delivered a robust financial performance, growing our revenue and NOI by 17% and DPU by 9% YoY.

On the leasing front, we signed 1.3 msf across 17 deals, welcoming 10 new occupiers into our portfolio.

But what really stands out is the quality and profile of these tenants. Majority of them are large, global enterprises with annual revenues exceeding $1 billion and a significant number of them are deeply embedded in the AI ecosystem — spanning sectors like semiconductor solutions, cyber security, robotics and automation, and networking infrastructure.

Beyond new entrants, established GCCs continue to expand – over 60% of India’s GCC leasing during the quarter was by these existing companies. Their growth is being increasingly led by an influx of newer functions and a mandate to drive innovation and efficiency on a global scale. With over 250,000 AI/ML professionals already employed within Indian GCCs, India has emerged as the largest hub for this talent outside the US. Bangalore, in particular, remains central to this narrative, and we believe it will play a pivotal role in the strategic AI-build outs for these global organizations.

Market data continues to validate this thesis. India’s office sector recorded its highest-ever absorption this quarter at 23 msf, up 14% QoQ and 12% YoY. Not surprisingly, 44% of this was contributed by GCCs and around 30% was led by Bangalore.

With this backdrop, let me delve deeper into our Q1 leasing performance

• We leased 1.3 msf during the quarter, including 0.7 msf of new leases and 0.6 msf of renewals.

• GCCs contributed to 81% of our total leasing, with the demand primarily driven by Telecom,

Technology and Research, Consulting & Analytics sectors.

• 86% of our new leasing was contributed by 10 new entrants in our occupier roster. Interestingly, of this, 21% demand was driven by AI-related sectors.

• Turning to rent reversions. We achieved 10% combined leasing spreads in Q1 and continued to lease above market rents. New leases during the quarter were signed at an average 8% premium to market rents, reflecting the strong occupier demand and pricing power embedded in our portfolio.

• Let me now give you a closer look at Embassy Manyata, our flagship asset. For newer blocks in this asset, we are signing leases at above ₹125 psf pm, implying around 20% premium to market rents.

Over the last 2 years, we have increased the in-place rent of this asset by around 16% and expanded occupancy by 10 percentage points to 93%.

• Around 0.5 msf of vacancy in this asset is in Block H1, which is currently undergoing refurbishment and is due for completion within next 3 months. We have a robust leasing pipeline for the entire block and are targeting to convert it within this financial year.

• Overall, as of Jun’26, we maintained our portfolio occupancy at 90%, with now 4 out of our 5 cities at over 90% occupancy levels.

A few other updates

• During the quarter, we completed the construction of 0.6 msf Block 1 at Embassy Splendid TechZone in Chennai. This building is fully leased, and we expect to receive the occupancy certificate by the end of next month. Our total development pipeline stands at 6.2 msf, with around 60% already pre- leased for the deliveries scheduled over the next 24 months.

• We also launched a new hotel last month, a 211-key 4-star Hilton Garden Inn at Embassy

TechVillage. I am happy to report that this hotel has clocked ADRs of over ₹19k for the full first month

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Q1 FY2027 Earnings Call Transcript of opening. Another 318-key 5-star Hilton hotel, a 37k sf convention center and 75k sf of retail area at the same complex are all slated for launch during the course of the year.

• Also, today, we have announced that Four Seasons will conclude its management of the hotel at

Embassy One in Bengaluru, with effect from February 28, 2027. We are currently evaluating potential new hospitality operators and look forward to finalizing a new partner in the near term.

• Moving on. We are pleased to have been included in some of the newly launched domestic indices

– the ‘Nifty REITs and Realty Index’, the ‘Nifty REITs and InvITs 90:10 Index’ and the ‘BSE REITs and Commercial Real Estate Index’. These benchmarks are expected to pave the way for the launch of new index-linked products, support greater market visibility and broader investor participation. We also look forward to securing inclusion in the mainstream domestic equity indices in the upcoming rebalancing cycle.

• From a returns standpoint, Embassy REIT delivered total returns of 19% in the last 12 months, driven by 12% price appreciation and a 7% distribution yield (as on June 30, 2026). These returns are particularly noteworthy in the context of broader equity markets, which generated negative returns over the same period — reinforcing the stable and differentiated risk-return characteristics of the

REIT product. Also, our unitholder base has continued to grow steadily and has now surpassed 150k.

I will now hand it over to Abhishek to present our financial updates.

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Q1 FY2027 Earnings Call Transcript

Abhishek Agrawal

Chief Financial Officer (CFO)

Thank you, Amit and good evening, everyone.

Let me take you through the key financial highlights for the quarter.

• We delivered strong double-digit YoY growth and reported our highest-ever Revenue and NOI. We grew both our Revenue and NOI by 17% YoY to ₹1,241 crores and ₹1,020 crores, respectively. This increase was mainly driven by an uptick in our portfolio occupancy and rentals as well as the new buildings delivered during the previous year.

• Our hotel segment NOI grew by 6% YoY, with an occupancy uptick of 100 bps to 61% as well as an

ADR growth of 5%.

• Our solar plant continued to run at optimum capacity and generated 44 million units in Q1 and recorded a stabilized quarterly NOI of ₹23 crores.

• We declared distributions of ₹598 crores or ₹6.31 per unit for the quarter, representing a 9% YoY growth. This increase was driven by an uptick in our NOI, which was partially offset by higher interest expense.

• During the quarter, we raised around ₹3,045 crores of debt at 7.46% p.a. blended interest rate, through a combination of commercial papers, NCD and bank loans.

• Post this, our net debt stood at ₹21,879 crores, implying a 31% leverage ratio, at 7.3% average in- place interest rate. In addition, around 60% of our debt is locked in at fixed rates.

Lastly, on the forward financial outlook

Based on our YTD performance, we remain on track to achieve our FY27 guidance. We continue to expect our NOI to be in the range of ₹4,150 to ₹4,350 crores and DPU to be in the range of ₹27.00 to ₹28.60 per unit. At mid-point, this guidance implies a 13% growth in NOI and a 10% growth in DPU, on a YoY basis.

We remain committed to delivering this growth to our unitholders, while optimizing our balance sheet and maintaining strong cash flows.

With this, let’s now move to Q&A please.

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Q1 FY2027 Earnings Call Transcript

Girish Choudhary

Congrats on a good set of performance. My first question is on the DPU guidance and the quarterly run rate of the DPU. This quarter, the DPU was ₹6.31, while the full year guidance, as you mentioned is ₹27.00 to ₹28.60 per unit. So, this implies a meaningful step-up for the rest of the year in terms of quarterly distribution. If you could highlight the specific drivers of this acceleration, anything for us to understand on the working capital or the taxes? So that would be my first question.

My next question would be on Embassy Splendid TechZone, you mentioned

Occupancy Certificate (OC) for Block 1 is to be expected in a month from now. So when should we build the rentals to start from that asset. once the OC comes in?

And the third one is on the Four Seasons transition. If you can just explain to us what prompted the change? And incrementally, what type of operator or positioning are you evaluating? And then should we expect any closure or renovation expenses as and when the transition happens? These are my questions.

Abhishek Agrawal

So, for the first question on guidance. We remain on track to meet the guidance.

Now, if you look at ₹6.31 per unit that we are distributing this quarter, if you compare it with the previous year June quarter, it is 9% higher. At midpoint, we have guided around 10% higher distributions. Now what typically happens is that property tax is paid during the first quarter. And hence, the first quarter number looks a little lower, but it catches up. This has been the trend always. And we are confident that this year also, we will be able to meet the guidance.

Amit Shetty

Girish, on the second question regarding Embassy Splendid TechZone. This is

Block 1 and the construction is fully complete. We are just waiting for the occupancy certificate from the authorities, which we expect to receive around the 3rd week of

August. However, to your second part of the same question regarding whether there is a rent-free period. I would not like to discuss the quantum of the rent-free, but it is a standard rent-free as per market practice.

Moving on to the third question, regarding the Four Seasons transition. It was a mutual decision between us and Four Seasons to part ways. And we have just secured the Board approval to execute the termination agreement. We will now go out into the market and solicit for a new operator for this hotel. And in due course, we will come back and update the market. There will be some upgrade costs.

However, it is too early for us to comment on the upgrade costs. We will come back and update the market in due course once we have finalized the operator.

Moderator

The next question is from the line of Yashas Gilganchi from Bank of Baroda Capital

Markets.

Yashas Gilganchi

I see that you have approximately 13 msf of potential acquisition opportunities. I am trying to understand what drives the decision to acquire a ROFO asset? Is it largely contingent on the Sponsor? And when it comes to third-party acquisitions, how do you describe the current market? So, what I am trying to understand is what would make you decide to acquire an operational asset?

Amit Shetty

We have always maintained the fact that there are 3 principles on which we acquire our assets. The fundamental principle being that it has to be in the top 6 cities of

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Q1 FY2027 Earnings Call Transcript the country and in the relevant micro market where there is corporate leasing activity. The second one being the asset quality should match our current asset quality, and the third one is that it should be DPU accretive from day one. So, if these criteria are met, that is when we actually acquire these assets. And having said that, we are looking at both the sponsor and third-party acquisitions, and as we have disclosed in the past; this 12 to 13 msf of pipeline is across these top 6 cities in India.

Yashas Gilganchi

And with approximately 50% of your outstanding debt maturing over the next 3 years, do you expect to refinance a larger portion of your debt into fixed rates?

Also, how do you expect your average cost of debt to trend over this period?

Abhishek Agrawal

Currently, we have around 60% of our debt at fixed cost. We will continue to monitor the interest rate trajectory and based on that, we will decide to take on fixed or floating rate debt. At one point in time, the fixed-rate debt was around 66% to 67% of our debt book. I think if we get a good rate, we can go towards this number, especially if we see that the interest rate trajectory is moving upwards, we may want to lock in more debt at fixed rates. But on the final number, we will have to decide that based on how the market moves, because as you know the market is very dynamic right now.

On the average cost of debt, if there is no change in the repo, I think we should be in the zip code of 7.5% by the year-end. But that number keeps moving based on how the interest rate trajectory is.

Moderator

The next question is from the line of Raj Kadam from Nuvama Group.

Raj Kadam

Congratulations on a great quarter. I had a question related to the property tax demand relating to Embassy Manyata business park. Can you please elaborate what is the reason for not recognizing any provisions for that? And if there is any adverse impact of that, what would be the impact on distributions?

Abhishek Agrawal

So, Raj, if you look at our financials, there are 2 cases that are related to property tax. One of the cases where we have a very strong position, we have not recognized most of the provisions. But on the other case, we have provisions in the financials which will cover the impact if there is any adverse decision which comes out. Also, we have paid significant amount under protest for this case, which is already paid for. So even if it goes adverse, I don't think there would be any impact on the distributions anymore.

Moderator

The next question is from the line of Parvez Qazi from Nuvama Group.

Parvez Qazi

Except Pune, our assets in most of the cities already have pretty high occupancy level. What is the outlook for the Pune assets? Just wanted to get your views on that.

Amit Shetty

On Pune, as we have always been saying that there are large city-wide infrastructure projects that are being completed. The first one being that of the metro. The trials of the metro is already complete. And we are hopeful that the metro will be operational at least till Balewadi in the next month or two and by the end of the year, the complete line will be operational. So, with that, we hope to see more traction from the Pune market. But having said that, we have actually done about 140,000 square feet of leasing, predominantly renewals, but also there has been one new leasing trade that we have done in Pune.

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Q1 FY2027 Earnings Call Transcript

Also, we are seeing new enquiries coming up in the city simply because from an arbitrage perspective, the markets also moved up. The eastern side of Pune is already at about ₹100 to ₹120 psf and the central Pune is about ₹80 psf, while we are in the ₹55 to ₹60 psf bracket. So therefore, we are seeing some traction from the IT sector and the technology sector as well. Early days though, but we are hopeful with all these improvements, it is just a matter of time that Pune occupancy will actually move up.

Moderator

The next question is from the line of Pritesh Sheth from Axis Capital.

Pritesh Sheth

A couple of questions. Firstly, on the projects that are under development, I see like a couple of projects’ timelines have been pushed out – a block at Embassy

Manyata and the Phase 2 of Embassy Business Hub by almost like 9 months. So, any specific reason for that?

Second, on the ADRs that you are now getting for the newly opened hotel, which is ₹19,000, and this, I suppose is not a luxury hotel, it is I think a 3-star property for which we are getting this ADR. So, what would be the expectations for the 5-star hotel that would come up?

Amit Shetty

You are right, there is a delay in 2 of our properties, that is Block B at Embassy

Manyata. This is primarily because of rerouting of a naala, which is a man-made naala, that is actually passing through our property. And hence, there was a delay in approval. But having said that, this is a fully pre-leased block, and the tenant is fully aligned, and they are aware of this. So, there is no risk to the tenancy. But having said that, there is a 9-month delay in the delivery of the building.

Coming to Phase 2 at Embassy Business Hub, there was a design change and also the metro that is opposite this building will actually be operational by the end of 2027. And therefore, from a timing perspective, we also believe that timing this closer to Metro, we will see more leasing velocity as well.

On the hotel side, you are right, this is the Hilton Garden Inn that we have currently opened. This is the 211 keys Hilton Garden Inn in Embassy TechVillage in

Bangalore. Currently, we are achieving ₹19,000 ADR. The Hilton 5 Star will definitely be north of this, but it is too early for us to comment because the launch is planned towards the end of the year. So closer to that, we will update the markets.

Pritesh Sheth

Sure and this ₹19,000, should we take it as a stabilized rate? Or these are like initial retail demand, and once corporate demand starts coming in, this should get down to like maybe ₹13,000 to ₹15,000 as an average rate?

Amit Shetty

Interesting, you asked this question Pritesh. This is probably the most supply- constrained hotel market in the country. There are about 1,200 room keys in ORR micro market with about 71 msf of corporate occupier in that 12 km stretch. So, we believe that this will only grow from here, and we don't see any slump in this rate.

Pritesh Sheth

And one last question on the cash taxes part. As a percentage of EBITDA, it was closer to 10% and the usual average has been like 5% to 6%. Should we consider this as a new normal in terms of cash taxes, or was there some one-offs this quarter?

Abhishek Agrawal

So Pritesh, actually, the way we look at cash taxes is as a percentage of revenue,

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Q1 FY2027 Earnings Call Transcript it was always around 6% or lower. If you look at the ₹97 crores of cash taxes that we have for this quarter, it includes around ₹30 crores which was basically tax for the previous year, paid during this quarter. It took us some time to finalize the number and pay it out. So, we paid that amount somewhere around in April. And hence, if you strip out this ₹30 crore which we paid now in cash, taxes are around

₹67 crores, which is around 5.4% to 5.5%. So, it is in line.

Pritesh Sheth

And how should we think of it as a steady run rate? This is how we should look at even going forward, like 2, 3 years, 5 years, 10 years on a longer-term trajectory?

Abhishek Agrawal

I can tell you for maybe about, let's say next one or two years; we should look at around 6% of revenue as the cash tax. I mean, with every budget, the regulation keeps changing. So maybe for now, I would say 6% for this year and the next.

Moderator

The next question is from the line of Abhinav Sinha from Jefferies.

Abhinav Sinha

A couple of questions. So firstly, on the newly launched hotel, what should we see as its impact on DPU or NOI for the next, let's say, 2 to 4 quarters?

Second one is actually related to CAM charges. We have seen few markets seeing sharp jump in minimum wages and on-the-ground wages for workers. So, what have you seen on ground? And do you see your margins coming down? Those are the 2 questions.

Abhishek Agrawal

Okay. So, Abhinav, on the second one on the CAM charges, we are also seeing that, let's say, in Bangalore, the minimum wages are increasing. But the way our contracts are drafted, this will all get passed to the tenants with a markup, which is a regular contracted markup. So, for us, there is no negative impact.

Amit Shetty

We don't see any impact on Four Seasons currently, given the fact that it is too early and we are thinking of ending the agreement with current operator of this hotel only towards the end of the financial year. But however, once we have the operator finalized, we will come back and update the markets.

Abhinav Sinha

No, actually, my question was more on Hilton openings and are they going to impact the DPU.

Amit Shetty

Okay. So, on the Hilton opening, obviously, there will be a positive impact on the

DPU given the fact that this Hilton Garden Inn was opened slightly ahead of schedule that we had anticipated. And also, the ADRs that we are actually currently achieving was over the budgeted ADRs.

Abhishek Agrawal

Also, Abhinav, if I have to just add, it's not even a month since the opening, and it is already GOP breakeven. So that's the kind of response that we are getting.

Moderator

The next question is from the line of Deep Shah from 360 ONE Capital.

Deep Shah

My question is around our debt. So, if I look at our debt schedule, roughly about

₹7,000 crores worth of fixed debt comes up for refinancing in the remainder of 2027 and 2028 and a small number of floating rate debt. I want to understand as a strategy, is there something that we spelled out as to whether we would like to refinance them with fixed rate debt itself or we are flexible. Any broad thoughts on that, given nearly half of our debt comes up for refinancing in the next 20-21 odd months? That's my first question.

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Q1 FY2027 Earnings Call Transcript

The second question is, if I look at the under-construction pipeline and completion, it seems that we have some reasonable completion also coming up in FY28. By that metric, would it be fair to assume that our DPU growth rate even in FY28 would be slightly lower than NOI? Would that be a fair assumption?

Abhishek Agrawal

So, on the first one, see, while I agree that around ₹7,000 crores of debt is coming up for refinance, the strategy that we are building is more near-term, let's say, for this year, almost around in total ₹4,300 crores to ₹4,400 crores of debt is coming up for refinance. We are flexible, and I'll tell you why: because it will depend on where the interest rate is at the time of refinance, because from here to September, we have only ₹300 crores to ₹400 crores, which we have to refinance. And the next one comes in October. So, at that particular point of time, we will want to see if the interest rate is going north, then we may want to take more of fixed and long-term debt. If the interest rate is going down, we may want to take short term paper for a while and see if the interest rate goes down at the bottom of the cycle, then we will want to take some money which is long term and which is at fixed rate. So, it is very flexible right now. But having said that, we will want to insulate our financials if, let's say, we get some debt, which is very long term, 5, 7 or 10-year paper, we may want to take that money.

On the second one, see if you look at the difference between NOI to NDCF growth, it is also because of the interest rate that comes in. Now if we deliver all these assets, the contraction between that variance will not take place in the current year, or in FY28. Once we have completed all the deliveries, maybe that is when the contraction will start because what happens is the winding up of non-cash happens within the, let's say, 6 months or 3 months period of rent free, but the unwinding happens over the next 4.5 to 5 years.

Deep Shah

Just a follow-up to your first answer. So, whilst you clearly laid out that the preference will be to insulate the portfolio, of course, if we get a competitive rate.

But usually, in this volatile market and maybe I understand some of it could be speculation. But do you think there is great appetite for such long-term papers or even the investors are looking at it from a short-term perspective, given how volatile the macros are? And I understand this could be speculative but just wanted to get your thoughts given you are doing this much more closely than what we understand.

Abhishek Agrawal

You are correct. As of now, very long-term paper like 5, 7 or 10-year papers are very difficult to find in the market. I mean investors are also looking at shorter-term papers.

Moderator

The next question is from the line of Pritesh Sheth from Axis Capital.

Pritesh Sheth

A couple of follow-ups. First, if you can highlight on the leasing demand sentiment.

I know, industry numbers are coming pretty strong. We also had a good leasing quarter. But what we had also heard about was some deferrals in terms of demand given the geopolitics. So, anything you sense if that wouldn't have been there, would this number would have been higher or it's pretty normal on ground?

Amit Shetty

We are actually seeing things as very normal right now. Earlier, when the war started, we saw some travel deferment and some decisions were slower. But now, it has just become business as usual for us. The travel has again regained momentum. Corporates are coming back, taking decisions. Just to give you some stats, in just the last 2 quarters, we have seen 110 new GCCs entrants into the

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Q1 FY2027 Earnings Call Transcript country. The country has done phenomenally well, record of 45 msf of gross leasing absorption across first half. And the supply that came into the market was about 32 msf. The rental rates, like I mentioned, has actually started moving up, and we started to see that premium that we are getting to the market consistently over the last 3 quarters. So, I think overall, it is very positive. The RFPs in the market, we are seeing about 22 msf of RFPs, pretty much 60% of this RFP is towards

Bangalore. So that is again a strong suit for us. So overall, from a leasing demand perspective, it has been really robust, and we are very happy with it.

Pritesh Sheth

And a couple of follow-ups on RFPs, I thought a few months back this number was

30 msf, which is now 22 msf?

Amit Shetty

I am talking about the RFPs in the REIT operating markets or our footprint markets only.

Pritesh Sheth

And on the rentals, you mentioned in your commentary about getting 20% to 25% premium rentals in the market at Embassy Manyata. How would otherwise the portfolio average be? Are we getting this premium only in our Bangalore assets or at a portfolio level, we still get around 10%-15% kind of premium across our assets?

Amit Shetty

It is across the country, Pritesh. Obviously, it is a function of flight to quality. And given the fact that our asset quality is always grade A+, we are getting this premium across all our properties.

Pritesh Sheth

And just one last on solar, we are clocking ₹23 crores NOI since last 2 quarters. Is this a new normal, the new average now?

Amit Shetty

Absolutely. This will be the stabilized generation and the revenue as well.

Moderator

Thank you. As there are no further questions, on behalf of Embassy REIT, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.

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