Nuvama reiterates 'Buy' on Embassy REIT; here's why growth looks strong

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Embassy Office Parks REIT is well-placed to capitalise on a revival in office leasing, said Nuvama Institutional Equities while maintaining a ‘Buy’ rating on the scrip. EMBREIT, the brokerage noted, is the pioneer of REITs in India and owns the largest portfolio by area among Asian REITs. With nearly 74 per cent of its portfolio by GAV concentrated in Bengaluru, the company benefits from operating in the best office market in India.

 

Parvez Qazi and Vasudev Ganatra, research analysts at Nuvama, expect Embassy REIT to clock a DPU compound annual growth rate (CAGR) of 13 per cent over FY25–28E on the back of strong office demand. They have retained their ‘Buy’ call with a discounted cash flow (DCF)-based target price of ₹478 (at par with Q2FY28E NAV).

 

According to the brokerage, the potential proliferation of GCCs, EMBREIT’s dominant presence in attractive micromarkets such as ORR and North Bengaluru, and a development pipeline of 7.1 msf provide a solid foundation for growth.

 

Key drivers, the analysts said, include completion of under-construction office assets and hotels, a significant mark-to-market opportunity, leasing of vacant office space, and contractual rent escalations.  CATCH STOCK MARKET LIVE UPDATES TODAY

Value-accretive acquisition

Embassy REIT has announced the acquisition of Pinehurst, a 0.3 msf office asset located within Embassy GolfLinks Business Park in East Bengaluru. This operational asset, 100 per cent leased to a leading global investment firm, has been purchased from a third party for an EV of ₹850 crore (NOI yield of 7.9 per cent). “The acquisition is likely to be NOI/DPU accretive, in our view. The REIT is yet to decide on the funding structure but can easily fund it via debt given a low LTV of 31 per cent,” said Nuvama.

 

The REIT has entered into definitive agreements to acquire the non-SEZ Pinehurst asset. The park has a total leasable area of 4.7 msf, of which 3.1 msf is currently under EMBREIT’s economic interest. The acquisition will allow the company to consolidate its presence within the park.

 

Nuvama analysts expect the acquisition to be completed in Q4FY26E. The company can easily fund the acquisition through debt given its low LTV of 31 per cent.

Strengthens presence in India’s best office market

The acquisition, the brokerage believes, will further expand the company’s presence in Bengaluru, the best office market in India. Of EMBREIT’s 40.9 msf operational office portfolio, 26.4 msf pertains to Bengaluru. The company also has 4 msf of under-construction projects in the city. EMBREIT’s Bengaluru portfolio enjoys occupancy of 95 per cent and contributes 75 per cent of its GAV.

 

Bengaluru remains the frontrunner in quarterly space take-up, led primarily by GCCs, which accounted for 37 per cent of GCC leasing in 9MCY25 across the top seven cities. Vacancies in Bengaluru fell 60 bps Y-o-Y/10 bps Q-o-Q to 9.2 per cent in Q3CY25, supported by strong leasing activity. Bengaluru continues to have the lowest vacancies in the country.

 

The asset is located in the Suburban-East micromarket, which has 24 msf of office stock (11 per cent of Bengaluru’s total), according to Cushman & Wakefield. “This micromarket continues to report strong leasing demand and lower vacancy levels; vacancy rates here have been in single digits for the past decade and stood at just 4.6 per cent at end-Q3CY25. CBRE projects average annual gross absorption of 2.2 msf in this micromarket over CY25–27E,” the analysts noted.

Analysts caution key risks

The analysts, however, also flagged key risks. According to Nuvama, the leasing trajectory in the office portfolio remains a critical variable for the company, while persistent sluggishness in office demand could pose a challenge. “Increasing supply in the office space may lead to higher vacancies, exerting pressure on rents,” the analysts said.

 

According to Nuvama, Bengaluru is the best-performing office market in India. EMBREIT derives 74 per cent of its GAV from Bengaluru assets, and a bulk of its under-development projects are also in the city. “Any slowdown in Bengaluru’s economic growth can adversely impact the company’s performance. A change in the regulatory framework for REITs can also hinder investor interest,” the analysts said. 

(Disclaimer: The views and investment tips expressed by the brokerage in this article are their own and not those of the website or its management. Business Standard advises users to check with certified experts before taking any investment decisions.)