In a volatile environment, we have paid US$250 million in distributions, we prudently managed our capital, raised funds at attractive rates, and acquired a world-class asset. We are well positioned to capture the demand for Indian office space once this pandemic abates and as we make ESG central to our business ethos.

Dear Unitholders,

While the humanitarian crisis of COVID-19 has horribly impacted on India’s economy, businesses and lives, the fundamentals of India as the world’s Digital Talent Nation continue to hold true. Despite the impact of the pandemic, I am pleased to report a strong fiscal year performance for FY2021, reporting a 12% growth in Net Operating Income and delivering on our guidance, despite the challenges of the year which were dominated from beginning to end at a global and national level by the COVID-19 global pandemic.

Notwithstanding that, we have now completed two full years since listing, one of which was fully under the shadow of the pandemic and yet we have delivered 24% in total returns including our quarterly distributions totaling approximately `3700 crores ($500 million) since listing.

That performance highlights the strong underlying business, the quality of the portfolio of long‑tenured leases with our high‑quality, technology-focused, and international occupier base and the wealth of experience that our Board and management team bring to the business.

All our properties continued to be operational throughout the year, in line with the regulatory restrictions, and our teams have done an exceptional task of meeting business continuity requirements of our occupiers across our portfolio.

We remained strong on our operating fundamentals. During FY2021, we collected over 99% of our office rents, and signed new leases and renewals of 1.2 msf with a re‑leasing and renewal spreads of 18% and 13%, respectively. Even in today’s challenging market, our year-end occupancy stands at a healthy 88.9%.

We continued to be prudent in our capital management and maintained our strong balance sheet, and we remain well‑positioned to capitalise on attractive investment opportunities.

These attributes, built over a number of years, have been an important defense against the unique challenges of this last pandemic year.

The year saw the completion of the accretive acquisition of Embassy TechVillage for `9,800 crores or US$1.3 billion – a landmark deal and one of the country's biggest‑ever commercial real estate transactions. The acquisition of this 9.2 million square feet integrated office park cements Embassy REIT’s position as the largest office REIT in Asia by area. The acquisition of ETV assets was accretive to both our NOI and DPU, enhanced our commercial office portfolio scale by 28% to 42.4 msf and added another star asset to our existing office portfolio, growing our already strong cash flows.

Our financial results were resilient, despite persistent uncertainties in some of our core markets.

Financial highlights, FY2021

  • NOI grew year-on-year by 12%, with operating margins of 86%

  • Simplified the holding structure of Embassy Manyata, Bengaluru, thereby increasing the tax-free component of distributions to 78% for 4Q FY2021

  • Raised `52 billion debt at attractive 6.9% coupon, refinanced `32.8 billion leading to 336 bps interest savings

  • Fortress balance sheet with liquidity of `15.5 billion and low leverage of 22%; ample headroom to finance on‑campus development and new acquisitions

Business highlights,FY2021

  • Stable occupancy of 88.9% with strong rent collections at 99.8% on 32.3 msf operating portfolio

  • Achieved rent increases of 13% on 8.4 msf across 90+ leases

  • Leased 1.2 msf across 40+ deals, achieved 15% re-leasing /renewal spreads

  • Achieved top-out of 1.1 msf JP Morgan campus in March, 2021, on track for September, 2021 delivery

  • Continued construction on additional 4.6 msf new build, targeted completion in 2 to 3 years

Other initiatives

  • Our parks remain open with focus on ensuring safe workspaces and business continuity for our occupiers

  • Set up vaccine centres at Embassy Manyata, Bengaluru and Embassy TechVillage, Bengaluru with vaccination roll out for 4,900 frontline staff underway

  • Subscribed to WELL PortfolioTM programme to create healthier office buildings and thriving business ecosystems

  • Built a second government school in February 2021 in partnership with ANZ, school to benefit 1,200 students

Our financial results for the full year illustrate the resilience and strength of the business.

  • Our Revenue from Operations for FY2021 grew by 10% YoY to `23,603 million reflecting the underlying covenant of our 190+ high credit occupiers and the contractual growth inbuilt in our lease contracts
  • Our NOI for FY2021 grew by 12% YoY to `20,323 million
  • Our EBITDA for FY2021 grew by 12% YoY to `19,693 million

As a result of this strong performance, we have delivered distributions totaling `18,364 million or `21.48 per unit for the full year FY2021, on target with our full-year DPU guidance.

We have now enhanced the tax efficiency of our distributions through the successful restructure and simplification of the ownership of our key portfolio assets. Following regulatory approval, the scheme came into effect in March 2021. The simplification of the holding structure enables us to enhance the dividend portion of our distributions, increasing the overall post-tax distribution yields to our Unitholders. The simplified holding structure of Embassy Manyata, Bengaluru, has resulted in increasing the tax-free component of distributions to 78% for 4Q FY2021.

Our balance sheet continues to be strong. We successfully raised `52 billion debt at an impressive 6.9% coupon through a combination of REIT level listed debt and SPV level debt and we refinanced `32.8 billion debt at 6.9%, leading to 336 bps interest cost savings.We continue to maintain a strong liquidity position of `15.5 billion and low leverage of 22% Net Debt to Gross Asset Value (GAV).

Considering our AAA credit rating, additional proforma head-room of `126 billion and our headroom to raise debt at competitive rates, we are in a strong position to pursue growth through on‑campus development and accretive acquisitions and thereby enhance overall returns to our Unitholders.

We continue to focus on creating long-term value to maximise returns to our Unitholders

Looking forward with a focus on growth

Embassy REIT continues the growth of the portfolio through the 5.7 msf on-campus development across our portfolio. This includes the 1.1 msf built-to-suit office unit pre-committed to JP Morgan due for delivery in FY2022 with the balance 4.6 msf to be delivered over the following three years to FY2025.

We continue to make great strides on our infrastructure and amenity upgrade initiatives across our portfolio.

In the last year we grew our portfolio with the 9.2 msf acquisition of ETV. We continue to evaluate acquisition opportunities both from our ROFO options through Embassy Group, other options and opportunities through our partner network, and third party opportunities.

Taking our ESG activities to the next level

ESG is becoming increasingly important for international corporate occupiers coming to India and is also becoming a focal point for top-tier property and asset owners of publicly traded companies. For Embassy REIT, delivering energy efficiency and sustainability of operations,collaborating with our corporate occupiers for community development and operating a business with good governance principles have always been core foundations of our business philosophy.

We are now taking this existing foundation and building further to enhance our commitment to integrating ESG measures with our business strategy and execution.

Our efforts have been directed towards resource efficiency and reducing our environmental footprint. We have also undertaken initiatives that focus on aspects such as the health and safety of our employees, and those of our occupiers in this journey.

Keeping our commitment to sustainability, we are focused on designing and operating buildings aligned with green building certification requirements such as LEED and IGBC. By way of example, Embassy Galaxy located in Noida was awarded the LEED Platinum certification in 2020.

Embassy REIT is well-positioned as more occupiers explore spaces that are sustainable and promote fitness and well‑being. Our solid track record in creating sustainable, inclusive environments will help elevate our distinctive proposition.

Doubling down on our areas of conviction

Our occupiers

We continue to be optimistic about the future of technology‑dependent and technology companies which form the basis of our customer base as they continue to grow their operations in India.

According to a recent NASSCOM report, India will see continued growth in the GCC sector at a CAGR of 8% to US$42 billion forecast for FY2022. Increased offshoring by Global Captives will drive office demand in India, the Digital Talent Nation.

With an estimated 500 million workforce, India has the world’s second-largest labour pool at its disposal. The service sector constitutes ~54% of the GDP and remains the fastest-growing component of GDP. Our core occupier bases comprise of 43% pure technology and 46% global captives. The sizeable talent base, and the significant cost advantage that India offers, both in terms of workforce, as well as real estate costs, will continue to drive global occupiers to India office.

At the time of writing, we are encouraged by the continued downward trend in active COVID-19 cases and the progress on vaccine rollout. Embassy REIT was quick to respond and mobilise vaccination drives for frontline workers across our portfolio. We remain optimistic that the Indian office leasing demand will continue to increase as occupiers advance their returnto- work programme. The feedback from our occupiers about the future of their businesses in India and their rapid growth in hiring and business pipeline is very encouraging.

  • Global multinational corporations prefer large Grade A office spaces at competitive rentals for their ER&D operations and India with lowest rents in the region offers biggest cost savings among the peers. Cities such as Bengaluru and Hyderabad have emerged as major GCC hubs over the years.
  • With rupee depreciation against the dollar of ~10-12% already in 2020, and considering a further 2-3% y-o-y depreciation in the rupee further, we could be looking at lower costs in dollar terms for occupiers, even if real estate costs were to rebound slightly in 2022-23, both of which will offset each other.

Source: Cushman & Wakefield (GCC Report 2020) – Making India the Cradle of Global R&D

Our properties

We envisage that the preference for high-quality and safe Grade A office spaces as occupiers will accelerate – the shift from first‑generation buildings to Grade A office spaces and institutional landlords will continue. This trend augurs well for a portfolio such as Embassy REIT and our total business ecosystem product, with our high-quality, large-scale integrated campus environments and the broad range of amenities for our occupiers and their staff. Offices will be the focal point of collaboration and culture as the younger workforce look to advance their career mobility, learning and networking opportunities.

Our investors

We continue to focus on creating long-term value to maximise returns to our Unitholders .

With India’s active investment landscape, sustained confidence of investors in Indian real estate and progressive regulatory intervention, we are uniquely placed to emerge from the pandemic as a stronger, more resilient organisation.

We thank all the frontline workers, medical personnel, police, cleaners, security personnel and other first responders, all of whom worked tirelessly to ensure our parks have been safe for us, our corporate occupiers, and their employees.

We express our gratitude to all our partners for their continuing trust in Embassy REIT. Our unwavering commitment to delivering on the business priorities, while applying best practices in areas of ESG enables us to build holistic value for all of our stakeholders. We were laser focused on the creation of value for our Unitholders through the pandemic year, and will continue to be so as we look ahead into our bright future.

Yours Sincerely,
Michael D Holland