| Manyata Promoters Private Limited | ||||||
| Ratings reaffirmed at 'CRISIL AAA / Stable / CRISIL A1+ ' | ||||||
| Rating Action | ||||||
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| 1 crore = 10 million | ||||||
| Refer to Annexure for Details of Instruments & Bank Facilities |
Detailed Rationale CRISIL Ratings has reaffirmed its ‘CRISIL AAA/Stable/CRISIL A1+’ ratings to the bank facilities of Manyata Promoters Pvt Ltd (MPPL; a part of Embassy Office Parks real estate investment trust (Embassy REIT; ‘CRISIL AAA/Stable’) while withdrawing its ‘CRISIL AAA/Stable’ rating on the bank facilities amounting to Rs 1 crore and reduced Rs 50 crore. The withdrawal is based on the client’s request, revised sanction letters and is in line with CRISIL Ratings' policy on withdrawal of rating on bank loans.
The ratings continue to reflect comfortable loan-to-value (LTV) ratio, driven by low debt and strong debt protection metrics, supported by a cap on incremental borrowing; and stable revenue and rent collection from the underlying assets, given the high-quality of the commercial assets, healthy occupancy, contractual rent escalations and geographical diversification. These strengths are partially offset by exposure to refinancing risks and susceptibility to volatility in the real estate sector, resulting in fluctuations in rental rates and occupancy. |
Analytical Approach CRISIL Ratings has combined the business and financial risk profiles of Embassy REIT with its underlying special-purpose vehicles (SPVs), and has applied the criteria for rating entities in homogeneous groups to arrive at MPPL’s ratings based on the group rating. That is because Embassy REIT will have direct control over the SPVs and will support them in the event of an exigency. Additionally, there is minimal structural subordination of cash flow, wherein the SPVs have to mandatorily distribute 90% of their net distributable cash flow (after servicing of debt) to Embassy REIT, leading to highly fungible cash flow. Also, as per REIT Regulations, 2014, of the Securities and Exchange Board of India (Sebi), the cap on borrowing has been defined at a consolidated level (equivalent to 49% of the value of Embassy REIT’s assets).
Please refer Annexure - List of a Consolidated, which captures the list of entities considered and their analytical treatment of consolidation. |
Key Rating Drivers & Detailed Description Strengths: Strong debt protection metrics Consolidated gross debt for Embassy REIT rose to Rs 13,301 crore as on June 30, 2022, from Rs 11,788 crore as on December 31, 2021, due to acquisition of 3.56 lakh square feet (sq ft) of office buildings at Embassy GolfLinks and CAM business of the park. Going forward the funds required for ongoing construction activities may further increase the consolidated gross debt. However, debt protection metrics will remain strong with LTV and debt-to- earnings before interest, tax, depreciation, and amortisation ratios expected at less than 40% and 5.5 times, respectively. A low LTV ratio protects investors from the risk of decline in property prices and the consequent impact on refinancing.
Stable revenue of SPVs part of REIT More than 95% of the revenue comes from 12 established and high-quality commercial assets and one solar park, with stable operations and track record of at least five years of rental collection. The acquisition of 3.56 lakh sq ft of office buildings at Embassy GolfLinks and CAM business of the park further strengthened the stability of cash flow. Consolidated revenue was Rs 3,173 crore for fiscal 2022 as against Rs 2,560 crore for the corresponding period in fiscal 2021, supported by timely rental escalations and rent collections from tenants. Rental collections from office occupiers were robust despite the pandemic, reflected in over 99% collection witnessed in fiscal 2022. Furthermore, the REIT renewed/entered into new agreements to the tune of 22 lakh sq ft during fiscal 2022 at a re-leasing spread of 27%. Rentals have an upside potential on account of the superior asset and service quality, favourable locations in prime areas, healthy demand in the respective markets and competitive rental rates.
Strong tenant profile with well diversified portfolio Embassy REIT owns and operates office spaces, a solar park and hotel properties spread out across prime areas of Bengaluru, Mumbai, Pune, and the National Capital Region. The group has total of 428 lakh sq ft of available office area with a healthy mix of operational area of 338 lakh sq ft and under construction assets. The commercial assets have robust occupancy, averaging 87% as on June 30, 2022, with a multinational occupier base, of which Fortune 500 companies account for 48%.
Weaknesses Susceptibility to volatility in the real estate sector Rental collection (key source of revenue) is susceptible to economic downturns, which constrains the tenant’s business risk profile and, therefore, occupancy and rental rates. Emergence of competing facilities in the vicinity could also have the potential to cannibalise tenants or rental rates. However, office rental collection for fiscal 2022 and the first quarter of 2023 for Embassy REIT was robust at over 99%.
Exposure to refinancing risk All non-convertible debentures (NCDs) issued by the REIT have bullet payments at the time of redemption. Sizeable debt for the existing NCDs increase the risk of refinancing. However, the risk is mitigated by the availability of call option in NCDs, healthy consolidated leverage and extensive experience of the management.
All the NCD instruments have multiple call options available six months prior to the final maturity, which provides the trust with sufficient time to arrange funds or refinance the NCDs prior to the due date. Further, SPVs of REIT have the flexibility to raise lease rental discounting (LRD) loans from banks for the purpose of refinancing the NCDs, thereby giving access to large pool of capital from banking sector. Further, new avenues of capital are available in the form of investments from pension funds, insurance companies and foreign portfolio investors (recently allowed by the respective regulators), which mitigates refinancing risk to some extent |
Liquidity: Superior Liquidity is likely to remain supported by stable cash flow from the underlying assets. Debt level remains moderate for the REIT. The NCDs are non-amortising, exposing the debenture-holders to refinancing risk. However, the conditions around redemption provide the REIT with sufficient time to arrange for refinancing. Furthermore, consolidated debt at the REIT level is not expected to exceed LTV ratio of 40%, protecting investors from the risk of decline in property prices and the consequent impact on refinancing. As on June 30, 2022, REIT had cash balance of Rs 124 crore to support its day-to day operations as well as has sanctioned undisbursed debt of Rs 1,014 crore for ongoing construction activities. |
Outlook: Stable Embassy REIT will continue to benefit from the quality of its underlying assets over the medium term. |
Rating Sensitivity factors Downward factors
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About the Company MPPL owns and operates Embassy Manyata Business Park, Bengaluru. The commercial complex is spread over 120 acres. The company has developed around 117.5 lakh sq ft, of which 87% was leased as on June 30, 2022, while around 17.0 lakh sq ft is under development and 14.0 lakh sq ft is proposed to be developed. The company has also recently launched a five-star and a four-star hotel with 266 rooms and 353 rooms, respectively, under the Hilton brand. |
About the Group Embassy REIT is registered as an irrevocable trust under the Indian Trust Act, 1882, and as a REIT with SEBI’s Real Estate Investment Trust Regulations, 2014, as amended. Embassy REIT is sponsored by BRE Mauritius Investments (a part of the Blackstone group) and Embassy Property Development Pvt Ltd (a part of the Embassy group). It has 12 commercial assets (office parks and city-centric offices), six hotels (of which four are under construction) and a solar plant. Embassy REIT’s portfolio of assets are held through the following SPVs, including QBPL:
Indian Express Newspapers (Mumbai) Pvt Ltd owns and operates a commercial property, Express Towers, in Nariman Point, Mumbai. The property has been operational for over four decades and has a total leasable area of 4.7 lakh square feet (sq ft), of which 78% was occupied as on June 30, 2022
Qubix Business Park Pvt Ltd owns and operates a commercial IT park, Embassy Qubix, in Hinjewadi. The company has a track record of seven years in lease rental collection. Of the total leasable area of 14.5 lakh sq ft, 90% was leased as on June 30, 2022
Earnest Towers Pvt Ltd) owns and operates 3.6 lakh sq ft of First International Finance Centre in Bandra Kurla Complex, Mumbai, of which 86% was occupied as on June 30, 2022
Vikhroli Corporate Park Pvt Ltd owns a commercial property, Embassy 247, in Vikhroli, Mumbai. It has been operational for eight years and has total leasable area of 11.9 lakh sq ft, of which 84% was leased as on June 30, 2022
Galaxy Square Pvt Ltd owns and operates an IT park, Embassy Galaxy, in Sector 62, Noida. The company has a track record of seven years in lease rental collection, and 89% of the entire leasable area of 13.6 lakh sq ft was leased as on June 30, 2022
Oxygen Business Park Pvt Ltd owns and operates a commercial IT park, Embassy Oxygen, in Sector 144, Greater Noida. The property is part of the Oxygen Boulevard IT Special Economic Zone and has been operational for six years. The property has completed area of 25.2 lakh sq ft, of which 73% was leased as on June 30, 2022, while around 7.0 lakh sq ft is under development.
MPPL owns and operates Embassy Manyata Business Park, Bengaluru. The commercial complex is spread over 120 acres. The company has developed around 117.5 lakh sq ft, of which 87% was leased as on June 30, 2022, while around 17.0 lakh sq ft is under development and 14.0 lakh sq ft is proposed to be developed. The company has also recently launched a five-star and a four-star hotel with 266 rooms and 353 rooms, respectively, under the Hilton brand.
Embassy Energy Pvt Ltd owns and operates a solar project, with installed capacity of 100 megawatt. The park is spread over 465 acres across multiple villages in Karnataka. It has executed power purchase agreements for over 85% of the total capacity for supplying electricity to office parks and hotels of the Embassy group in Bengaluru.
Umbel Properties Pvt Ltd owns and operates the Hilton hotel at Embassy Golflinks, along Intermediate Ring Road (IRR), Bengaluru. The hotel, consisting of 247 rooms, has been operational since 2014 and had an occupancy rate of 69% as on June 30, 2022. The hotel was temporarily closed in accordance with state government guidelines following the lockdown and subsequently reopened by mid-June 2020.
Embassy Pune Techzone Pvt Ltd, on a standalone basis, owns an office space, Embassy Techzone, in Hinjewadi. Of the total area of 21.6 lakh sq ft, 84% was leased as on June 30, 2022, while 9.0 lakh sq ft is under development and 24.0 lakh sq ft is proposed to be developed.
Golflinks Software Park Pvt Ltd was incorporated in 2000 for developing a software technology park, Embassy Golflinks, on Intermediate Ring Road. The company has developed around 31 lakh sq ft, of which 99% was leased as on June 30, 2022
Vikas Telecom Pvt Ltd and Sarla Infrastructure Pvt Ltd own and operate Embassy Tech Village, Bengaluru. The commercial complex is spread over 84.05 acre consisting of 72 lakh sq ft of completed office premises; 19 lakh sq ft of under construction office and a proposed hotel of 518 keys. Of the total operational area of 72 lakh sq ft, ~99% was leased out as on June 30, 2022 |
Key Financial Indicators (consolidated - Embassy REIT; CRISIL Ratings-adjusted numbers)
Key financials (standalone - MPPL; CRISIL Ratings-adjusted numbers)
*Promoter debt has been treated as quasi-equity for calculating the ratio |
Any other information: Not applicable |
| Note on complexity levels of the rated instrument: CRISIL Ratings' complexity levels are assigned to various types of financial instruments. The CRISIL Ratings' complexity levels are available on www.crisil.com/complexity-levels. Users are advised to refer to the CRISIL Ratings' complexity levels for instruments that they consider for investment. Users may also call the Customer Service Helpdesk with queries on specific instruments. |
Annexure - Details of Instrument(s)
* Reduced from Rs 100 crore |
Annexure – List of entities consolidated
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| Annexure - Rating History for last 3 Years | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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| All amounts are in Rs.Cr. | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Annexure - Details of Bank Lenders & Facilities | ||||||||||||||||||||||||||||||||
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This Annexure has been updated on 07-Oct-2022 in line with the lender-wise facility details as on 01-Aug-2021 received from the rated entity.
Criteria Details
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