| Vikas Telecom Private Limited | ||
| Rating reaffirmed at 'CRISIL AAA/Stable' | ||
| Rating Action | ||
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| Note: None of the Directors on Crisil Ratings Limited’s Board are members of rating committee and thus do not participate in discussion or assignment of any ratings. The Board of Directors also does not discuss any ratings at its meetings. | ||
| 1 crore = 10 million | ||
| Refer to Annexure for Details of Instruments & Bank Facilities |
CRISIL Ratings has reaffirmed its ‘CRISIL AAA/Stable' rating on the non convertible debnetures (NCDs) of Vikas Telecom Private Limited (VTPL; a part of Embassy Office Parks real estate investment trust [Embassy REIT; CRISIL AAA/Stable’]) Revenue of the REIT grew 17% y-o-y for first 9 months of fiscal 2023 to Rs 2,774 crore from Rs 2,369 crore during last fiscal, driven by – a) incremental rentals from 11 lakh square feet (sq. ft) of area added in Embassy TechVillage, b) steady rentals due to contractual escalation for office portfolio, c) full year impact of previous year leasing and additional leasing in current year, d) improvement in performance of hotel portfolio post the pandemic, and e) commencement of operations at Hilton and Hilton Garden Inn at Embassy Manyata. The occupancy level of the REIT was adequate at 86% as on December 31, 2022; same store occupancy increased to 88% as of December 2022, as compared to 86% in previous fiscal. Net operating income (NOI) also increased by ~13% y-o-y to Rs 2266 crore for first 9 months of fiscal 2023, as compared to Rs 2008 crore for previous fiscal; however, NOI margin has declined slightly to 82% from 85% for this period on account of higher contribution from hospitality segment in fiscal 2023, with office NOI margins continuing to be consistently around 86% over last 2 years. CRISIL Ratings expects operating performance of Embassy REIT to remain healthy in medium term supported by completion and leasing of under construction area, gradual improvement in occupancy levels along with contractual rental growth, and limited renewal risk with only ~20% of the area coming up for renewal over the next three fiscals.
Consolidated gross debt rose to Rs 13,886 crore as on December 31, 2022, from Rs 11,866 crore as of December 31, 2021, primarily due to acquisition of incremental area of 4 lakh sq. ft. in its joint venture entity Embassy Golflinks and ongoing capital expenditure (capex) requirements at SPV level, both funded through debt. Higher-than-expected debt-funded capex or acquisition, leading to deterioration in the debt protection metrics, will remain key rating sensitivity factors.
The ratings continue to reflect the trust’s satisfactory loan-to-value (LTV) ratio driven by moderate debt and healthy debt protection metrics, supported by a cap on incremental borrowings. Further, stable revenue and rent collection from the underlying assets, healthy occupancy, contractual rent escalations and geographical diversification support the leverage levels. While the LTV has increased in the recent past, CRISIL Ratings expects prudent debt management by Embassy REIT and leverage level to come down gradually. The rating continues to factor in exposure to refinancing risks and susceptibility to volatility in the real estate sector, resulting in fluctuations in rental rates and occupancy. The refinancing risks are expected to be mitigated by proactive refinancing strategies. Since start of year from April 1, 2022, till December 31, 2022, Embassy REIT has refinanced Rs 1840 crore of debt at 7.9% interest rate |
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. This is because Embassy REIT has direct control over the SPVs and will support them during exigencies. Additionally, there is minimal structural subordination of cash flow, wherein the SPVs must 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 the REIT Regulations, 2014, of Securities and Exchange Board of India (SEBI), the cap on borrowing by the REIT has been defined at a consolidated level (equivalent to 49% of the value of Embassy REIT’s assets).
Please refer Annexure - List of Entities Consolidated, which captures the list of entities considered and their analytical treatment of consolidation. |
Key Rating Drivers & Detailed Description Strengths:
Weaknesses:
All the NCD instruments have multiple call options available four to 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 financial institutions. Further, new avenues of capital are available in the form of investments from pension funds, insurance companies and foreign portfolio investors, which mitigates refinancing risk to some extent. |
Liquidity: Superior Liquidity is supported by stable cash flows from underlying assets. Debt level remains moderate for the REIT with LTV at 27.3% as on December 31, 2022 (as per external valuation). 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, LTV of the REIT is expected to remain well below 40%, protecting investors from the risk of decline in property prices and the consequent impact on refinancing. As of December 31, 2022, Embassy REIT had a cash balance of Rs 45.3 crore to support its day-to-day operations as well as undisbursed debt of Rs 565.7 crores for ongoing construction activities |
Outlook: Stable CRISIL Ratings believes 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 VTPL is a 100% owned subsidiary of Embassy REIT. It, along with Sarla Infrastructure Pvt. Ltd (SIPL), owns and operates ETV, Bengaluru. The commercial complex is spread over 84.05 acres consisting of 73 lakh sq. ft of completed office premises, 23 lakh sq. ft of under-construction office space and a proposed hotel of 518 keys. Of the total operational area of 73 lakh sq. ft, 98% was leased out as on December 31, 2022 |
About the Group Embassy REIT is registered as an irrevocable trust under the Indian Trust Act, 1882, and as a REIT with SEBI’s REIT Regulations, 2014, as amended. Embassy REIT is sponsored by BRE Mauritius Investments (part of the Blackstone Group) and Embassy Property Development Pvt. Ltd (part of the Embassy group). It has 12 commercial assets (office parks and city-centric offices), six hotels (of which two are under construction) and a solar plant. Embassy REIT’s portfolio of assets are held through the following SPVs:
Indian Express Newspapers (Mumbai) Pvt. Ltd (IENMPL) 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 sq. ft, of which 82% was occupied as on December 31, 2022
Quadron Business Park Pvt. Ltd (QBPL) owns and operates a commercial information technology (IT) park, Embassy Quadron, in Hinjewadi, Pune. The property has been operational since 2010 and has a total leasable area of 18.9 lakh sq. ft, of which 50% was occupied as on December 31, 2022. It also owns and operates mixed-use development, consisting of office and retail space and a hotel in north Bengaluru. The property has a total leasable area of 2.5 lakh sq. ft, of which 45% was occupied as on December 31, 2022. The hotel, consisting of 230 rooms, is run under the Four Seasons brand.
Qubix Business Park Pvt. Ltd (QBPPL) owns and operates a commercial IT park, Embassy Qubix, in Hinjewadi, Pune. The company has a track record of seven years in lease rental collection. Of the total leasable area of 14.5 lakh sq. ft, 91% was leased as on December 31, 2022
Earnest Towers Pvt. Ltd (ETPL) owns and operates 3.6 lakh sq. ft of First International Finance Centre (FIFC) in Bandra Kurla Complex, Mumbai, of which 91% was occupied as on December 31, 2022
Vikhroli Corporate Park Pvt. Ltd (VCPPL) 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 89% was leased as on December 31, 2022
Galaxy Square Pvt. Ltd (GSPL) 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 93% of the entire leasable area of 15.0 lakh sq. ft was leased as on December 31, 2022
Oxygen Business Park Pvt. Ltd (OBPPL) 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 72% was leased as on December 31, 2022, while around 7 lakh sq. ft is under development.
Manyata Promoters Pvt. Ltd (MPPL) owns and operates Embassy Manyata Business Park, Bengaluru. The commercial complex is spread over 120 acres. The company has developed 114 lakh sq. ft, in addition to which 3.5 lakh sq. ft. is being upgraded. Of this area 89% was leased as on December 31, 2022, while around 35 lakh sq. ft is under development and around 4 lakh sq. ft is proposed to be developed. The company has recently developed a five-star and a three-star hotel with 266 rooms and 353 rooms, respectively, to be operated under the Hilton brand.
Embassy Energy Pvt. Ltd (EEPL) owns and operates a solar project with capacity of 100 MW. 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 (UPPL) owns and operates the Hilton hotel at Embassy GolfLinks, along intermediate ring road (IRR), in Bengaluru. The hotel, consisting of 247 rooms, has been operational since 2014 and had an occupancy rate of 64% as on December 31, 2022
Embassy Pune Techzone Pvt. Ltd (EPTPL), on a standalone basis, owns an office park, Embassy Techzone, in Hinjewadi, Pune. Of the total area of 30 lakh sq. ft, 63% was leased as on December 31, 2022, while 24 lakh sq. ft is proposed to be developed. Occupancy of this asset is lower since additional area of ~9 lakh sq. ft. was completed in Q3 of fiscal 2023
Golflinks Software Park Pvt. Ltd (GLSP) was incorporated in 2000 for developing a software technology park, Embassy GolfLinks, on Inner Ring Road, Bengaluru. The company has developed 31 lakh sq. ft, of which 100% was leased as on December 31, 2022 |
Key Financial Indicators (consolidated - Embassy REIT; CRISIL Ratings-adjusted numbers)
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Any other information: Not applicable |
Note on complexity levels of the rated instrument: |
Annexure - Details of Instrument(s)
*Proposed and yet to be placed |
Annexure – List of entities consolidated
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| Annexure - Rating History for last 3 Years | |||||||||||||||||||||||||||||||||||||||
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Criteria Details
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