BackIBM’s plans to discontinue office leases could hurt Embassy REIT
IBM is the single biggest tenant for Embassy REIT; it contributes about 12% of rental revenue for REIT, filings show
PremiumIBM’s plans to review its office leases amid the growing practice of work from home could become a major headache for Blackstone-backed Embassy Office Parks REIT, India’s first listed real estate investment trust.
On Friday, The Economic Times reported that the computer and IT company is considering ending leases for nearly half of its office spaces across India.
“IBM continually looks at our real estate to ensure it services the needs of IBMers and how we serve our clients. The speculation in this report is inaccurate," said IBM in an emailed response on Friday.
IBM is the single largest tenant for Embassy REIT, contributing nearly 12% to its rental revenue, as per the company’s filings with stock exchanges.
As per the company’s IPO filings in 2019, IBM had leased 3.6 million square feet of office space from Embassy REIT as of 31 December 2018.
The latest numbers for IBM’s office space on Embassy REIT were not available.
Given IBM’s large presence in Embassy REIT properties, any discontinuation of leases by IBM could have a significant impact on the REIT’s revenue.
For the fiscal ended 31 March, the REIT recorded a revenue of ₹2,144.9 crore, up 14% from the previous year.
Units of Embassy REIT closed trading at ₹387 apiece, down 1.08% on the BSE on Friday, while the benchmark Sensex was closed at 34,731.73 points, up 1.53%.
Other IT services companies have also indicated the work from home will become a big part of their strategy.
In April, TCS said that by 2025 it expects 75% of its employees will work from home. For Embassy REIT, technology companies are the biggest clients.
After IBM, the next two biggest tenants in Embassy REIT are Cognizant and NTT Data, an ICICI Securities report shows.
“Embassy REIT’s current tenant portfolio has over 50% of tenants in the technology domain with even smaller verticals such as financial services and research/consulting consisting of global in-house captives. Currently, the REIT’s top ten occupiers contribute ~43% of the gross overall rental income as of December 2019," the report said.
“As a policy, we do not comment on unsubstantiated market speculation. We continue to be fully engaged with all our occupiers, including several Fortune 500 corporations. Our strong track record of existing occupier retention and expansion in our portfolio, reflects tenants’ consistent feedback on our unparalleled ‘total business ecosystem’ offering," said an Embassy REIT spokesperson.
In an analyst call in May, the Embassy REIT management said that while work from home has worked well for companies in the lockdown period, in the long run, it does not see a major impact for its business.
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