India’s Embassy REIT expects SEZ regulation tweak to boost its finances from FY25

By Hritam Mukherjee and Anisha Ajith

BENGALURU (Reuters) – India’s largest real estate investment trust (REIT) Embassy Office Parks expects the government’s easing of regulation for special economic zones (SEZ) to boost its finances from the fiscal year starting April 2024.

Last week, India allowed developers to strip vacant floors in SEZs off the status and lease them to non-SEZ entities. SEZs, set up in 2005, were aimed at incentivising export-oriented companies but lost their allure to new entrants after tax holiday ended in 2020.

While the proportion of revenue Embassy generates from its SEZ properties was not immediately clear from its earnings reports, analysts at brokerage Investec said last week that Embassy has about 55%-60% of its portfolio in SEZs.

“We expect benefits to start showing on our financials from the first half of FY25,” Embassy Office Parks CEO Aravind Maiya told Reuters on Tuesday.

“Once we get more clarity on the process and timeline involved in the floor-wise demarcation of vacant SEZ spaces, which is expected in the coming few weeks, we can start leasing out from around March next year.”

Embassy, which has business parks at SEZs in Bengaluru and Noida, saw its consolidated profit fall 46% to 236.8 million rupees ($2.84 million) in the September quarter, while its revenue grew about 4%.

The office landlord has seen its SEZ occupancy levels decline from 94% at 2019-end to 80% by September this year.

Meanwhile, the share of leasing for SEZ spaces in overall office leasing has dropped from 22% in 2019 to 7% between January and September this year, data from real estate consultancy Colliers showed.

Analysts expect the recent easing of SEZ rules to benefit commercial realty players who own properties in SEZs.

Embassy’s peers Brookfield India Real Estate Trust REIT, Mindspace Business Parks REIT and DLF, who will also potentially benefit from the change in regulation, did not reply to Reuters’ requests for comments.

($1 = 83.3238 Indian rupees)

(Reporting by Hritam Mukherjee and Anisha Ajith in Bengaluru; Editing by Varun H K and Mrigank Dhaniwala)