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The Embassy Office Parks real estate investment trust delivered a resilient performance in Q3 FY22 with rental inflows over 99% (similar to FY21) and new leases of 0.35 million square feet.
However, new departures of tenants according to forecasts led to a drop in the overall occupancy rate of the portfolio to 87% in December 2021, compared to 88.5% in September 2021.
With balance expirations of 0.1 million square feet in the fourth quarter of FY22 against 0.4 million square feet of new lease pipeline, portfolio occupancy levels could bottom out by March 2022 taking into account the impact of Omicron before seeing a slight increase compared to the 23E financial year.
We believe that Embassy REIT’s low leverage and strong tenant profile will allow it to generate an 18% compound annual growth rate in net operating income in FY21-24E.
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