Embassy Robust Rentals a Ray of Hope for CRE
Embassy Office Parks REIT has continued to witness strong rental collections. In the second quarter, rental collections on 26.2 million square feet of operational office portfolio stood at 98.5%. In the June quarter, office rental collections were 99.9%, the company said in its latest operational update. Rental increased 11% across 18 office leases, with year-to-date rental increases of 12% across 40 office leases, it added. Prima-facie these numbers look good. Improvement in rental allays come concerns about clients trying to renegotiate or ask for discounts in rent payments. In their post earnings conference call, its management sounded confident of decent rental collections. So, in that sense, this is in-line with what the management had indicated. However, granular details on trajectory of average rentals, renewal of contracts and new leases, which are key for the stock’s performance, will be known only when the results are announced. Resilience of Grade A office properties bodes well for REITs as a product. Improved investor sentiment for commercial realty could benefit the upcoming Brookfield REIT IPO. Embassy’s performance shows that this concern is overdone to an extent, analysts said. As per company's press statement, over 95% of its occupiers and over 15,500 employees operated from its properties in September 2020. This is much higher than the average of 8,500 employees who operated from its properties during the June quarter. Analysts say, Embassy’s long-term fundamentals are intact, but a key near-term trigger for the stock is commentary on new leases.
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