MINDSPACE — earnings call
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Prepared remarks
Unattributed
“Mindspace Business Parks REIT's Q4 & FY'22 Earnings
Conference Call”
MANAGEMENT: MR.
VINOD ROHIRA – CHIEF EXECUTIVE OFFICER,
PREETI CHHEDA – CHIEF FINANCIAL OFFICER,
KEDAR KULKARNI – ASSISTANT GENERAL
MANAGER – FINANCE & INVESTOR
Moderator
Ladies and gentlemen, good day and welcome to the Mindspace Business Parks REIT Earnings
Conference Call for Financial Results for the Quarter and Year-ended March 31, 2022.
reminder, all participant lines will be in the listen-only mode, and there will be an opportunity
for you to ask questions after the presentation concludes.
Should you need assistance during the
conference call, please signal an operator by pressing ‘*’ then ‘0’ on your touchtone telephone.
Please note that this call is being recorded.
I now hand the conference over to Mr.
Kedar Kulkarni.
Thank you and over to you, sir.
Kedar Kulkarni:
Thank you and good afternoon, everyone.
Welcome to the Fourth Quarter and Full Year
Financial Year 2022 Earnings Call for Mindspace Business Parks REIT.
At this point, we would like to highlight that the management may make certain statements on
this call that may constitute forward-looking statements.
Please be advised that our actual results
may differ materially from these statements.
Mindspace REIT does not guarantee these
statements or results and is not obliged to update them at any time.
We would like to reiterate that the acquisition of Asset SPVs by Mindspace REIT was effected
on July 30th, 2020.
Consequently, consolidation of financials of BUs Asset SPVs with
Mindspace REIT has been done effective August 1, 2020.
Condensed consolidated full year
2021 numbers therefore reflect eight months financial performance of these asset SPVs.
However, for the purpose of comparison, in the earnings presentation, and for the purpose of
this call, we have provided pro forma revenue from operations and net operating income for
I would now like to welcome Vinod Rohira -- our CEO, and Preeti Chheda -- our CFO,
Vinod will share the Business update, growth opportunities and his views on Macro
Environment and the Sector.
Preeti will further share an update on the Financial Performance.
We will then open the call to “Q&A.” I now hand over the call to Vinod.
Vinod Rohira
Thank you, Kedar.
Good afternoon to all participants.
Hope you and your families have been
safe and are doing well.
Thank you for joining Mindspace REIT’s earnings call.
While the year saw major disruptions caused by the pandemic putting the fundamentals of our
business to test, we have emerged stronger and more resilient from this crisis.
Financial Year 2022 ended as one of our best years, with c.4.5 million square feet leased in the
REIT portfolio and c.2.9 million square feet in our ROFO portfolio taking the cumulative
number to c.7.4 million square feet.
Almost all our under-construction buildings witnessed pre-
Our Net operating Income for the year stood at INR 14.9 billion, a growth of
8.2% over the previous year.
We have achieved a releasing spread of 31.0% during the year.
Mindspace Business Parks REIT
on-campus developments led to an increase in total leasable area from 30.2 msf to 31.8 msf as
on March 31, 2022.
The growth in the portfolio is primarily on account of increase in area of
our new building at our Pune asset on account of additional FSI, redevelopment of old buildings
at Hyderabad and commencement of construction of the new recreational and entertainment
areas at Hyderabad and Mumbai parks.
The market value of our portfolio now stands at INR 264 billion as on March 31, 2022 up by
c.5.7% over March 31, 2021.
We have completed refinancing of over INR 9 billion via debenture
raises from mutual funds and insurers as our overall cost of debt now stands reduced by c.50 bps
during the year to c.6.6%.
Our distribution for the year stood at c.
INR 10.9 billion or INR 18.4
A number of factors played out during the year which helped us clock such strong numbers–
robust business performance of the IT industry, sharp jump in employment, occupiers’ intent to
provide an experiential work environment to their employees and the rising preference towards
quality Grade A assets managed professionally.
Let us elaborate these factors in more detail-
Demand for Grade A assets with professional management:
As envisaged, occupiers do not want to risk or compromise on asset quality as they restart their
journey towards office occupancy.
There is a strong desire to create and provide wellness and
experiential work environments.
We had anticipated this trend to play out.
As highlighted during
our earlier calls, we have been using this downtime to upgrade our assets which would have
been tougher to carry out at full occupancies.
The upgrades have been executed laying special
emphasis on improving - sustainability, building aesthetics, wellness, health and safety,
providing recreation, amenities, and thereby offering the right balance at the workplace.
positive impact of these actions has begun to show with top-notch occupiers gravitating towards
such offerings.
To quote one such example, we have recently inaugurated the 1-kilometer-long
skywalk within our Mindspace Madhapur at Hyderabad, allowing seamless connectivity from
the metro station to their office doorstep.
The skywalk has not just helped to reduce the
discomfort caused by vehicular traffic to pedestrian movement, but also led to significant
reduction of carbon footprints generated by last mile transportation of vehicles as well as
reducing the noise and traffic within our parks.
The Skywalk also houses a Vantage Café along
with kiosks and breakout spaces providing food, recreation, and entertainment offerings.
occupiers and their employees, begin to return to office, they are pleasantly surprised by the
transformation and the stress-free travel to their office spaces.
It is fast becoming a new landmark
for the city of Hyderabad.
Many such interventions will change the face of workspaces.
Indian IT industry at a new inflection point:
The Indian IT industry has reached another inflection point led by increased spend on
digitization by companies globally.
Unlike the previous inflection point of Y2K, which was led
by cost arbitrage models, this time around it is led by intellectual value-added services like - data
analytics, cloud management and artificial intelligence, among others.
The record addition to headcount of IT companies in India is testament to the renewed growth
As per NASSCOM reports, the strength of IT companies is expected to cross c.5.1
million in FY22 reaching a record high, with additions of c.4.5 lakh employees during the year.
Hiring of freshers by top technology companies is expected to be up 2.5x over FY21.
India had 1,430+ GCCs at the end of FY21, this count is expected to grow at a CAGR of 6%-
7% to reach 2,000+ GCCs by FY25.
In the same period, the headcount of GCCs is expected to
grow 2x at a CAGR of c.12% reaching c.2 million by FY25.
These new hiring trends are
estimated to translate into significant addition to new office space demand.
Back to office plans of occupiers gaining momentum:
Today’s industry leaders clearly understand the importance of workspace in shaping the culture
of organizations to promote collaboration, innovation, and growth.
Employees have come to
realize the importance of having a dedicated and distinguished work environment.
the recent earnings call of several top Indian IT companies, a definite return to workplace plan
We are witnessing this ‘return to office’ play out on the ground as well.
occupancy in our parks has increased to c. 23% in May 2022 from 14% during March 2022.
Based on our conversations with our occupiers, we expect it to cross 50% by the second half of
Over the past 2 years, many companies have expanded and hired a record number of
people and they intend to host their employees back in experiential work environments by
replacing the densified spaces with more focus on recreation and wellness.
As employees start
returning to office, we anticipate occupiers to expand their footprint to cater to increased
headcount coupled with de-densification requirements.
This will generate demand for more
Rising demand from large occupiers:
Large occupiers have begun their search for consolidation and expansion leading to a spike in
demand for under-construction assets.
Our ROFO assets have also witnessed similar trends.
We expect this strong uptick in demand for under-construction assets to continue.
this demand, we have brought forward the construction timelines of our under-construction
buildings across parks.
At Mindspace Madhapur, we have now commenced the 1.3 msf redevelopment project.
Additionally, we have commenced work on creating an experience centre for Recreation &
Entertainment within that park.
At our Mindspace Airoli East Park, we are developing a similar
high street experience for food, entertainment, and recreational retail.
All these additions are part
of our endeavor towards changing the workspace landscape by bringing fresh energy for the
young millennials who form a major part of the nation’s workforce.
We continue to explore opportunities for growth organically and inorganically.
are evaluating the ROFO opportunity to acquire the 1.8 msf fully leased asset at Commerzone
Madhapur which was announced during Q3 FY22.
I would now like to take you through the specific operational updates for the fourth
We have leased c. 0.7 million square feet during fourth quarter of which 0.2 million
square feet was re-leasing and 0.5 million square feet was on account of new and
vacant area leasing
The average rent achieved on the c. 0.7 million square feet leasing was INR 63 per
square feet per month
Rents have remained steady in our micro-markets and we continue to see the same
The committed occupancy of the portfolio stood at 84.3%
Our Net Operating Income for the quarter grew by 6.6% sequentially to INR 3,960
The weighted average cost of debt stands at c.6.6% which is amongst the lowest in the
The cost of debt has come down by c. 260 bps since March 2020.
Our distributions for the quarter stood at INR 2.7 billion or INR 4.61 per unit.
Our portfolio is now further diversified with over 175+ tenants, compared to 160+
tenants at the end of FY21
Following up from the third quarter announcement on British Safety Council’s ‘7
Sword of Honour’ awards we have won an additional ‘2 Sword of Honours’ taking the
total to ‘9 Sword of Honours’.
These awards reward those organizations that have
reached the pinnacle of health, safety, and environmental management
We are proud to announce that Mindspace REIT is ‘Great Place To Work’ certified
We look forward to another year of resilience and growth setting up new benchmarks at our
parks and continue to be amongst the most preferred asset manager partners in the growing need
for increased tech enabled workspaces.
The Union Budget had acknowledged the importance SEZ has on the Indian economy.
expect the policies to be suitably reformed during this financial year which would allow SEZ
and non-SEZ spaces to co-exists within the same parks.
The strong leasing demand we are seeing
for our de-notified buildings gives us confidence to lease out the vacant SEZ spaces post their
de-notification.
With large occupiers firming up on their back to office plans we expect smaller
ones to follow suit.
The strengthening of rents has offered an opportunity of greater mark-to-
market leasing allowing for an upside while leasing the current vacant spaces.
With this backdrop, I hand the call over to Preeti to take you through the financial updates during
Preeti Chheda
Thank you Vinod.
Good afternoon, everyone.
I’m happy to present our financial performance for the quarter and the year ended 31 March
We closed the fourth quarter of the financial year 2022, with a Revenue from Operations of INR
Net Operating Income for Q4 FY22 stood at INR 4.0 billion, a strong 10.6% growth
over Q4 FY21 and a 6.6% increase on a sequential basis.
Our Net operating Income for the year
stood at INR 14.9 billion, a growth of 8.2% over the previous year.
We continued to maintain
NOI margin at 80% plus throughout the year.
We announced a distribution of approximately INR 2.73 billion i.e., INR 4.61 per unit for the
The distribution comprises approximately 93.5% i.e., INR 4.30 per unit of dividend,
which is not subject to tax in the hands of unitholders, and approximately 6.5% i.e., INR 0.31
per unit of interest.
This translates to an annualized distribution yield of 6.7% on the issue price.
Cumulatively for the financial year 2022 we distributed INR 10.9 billion i.e.
INR 18.4 per unit.
On the funding side, our leverage on the portfolio on a consolidated basis continued to remain
Our net debt as on March 31, 2022 was INR 42.0 billion.
We have undrawn
committed lines of INR 6.8 billion from financial institutions.
Our robust balance sheet provides
us the flexibility to pursue both organic and inorganic growth opportunities.
During the quarter, we raised INR 5 billion through issuance of listed non-convertible debentures
at an attractive coupon of 6.35% per annum.
We converted INR 9 billion of our variable cost
debt to fixed cost debt during the year, thus taking our fixed cost debt as a % of the total
outstanding debt of the portfolio to 45.9%.
In aggregate we further reduced our borrowing cost
by c.50 bps during the financial year 2022.
We continue to pursue opportunities to further
optimise our borrowing cost.
The Gross value of our Portfolio, as valued by the Independent Valuer, stood at INR 264 billion
as at March 31, 2022, c. 5.7% increase over the value as at March 31, 2021.
Our Net Asset Value
per unit has increased to INR 364.9 per unit as on March 31, 2022 from INR 345.2 per unit as
at March 31, 2021.
Mindspace Business Parks REIT
Post the approval of Board, we consummated the sale of c.40 acres of land at Mindspace
Pocharam, Hyderabad, for a consideration of INR 1.2 billion.
Further to the ROFO notice received in respect of Commerzone, Madhapur and basis the
approval from the Governing Board to evaluate the opportunity, the Manager has on-boarded
advisors and has progressed with the diligence.
Our investor base continues to expand especially since the reduction in trading lot size.
listing our unitholder base has grown over three-folds to c. 24,000 unitholders as on March 31,
We expect positive regulatory reforms to help improve liquidity and deepen the market
for these instruments.
To conclude, the improving market conditions for commercial real estate and the positive leasing
trends are expected to help the growth of NOI and distributions from the portfolio in the coming
financial year.
With this, I request the operator to now open the floor for questions and answers.
Questions and answers
Moderator
Ladies and gentlemen, we will now begin the question-and-answer session.
We have the first
question from the line of Adhidev Chattopadhyay from ICICI Securities.
Please go ahead.
A Chattopadhyay:
Sir, you spoke about a lot of traction in the leasing and expect things to improve significantly
So, could you just quantify this in terms of what is our gross leasing expectation
We have done 4.5 msf last year.
So, for this year, what is a lower or upper end for
And if you could break it up into of the expiries of 1.1 million square feet, which you
have in FY23, how much do you expect to retain, how much exits and versus that how much
fresh leasing in the existing assets?
Any guidance on pre-commitments on leasing for the
upcoming assets?
Vinod Rohira
We are not providing any forward-looking guidance with respect to leasing.
Having said that,
the trend seems to be quite reasonably strong.
We're quite excited about the market demand
dynamics in each of our micro markets.
I can just give you a broad highlight on primarily the re-
leasing space that comes for terminations/expiry this year.
Only 1.1 million square feet in our
portfolio comes for the churn this year.
Out of that, we already have visibility almost 600,000
square feet of re-leasing and we are just at the beginning of the year.
For under-construction,
most of our assets are pre-leased last year.
So, we are seeing demand on under-construction
assets across the board.
A Chattopadhyay:
This question is for Preeti.
Is there any broader guidance on NOI and DPU, is the growth being
a single digit or double digits, any lower or upper end again for the DPU?
Preeti Chheda
Adhidev, we are not giving any guidance in terms of exact numbers, but as Vinod said, we're
pretty positive about the growth numbers for next year.
And obviously, the huge amount of
leasing that we've done this year also, will start generating rent as we move ahead in the quarters.
Obviously, we're not going to see all the rents starting from Q1.
But as we move ahead in the
financial year, we should be able to see increasing rent and therefore that should translate in NOI
and dividend growth.
So, I would end at that.
Moderator
We have the next question from the line of Mohit Agarwal from IIFL.
Please go ahead.
Mohit Agarwal
My first question is, in the NDCF walk down, we see that the CAPEX number has gone up
substantially on a QoQ basis from about Rs.140 crores run rate to more than Rs.200 crores.
any reason for that.
Preeti Chheda
That's essentially because, some of the assets are almost nearing completion.
We've also incurred
spends on upgradation of a park which has been continuing, but some of them have almost seen
It's a cumulative impact of assets almost nearing completion and buildings which
we have recently added to under construction.
And as the assets come through the end, at that
point in time, you'll see more spend with respect to finishing etc.
So, that's why you see a higher
capex spend towards the end.
Mohit Agarwal
On your gross leasing numbers, specifically for you, what we've seen is that you've been able to
lease a lot of under-construction assets.
Just trying to understand what's the thought process of
the tenants there if you could give some color who are these kind of tenants, the thought process,
and probably what is the inclination to lease out under-construction assets versus ready
inventory, where also you have vacancy available?
Vinod Rohira
If you can just rewind back a few quarters in our conversations, we had said that, you will start
seeing the bigger demand for the 12, 18 months schedule supply, which will come up first when
people want to see growth in the next 12 to 18 months.
So, all of those customers actually came
forward, where they had a sizeable need for space, whether it was half a million to a million
square feet or more.
For that, if a building is under-construction, it can suitably get customized
for the newer age office space requirements that most of these customers are looking for.
just as we had looked at it in the past, you got those opportunities in the right place at the right
time for the right assets.
And they were very concerned about health and safety protocols, asset
management, etc., which kind of triggered the need to go into safe havens in parks where they
could see all of that as the right mix for their employees when they want to come back to work.
And that's really the opportunity we grab with both hands.
Mohit Agarwal
Just wanted to get your thought process of the sponsor or management on the non-ROFO sponsor
So, let's say we talk about the Altimus asset at Worli, just trying to understand,
could these assets be also considered by the REIT to be purchased directly from the sponsor, or
Mindspace Business Parks REIT
will they first have to be a part of the ROFO arrangement and then it can be inducted into the
Vinod Rohira
So, as per what we had envisaged and projected out right at the start, we are excited about a lot
of ROFO opportunities, wherever the assets are a million plus and pre-identified or assets, which
will be under-construction in the sponsor group, could be offered first as a ROFO to the REIT.
So, a lot of those opportunities exist across markets and we are looking at those assets very
closely because that will give us the growth we want for our REIT besides looking at inorganic
Mohit Agarwal
So, the way I understand is that it's not necessary to be a part of the ROFO?
Preeti Chheda
All the assets which are above a particular threshold as per a ROFO arrangement would be
offered to the REIT.
And now, obviously, assets where we have other joint venture partners,
those are the assets, which, of course, before they come to the REIT, we will have to discuss.
But otherwise large chunk of the sponsor asset should be available to us.
Vinod Rohira
Altimus was in any case being built when we did the REIT.
Moderator
We have the next question from the line of Kunal Tayal from Bank of America.
Please go ahead.
Kunal Tayal
A couple of questions from my side.
Vinod, the first one, I did hear your comment that demand
generally should be strong as you look out into fiscal '23.
Any additional color as to whether the
leasing momentum has already picked up or should we expect to just to build up gradually
through the course of the coming year?
And likewise, by market, would you think that between
your two picks exposure areas of Mumbai region and Hyderabad, one could do significantly
better versus the other, because there have been certain comments saying that the return-to-office
has just been so much stronger a trend in Mumbai, and that might just do better.
comments there would be great?
Vinod Rohira
So, the way I see it is primarily the large ticket demand drivers have started coming onto the
street to look at quality assets.
Most of these guys are looking at something in the pipeline, which
gives them 12 to 18 months to start occupying those assets.
And following then you will start
looking at the 100,000, 200,000 300,000 square foot demand, which is beginning to start to come
in most micro markets.
So, that is what we had envisaged six months ago and three months ago
and that's what's panning out in the marketplace right now.
So, you will see both kinds of demand
in each of these markets.
Now coming back to Hyderabad and Mumbai, our Hyderabad asset
has about a million square feet worth of churn opportunity.
And we are quite excited actually
about that purely because rents have firmed up in those micro markets.
So, today, to me, that
vacancy is actually far more valuable, because we've already done the hard work of upgrading
and now we are waiting for demand to come and grab this asset at the price that we wanted.
the Mumbai asset, like we mentioned to you, we had denotified a million square feet, which is
Mindspace Business Parks REIT
under-construction, we saw significant demand for that asset.
Almost half of that is already pre-
leased and the rest of the half, I wouldn't be surprised if it gets leased fairly quickly in this
financial year while we are completing the building in this quarter.
So, the demand is certainly
there the way we have projected.
We're just waiting for the SEZ clarity on a line for non-SEZ
occupiers and then we'll start looking at filling up those spaces as we had envisaged as well.
Kunal Tayal
Preeti, just in terms of the NDCF outlook for the year, should we expect NDCF growth trend
could mirror the revenue growth trend?
I'm assuming that because of rental advances, that might
be one factor which age your distribution.
But CAPEX, again, could be on the higher side.
any color on how could NDCF compare vis-à-vis the revenue outlook?
Preeti Chheda
No, that would not be the case, because the revenue growth where our deductions after NOI
before we reach the distributions in terms of PAT, interest, etc., So, the revenue growth will not
necessarily translate to a similar distribution growth.
But directionally as I said, with the revenue
growth happening next year, you should see increase in the distributions as well but it may not
be commensurate.
Moderator
We have the next question from the line of Kunal Lakhan from CLSA.
Please go ahead.
Kunal Lakhan
Vinod, my first question was on the Airoli West.
So, our vacancy has kind of increased in this
Just two related questions over there, we have received occupation certificate for
half a million square feet.
Have the tenants commenced the fit outs there, and when can we see
the rentals commence here?
Vinod Rohira
They have already commenced fit outs and we're seeing strong demand trajectory for the balance
half a million in that building as well.
Kunal Lakhan
My second question was on your Slide 21 in your presentation, the balance CAPEX number.
you can just help us reconcile that number, like because the 20 billion seems a bit on the higher
side, what does this include like because the under-construction projects that you've listed out
here, I'm unable to reconcile this number?
Preeti Chheda
Let me just help in reconciling numbers.
So, essentially, the balance CAPEX is largely driven
by assets, which are under construction and campus upgrades.
As you said, the bigger chunk of
this is the redevelopment building of over a million square feet, which we are doing at
So, that's taking a big chunk of the cost, it is almost INR 600 Crs out of this INR
As Vinod mentioned, we added another building in Pune to construction, we have the
data center building, which is under construction.
We've also taken new upgrades now; one is a
Club House in Madhapur and we are also upgrading our Pune asset.
Kunal Lakhan
Preeti, we did an NCD this quarter at 6.35%.
But, how do you see interest rates
going on from here in, say, FY'23, and more so in the mid-term?
Preeti Chheda
Kunal, we have seen the interest rates on the rise already and we do expect some more increases
as we go along in the year.
Now, in terms of our cost of debt, today about 45% of our debt is
fixed cost debt.
So, there we are not seeing an increase.
But on the variable cost of debt, we will
see increase depending on the trajectory in which the interest rates rise.
Moderator
The next question is from the line of Satinder Singh Bedi from Eon Investments.
Satinder S Bedi:
I got two questions.
On the overall return to office, is it slower than what was
envisaged six months ago, because otherwise like in last two years the total number of increase
in IT staff in large organizations, the kind of clients that you have is typically about 25% higher.
But somehow it is not translating into great take up.
So, probably, return-to-office is working
out slower than was anticipated and if it's going to be something that will get more embedded,
because two years okay, people continue to work from home, TCS has 5% return-to-office and
so on and so forth.
So, if you could give a color on that?
Vinod Rohira
To the first part of your question, out of the two years, 18 months pretty much every one was
working from home.
In the last six months, you have seen domestic India get back to the desk
pretty much between 80% and 90%, all of CBD as you can see the traffic is back on the streets,
all the public places are packed, in the airline we don't have space to stand in the aircraft, possibly
we didn't have a seat.
So, you are seeing everyone back where the action is.
From a tech footprint
point of view, two things have happened.
They have seen tremendous amount of growth in their
businesses and they have gone on hiring, the online hiring opportunities given them a better
opportunity of expanding the business footprint at that point in time when the need was there.
However, they are realizing that for a lot of collaboration and for a lot of ideation, they want
their employees back on the desk.
They have just been very-very careful about bringing
footprints back so that they don't have to trip on their shoe laces which is why you have seen
only the tech footprint moving slowly back to the office.
Everyone else actually in every other
So, the way we see it is, it's like between March and May, our occupancies within
our parks have moved from 14% to 25%.
The way we see it is it will move really quickly towards
And what is also happening is as you are seeing new growth and new space and
retrofitting of current space, they have started accommodating for recreation, entertainment,
open spaces and board room for collaboration.
So, by default, they are de-densifying very slowly
but very smartly on their footprint.
Because of that, they are asking for more space that's
So, we have started seeing even that.
As clients are coming back, they are trying to
lock up more contiguous space within the neighborhoods for accommodating the same number
of employees and the growth in a far more open manner than the densified manner they were
used to earlier.
So, all of those trends have started becoming visible.
It's just that it's moving
slowly, but you must remember that the volume of people working in the tech footprint is
So, even when I say, 10% change, it converts to 50,000 people, and that's how the
number is changing across the board.
So, we are seeing the footprint coming back.
Mindspace Business Parks REIT
courts are getting full, people are waiting in line to get their dosa in the afternoon, it's a very
pleasant sight in most of our parks now.
Satinder S Bedi:
There was a second part to it, but somehow I seem to have lost the line.
our plans to address the challenges at Pocharam & Porur, what is it that we plan to do because
the occupancy seems to be struggling and struck?
Vinod Rohira
So, we are not seeing any challenge in Porur.
Chennai market is the way it is and we are
beginning to see it picking up.
So, we are reasonably confident of leasing this space out
significantly in this financial year.
For Pocharam we have not seen strong demand.
strong demand coming back to that path.
We are watchful of it, but I would not give you any
direction on leasing that space in this financial year.
It is clearly negligible area that we have left
there to lease it.
Satinder S Bedi:
And the question for Preeti have we done a sensitivity analysis of what the interest rate increase
will have in terms of the impact on the distribution because while we do have about 40% fixed,
I think it is also reality that almost 40% of that matures in this financial year 23 itself.
percentage of fixed will fall and given the way rate interest rates are headed okay so I think there
could be a material impact on the DPU so any view on that?
Preeti Chheda
So, we do not have the substantial part of the fixed debt maturing this year because we just had
about one issuance which happened immediately after the listing which matures otherwise
everything else remains intact.
Yes, of course it is the fact that the variable cost debt that
something which will see a rise and now it depends on how much of rise do we see in the
financial year, but that should not have a very material impact on the overall cost.
will remain because to that extent your interest cost is going to be higher.
Vinod Rohira
I just want to add to what Preeti said what is important in all of this really is speculative supply
has paused and debt not going to be easily available.
We are seeing a significant opportunity in
the micro markets where we are dominant to be able to bring in collaborative supply and take a
larger market share going forward.
So, actually we are keener to build much faster because we
have so much headroom for debt, we want to take that, use that right and as we are seeing rents
moving up because of the inflationary pressures, that will be a big opportunity going forward.
Satinder S Bedi:
I think rent inflation with the lag is a clear opportunity for the sector it is just that because the
occupancy still low so probably it will take about four quarters more to flow, but I think we are
bang on, one house keeping question Preeti this Mindspace Malad our revenues from ops has
gone up quarter-on-quarter from Rs. 206 million to Rs. 287 million so that is the material 40%
jump what has caused this, but the NOI stuck at the same level so NOI is Rs. 181 million has
moved to Rs. 186 million anything we are missing here?
Preeti Chheda
Slide #26 that is actually the Square BKC number.
Mindspace Business Parks REIT
Satinder S Bedi:
I am talking of Mindspace Malad the line above that?
Preeti Chheda
I think that is a typo there so this has both the projects.
It basically for the SPV Avacado which
has both the project Malad as well as The Square BKC.
So, this actually is the combination of
the two and the BKC building is generating rent now.
We have part of the rent which come in
this quarter which was not there last year.
Satinder S Bedi:
So, you are saying the RFO against Mindspace Malad covers the revenue both from Malad and
BKC and the NOI split up?
Satinder S Bedi:
One final word Preeti I think the NDCF buildup is looking much better this time than previous
so compliments for that also.
It is much cleaner.
Moderator
We have the next question from the line of Shashank Savla from Somerset Capital
Please go ahead.
Shashank Savla
My first question is on the occupancy so if you look at the micro market we have seen vacancies
increase in Mumbai, Pune, Hyderabad even though the environment is getting better.
when do you see the actual occupancy improve for the micro market as well as for yourself?
Vinod Rohira
So, most of the micro market we are in if given an example for Pune out of large portfolio that
sits for us in Pune we have less than 23,000 square feet of vacancy currently and we are
desperately wanting to bring in more supply to lease as fast as we can.
So, the Grade A asset
will see traction of leasing disproportionately higher to the cumulative supply in the micro
We have been saying that time and time again and you will see that plan out even more
strongly in the coming quarters where Grade A asset will be lapped up and the rest of the asset
will still show vacancy.
So, while your micro numbers will show vacancy there will be
disproportionate occupancy rise on the Grade A in each of these micro markets.
Shashank Savla
For example, I am looking at Madhapur which you have been mentioning is a very strong market,
but on the overall macro numbers the vacancy rates has increased from 2.6% in 2019 to 6% in
2020 to 10% and now last quarter increased to 12%.
So, it seems that the supply is increasing at
the much faster rate even though demand is stronger?
Vinod Rohira
What happens Hyderabad has a unique scenario where there is nothing called FSI.
densities vary from site to site and each of those blocks are a million or 2 million that suddenly
adds to the supply bucket.
They are not necessarily all Grade A so when you start looking at
them and breaking them out into Grade A and other supply you will see that Grade A has started
to see traction of occupancies which are rising.
Our ROFO asset was getting constructed in the
neighborhood, a 1.8 million asset right through COVID we started pouring concrete right at the
Mindspace Business Parks REIT
beginning of COVID and even before the asset was completed, it was fully leased to a global
So, if you are building the right asset in the right micro market you got demand even
in those markets, you are already seeing demand rise right now.
Shashank Savla
And overall, your current occupancy level are around 84%, how much time do you think it will
take to reach the pre-COVID level of let us say 90% plus?
Vinod Rohira
So, we are hopeful of this financial year getting us in the 90s.
Shashank Savla
And the second question was on the CAPEX bit which the Rs. 23 billion which is mentioned
approximately what timeline is that for, is that over the next three years, four years?
Preeti Chheda
So, it will be between three to four years because some projects have just started and they will
take about three to four years to be completed, but major chunk will be within the three years
you will have some spill over to the fourth year.
Shashank Savla
And is it paid to assume that the CAPEX will be funded from debt so the other revenues would
then fall into the NDCF?
And for the ROFO I just wanted to understand what is the evaluation criteria and as well as what
is the funding for the ROFO is that also predominantly through debt?
Preeti Chheda
So, in terms of evaluation, I would say the board and the unitholders would like to see the
acquisition being accretive so that is what we as a management also will look at.
In terms of how
we are going to do the acquisition now obviously in all likelihood it could be a swap of unit of
the equity shares, while the other options of debt are available given that the low debt that we
are sitting on.
We still need to conclude it, currently we are at initial stage.
Shashank Savla
And is there any plan to increase the share of the fixed portion given that going forward there
seems to be a rising REIT environment, is it easy or economical to increase that share from this
Preeti Chheda
Yes, we would still look at converting some of our variable cost into fixed.
We know that we
have already entered a rising interest rate situation.
So, we still work towards converting some
of our variable to fixed let us see how much we are going to achieve, but the plan really is to do
little bit more of fixed cost.
Moderator
We have the next question from the line of Sameer Baisiwala from Morgan Stanley.
Please go ahead.
Sameer Baisiwala
Preeti if I look at the whole of fiscal ‘22 then there is roughly about Rs. 240 crore gap between
the CAPEX and the debt drawn, so how should we think about it in for fiscal 23?
Preeti Chheda
As I had mentioned last time as well there will be little amount of the gap which are still funded
out of debt it is going to be a small component, but otherwise you should not see too much of a
gap, some will still remain as I have always been maintaining, but major chunk of your
distribution should be funded out of FFO.
Sameer Baisiwala
So, how do you plan to make up for this Rs. 240 crores you said some would still be there so
maybe Rs. 150 crores, Rs. 200 crores, how will you make up for this big number?
Preeti Chheda
Sameer that is one number which will neutralize eventually over a period as the NOI growth
happens on account of revisions, escalations, occupancies, etc.
So, that is something which
hopefully over the next two, three years we should try to rationalize, but then some bit of this
will continue to see in the coming year as well.
Sameer Baisiwala
I am a little confused will this go down substantially in fiscal ‘23 or will it take two, three years
so I am not very clear on your answer on that?
Preeti Chheda
So, I would not say it will go down substantially from where it is today, but it will definitely see
a decreasing trend over the next two to three years as I said.
So, I would not say that will see a
straight big reduction, but it will neutralize over the next two to three years.
Sameer Baisiwala
And is this what you had in mind when you were answering previously that the rental growth or
the top line growth may not be necessarily translate into NDCF growth what were the big item
Preeti Chheda
Some bit of that, but also other parts also come in like you will have interest cost increases, tax,
etc., all those also come into play that is why you will not see the same growth in NOI translating
to an NDCF growth.
Sameer Baisiwala
And another question is on Airoli East we have roughly about 2.1 million square feet which we
need to develop so what are your thoughts on this rough timelines, when do you expect to start
Vinod Rohira
While it was 2.1 million square feet the valuation we are taking only for approximately 800,000
odd square feet that still gives us room to build more and we want to take that up we are just
waiting for the SEZ regime to settle in so that we can bring in a non-SEZ building into that whole
Sameer Baisiwala
Does it mean that you are taking only a small portion and valuation is one thing, but you have
disclosed a much bigger volume number so are you tentative that the balance may or may not
Vinod Rohira
As you can remember we had just entered into COVID and so to be conservative we have taken
800,000 square feet for the value while the potential was to build 2.1.
Whatever gives us
maximum value accretion we will exactly do that for the asset.
So, we are seeing how the demand
trajectory is moving nothing stops us from increasing the density if we see the demand going to
give us return.
Moderator
We have the next question from the line of Abhinav Sinha from Jefferies.
Abhinav Sinha
Just had a few clarification so did I hear correctly that you are expecting occupancies to rise
through 90% odd pretty soon may be in the next one, two years is that correct?
Vinod Rohira
You mean to say occupancies from the current occupancy of area yes physical occupancies I
think will be around the 50% and 60% over the end of the financial year.
Abhinav Sinha
Physical occupancy will be how much?
Vinod Rohira
Physical occupancy today is 25%, the way we see it will be between 50% and 60% by the end
Abhinav Sinha
And the committed occupancy will rise closer to 90% odd?
Vinod Rohira
That is correct.
Abhinav Sinha
Second question on the various micro market and the rents have been flat understandably also,
but which are the ones that as of now you are most positive on and where we can see the
movement say upward in the next three, four quarters?
Vinod Rohira
All of these markets are seeing a strong trajectory of rent movement.
Abhinav Sinha
So, uptick of 5% odd is likely in the year or you are hoping for higher numbers?
Vinod Rohira
I think the markets are getting stronger.
They want quality real estate; it is not really about rent
and quality real estate is attracting most of the tenants and you are getting the value you want
once you are able to offer a quality offering.
So, Grade A is definitely going to see a rise in rent.
Moderator
Ladies and gentlemen as we have no further questions we will now close the Q&A
Ladies and gentlemen on behalf of Mindspace Business Parks REIT that concludes this
Thank you for joining us and you may now disconnect your lines.