NEXUS — earnings call

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Prepared remarks

Unattributed

“Nexus Select Trust

Q4 FY24 & FY24 Earnings Conference Call”

MANAGEMENT: Mr.

Dalip Sehgal – Executive Director & Chief

Executive Officer (CEO)

Pratik Dantara – Head, Investor Relations and

Rajesh Deo – Chief Financial Officer (CFO)

Jayen Naik – Chief Operating Officer (COO)

Nirzar Jain – Chief Leasing Officer (CLO)

Moderator

Ladies and gentlemen, good day and welcome to the Earnings Conference Call of Nexus Select

Trust for Q4 FY24 and FY24.

As a 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

call, please signal an operator by pressing star then zero on your touch-tone phone.

Please note that this conference is being recorded.

I now hand the conference over to Mr.

Dantara, Head, Investor Relations and Strategy from Nexus Select Trust.

Thank you and over to

Pratik Dantara

Good evening, everyone and thank you for joining the Earnings Conference Call of Nexus Select

Trust for quarter ended March 2024 and financial year ended 2024.

At this point, I would like to highlight that the management may make certain statements that may

constitute forward-looking statements.

Please be advised that our actual results may differ

materially from these statements.

Nexus Select Trust does not guarantee these statements or results and is not obliged to update them

Specifically, any financial guidance and pro forma information that we will provide

on this call are management estimates based on certain assumptions and have not been subjected

to any audit review examination procedures.

You are cautioned not to place undue reliance on such

information and there can be no assurance that we will be able to achieve the same.

Joining me today are Dalip Sehgal, Executive Director and CEO, our CFO, Mr.

Rajesh Deo, our

COO, Jayen Naik and Chief Leasing Officer, Mr.

We will start off with brief remarks on our business and financial performance and then open the

floor to questions.

Over to you, Dalip.

Dalip Sehgal

Thank you, Pratik.

Good evening, everybody and thanks for taking the time out.

My pleasure to welcome you all to the Earnings Update Call for the Fourth Quarter of Financial

Year 2024 for the Nexus Select Trust, India's first retail REIT.

Before we delve into the performance, I wanted to spend a couple of minutes on the emerging

macro trends in the retail real estate landscape in India.

I think this would be useful as a backdrop.

To start with, I would state that the longer-term fundamentals continue to be very robust due to

favorable demand-supply dynamics driven by essentially four things and let me take you through

each one of them.

Number one, within the 14 cities that we operate in, the Grade-A demand-supply dynamics

remains extremely favorable for us with virtually no Grade-A supply of new space coming

into any of our markets in the next three years.

Our retail portfolio today stands up at 97.6% which is about 480 basis points above the

This is on the back of high-quality mall infrastructure, infill city centre locations and

best-in-class if I may say so, myself, management team.

Nexus Select Trust

International brands continue to expand their presence in India with ~25 new brands expected

to enter in the calendar year 2024.

India remains on top of the radar of international brands

like Zara Home, Foot Locker, Galeries Lafayette, D&G, Sandro, etc..

Dockers, YSL, Gucci

Some of them are in discussion with us to open their first store in the country.

Recently, a brand called NARS, which is from the Shiseido group in Japan, opened their first

store in Nexus Select Citywalk and is doing extremely well.

The fourth one is about D2C brands, brands like Nykaa, Lenskart, etc.., which were basically

online players have gone and opened stores and continue to do so quite substantially.

So, Nykaa, for example, has more than 170 physical stores, Mama Earth in a very short period

of time has done more than 170 stores and so has Lenskart and Caratlane, and all of these are

the known D2C brands.

We are also seeing some of the smaller D2C brands now going into

an omni-channel kind of a model.

So, that's the fourth area as to why we believe that the short

to mid-term future is still very, very strong.

Now, getting into our performance for the full year.

Financial Year 2024, has been an excellent

year for us with strong operating and financial performance.

We have achieved our projections for

FY24 as were disclosed in our final offer document and have ended the year with strong sales

growth of 13% and a net operating income growth of 16%.

Let me just reiterate, strong sales

growth of 13% and very strong NOI growth of 16%.

Our footfall growth during the year has been 7%, which if you remember in FY23, there was hardly

any footfall growth in any of the malls.

This year, the footfall increase has happened through

multiple marketing initiatives, festival celebrations, category-specific promotions and so on and

This is important because the whole year, like I said, FY23, while sales were good, footfall

growth had been almost negligible.

On the back of this strong operating financial performance, we are delighted to announce the third

distribution of INR 3,168 million, translating into INR 2.09 per unit.

Let me reiterate, third

distribution of INR 3,168 million, translating into INR 2.09 per unit, which is ahead of our

guidance and represents a 100% payout as we had indeed said at the time of the IPO.

distribution for the period from the date of listing to 31st March 2024 now stands at INR 10,719

million, translating into INR 7.08 per unit.

The NAV of our portfolio has increased to INR 145 per unit.

Our total unitholder base since Q1

FY24 is also up ~50% and we have been included in the key global indices such as MSCI and

Let me share some category trends with you which we are witnessing across our malls.

Categories like jewellery, electronics, beauty, personal care, family entertainment centres continue

We have been allocating additional space to these categories and will continue to do so

In line with last couple of quarters, we are witnessing moderate growth in certain

value fashion brands.

I think all of us are aware of the fact that while there is some pressure in terms of growth, I am

sure that as we go into the second half of FY25 , this will also improve substantially.

Let me now take you through some details of our performance in the fourth quarter.

We closed the fourth quarter with tenant sales of INR 28 billion and clocked a growth of 9%

year on year and remember, this is coming on a very high base of the previous year same

In our key markets of Mumbai, Bangalore, Chennai, we have witnessed growth much ahead

In these markets, we have witnessed very strong double-digit growth versus

the market which is in mid to single high digits.

Occupancy and demand continue to remain strong with most of our malls having a healthy

wait list of brands like I mentioned earlier.

At a consolidated level, our net operating income stood at INR 4.2 billion reflecting a 13%

year-on-year growth.

So, 9% growth on top line and a 13% profit growth.

Let me now walk you through two very critical parts of our business which is leasing and

Leasing strategy: With strong demand from tenants, our leasing occupancy now stands like I said

earlier at an all time high of 97.6% which is 130 basis higher than where we were last year same

We ensure timely openings of our stores and our trading occupancy now stands at ~96%.

FY24, we have leased 1.1 million square feet out of which 0.6 million square feet is area released

on expiry, 0.2 million square feet is area released before expiry through active tenant discussions

and the balance is fresh leasing.

We have achieved 21% releasing spread in FY24 on 0.8 million

of released space which is in line with what we had indicated in our final offer document filed with

If you remember in our final offer document, we had said we will get a releasing spread of

We have done better than that.

We have a stable leasing expiry profile with average

annual expiry of about 0.8 million square feet over the next three years and roughly about 10% of

our rentals come up for renewal every year and hence we are fairly confident of achieving more

than the 20% releasing spread that we had indicated at the time of the final offer document.

will continue to proactively churn and resize underperforming categories for brands ahead of this

On slide 20 of our presentation which has been circulated to you, we have presented a few cases

where we have achieved significant releasing spreads through active lease management during

contract tenures.

This was on leasing.

Coming to marketing and our activation strategy which is very critical.

Remember, we have 130 million footfalls across our assets.

Marketing strategy: Our size and scale allows us to plan for pan India promotions.

published more than a thousand print ads because as part of our acquisition strategy we actually

invest behind not just upgrading the assets, but also in terms of marketing to bring in better quality

and more footfalls.

We also launched multiple digital campaigns reaching 600 million eyeballs.

During this year, we kept our focus on promoting several categories through initiatives like Gloss

Box, Techstination, Denim Fest, Sneaker Fest, etc.

We also, if you remember, had Mr.

Bachchan as our brand ambassador till recently and that also

helped us in our growth strategy for last year.

We also organized multiple ticketed events in FY24.

All this, like I said resulted in more than a 7% growth compared to last year.

We are now thrilled to reintroduce Ayushmann Khurrana who used to be our happyness

He is back with us and his captivating persona not only adds credibility to Nexus, but

also resonates a commitment to spreading joy and happiness.

As you know, Ayushmann has

exceptional entertainment skills making him the perfect fit for Nexus pursuit of happyness.

us in embracing this infectious energy as we set out to regale our customers with his performances

across our malls and we embark on a journey filled with smiles and positivity.

Also, I think one very important technology initiative that we have extended to eight malls in total

is the Nexus One app.

I think we spoke about it last time as well.

We do believe that technology

will be a big differentiator for our business as we go into FY25 and beyond.

We have received

very good traction on the app with more than 2,30,000 downloads, 1,65,000 signups and

consumers who have contributed 7.4% of tenant sales in these malls in very early time.

expand this to all our malls in FY25.

This will give us not only very rich consumer insight and

data but will also help consumers in terms of both figuring out way finding.

So, if you are in a

million square feet mall and you want to know where we buy, the app actually directs you like

Google Maps does to where the store is.

We also have a loyalty program in the app.

consumers can upload their bills and then they can over a period of time build points and then

Coming to part two of my speech, this is about the business model.

As you are aware our business model is unique and different.

We acquire assets that have been

either under-invested and or under-managed.

With our capability to invest in upgrading assets,

bringing in relevant brands, investing in appropriate marketing, reducing costs given scale, we are

able to significantly enhance the value of the acquired assets.

The acquisition of three malls in South India which is now as we all know in Hyderabad that we

have been indicating is now in the advanced stages and expected to close soon post obtaining

regulatory approvals.

Considering the low LTV of 14%, the acquisition would be fully funded by

debt without any equity dilution.

We intend to leverage our in-house expertise and skills to turn

around these three malls.

We have already started planning for the integration and the strategic

initiatives have been identified.

We expect the acquisition to be DPU accretive from FY26

Talking about our robust balance sheet, we are armed with a watch list of close to a billion dollars

for acquisitions on the back of a low LTV of 14% something that we had mentioned at the time of

the IPO as well.

We have recently refinanced debt of about INR 9.5 billion at a debt cost of 8.1%

resulting in an annual saving of INR 40 million.

With this, our in-place average debt cost has

reduced by 10 bps to 8.1% with dual AAA stable credit rating.

So, that's a big achievement.

We have also recently strengthened our management team and inducted Mr.

Gautam Vaswani,

who joins us as Head of Business Development and Expansion.

He is a veteran in the retail real

estate sector with experience of over 28 years and has been involved in 20 retail-centric assets at

various stages of development.

So, welcome to Gautam.

ESG continues to be an area of focus.

Currently, we have over 38 megawatts of renewable energy

capacity installed.

During the last year, we commissioned a 4.2 megawatt hybrid solar and wind

power energy plant to generate over 75% of renewable energy consumption at Nexus Ahmedabad

Further, our 3.3 megawatt wind energy plant in Chennai has also been completed which will result

in cost saving of approximately INR70 million per annum and will give a yield of over 20% on

our investment.

The project commissioning will go live in this quarter.

To summarize now and to end, our FY24 performance has been excellent and the outlook for FY25

Leasing demand for our assets continues to remain robust with both international and

domestic tenants expanding their footprints and favorable demand-supply dynamics

Consumption growth in FY'24 has been resilient at 13%

Our NOI growth was 16% in line with our guidance and we expect to achieve our numbers

for FY25 as were disclosed in the final offer document filed at the time of listing

We have now announced our third distribution of INR 2.09 per unit taking our full year

distribution to INR 7.08 per unit outperforming our guidance.

For FY25, we expect

distribution growth to be 9%-10% over the full year FY24 number mentioned in the final

offer document at the time of listing

Lastly, our strategy for inorganic growth in the portfolio is active with a healthy acquisition

pipeline and a strong management team which gets further strengthened with the joining of

We look forward to closing Hyderabad acquisition post obtaining regulatory

Once again, I thank you all for your continued support and belief in our path of growth and value

With this, let's now move on to the Q&A.

Questions and answers

Moderator

The first question is from the line of Akshay Kothari from JHP.

Please go ahead.

Akshay Kothari

Yes, thanks for the opportunity and congratulations on meeting all the guidance.

Sir, what would

be your LTV post acquisition?

Dalip Sehgal

Post the Hyderabad acquisition?

Okay, let me hand it over to Pratik.

Pratik Dantara

It would be around 17%-18%.

Akshay Kothari

Okay, so still we would be having a lot of headroom.

Dalip Sehgal

Yes, we currently are at 14%, so even at 18%, we have enough headroom.

Akshay Kothari

Sir, pardon me for my ignorance.

I am pretty new to this sector, but in a scenario wherein

interest cost goes up and rising interest rate scenario, our borrowings would be going up, but since

we are having pretty less borrowing, so we would be pretty much insulated, right?

The distribution

per unit would not be dropping, right?

Pratik Dantara

So, in a rising interest scenario, the interest cost, debt cost obviously goes up, which impacts the

absolute distribution.

But like you said, we have budgeted for interest cost.

When we did our IPO,

we have budgeted for interest cost at 8.5%.

We have ended FY24 with interest cost of 8.1%.

we are already ahead in terms of our interest cost savings.

Akshay Kothari

Another question.

Is there some element of seasonality?

Because in last quarter, our trading density

was around 1800 and this quarter it is around 1500.

Dalip Sehgal

Very good question.

Yes, it is indeed there because if you know, quarter 3 is when we have all the

festivals in India, Dussehra, Diwali, we also have Christmas, New Year.

So, yes, that is typically

the best quarter in terms of absolute values and trading density for the retail industry.

Akshay Kothari

So, we can expect that quarter 3, the distributions also could be much more than the rest of the

Dalip Sehgal

That would be speculative.

We do not want to get into that.

All that we are saying is that as far as

FY'25 is concerned, whatever we had put down in our final offer document, we should be able to

Akshay Kothari

And so, I was just reading the DRHP as well and we have mentioned that UCCs have a lot of

advantages compared to high street and other grade B, grade C malls.

So, what is generally the

premium which our grade A malls would be trading compared to high street?

Dalip Sehgal

Nirzar, can you take this question?

Hi, this is Nirzar.

In terms of trading, I think different high streets behave differently.

an overall level, I think malls trade better.

There may be individual examples of some high street

or some locations doing better.

But generally, the malls bring a different experience to the fold and

trade at least 15% to 20% better.

Akshay Kothari

Thanks a lot and all the best.

Dalip Sehgal

Thank you so much.

Thank you for your question.

Moderator

We take the next question from the line of Jatin from Bank of America.

Nexus Select Trust

Thanks for the opportunity.

My first question, could you please help us revisit the breakup of

NOI growth that you saw in FY24 of 16% say in terms of vacant area lease up, new rent

commencement that were due, MTM and incremental revenue share and similarly for FY'25

guidance if you could help break that as well into these components.

Dalip Sehgal

Okay, I'm going to ask Rajesh to take this one.

So out of the 16%, broadly three-forth (12%) is coming in from rental increase and balance is

coming in from non-rental revenue like marketing, parking, common area maintenance expenses.

Out of this 12%, 4% is contractual escalation, 4% is MTM and revenue share and balance is

occupancy ramp up. .

Pratik Dantara

And Jatin, for the FY25 projections, I would say that it's about 9% NOI growth for us.

we've indicated in the past, about 5% will come from contractual escalations. 10% of our rentals

expire every year if you see our expiry schedule that what we've disclosed.

We earn a 20% mark-

to-market on that.

So, you get 2% growth there.

So, 5% plus 2% is 7%.

The balance 2% comes in

from a combination of rev share and other initiatives and other assets like office and hotels.

gives you another 2%.

So that's the 9% growth breakup for FY25.

That was really helpful.

Second question, do you think

consumption growth bottomed out for you last quarter at 8% odd and it could accelerate from here

I mean, some of your malls are growing consumption at double digit and you would be

expecting some of the remaining malls to play catch up as well.

I'm guessing some of those are the

Bangalore ones.

So, could the consumption growth accelerate from here on?

Dalip Sehgal

So let me answer this in two parts.

The first one, obviously, is the fact that I think our overall

consumption growth has been very healthy, both in FY24 as well as in quarter four.

it bottomed out?

I'm honestly not very clear what would you mean by that.

If I look at the

fundamentals of how consumption operates, as long as the GDP growth is upwards of 6%, inflation

is below 6%, there is no reason why you would not see in India a consumption growth of high

There is no reason at all, whichever be the category.

So, my sense is that first of all, I don't know bottoming out, but the fact is that I think the macros

all indicate that the growth in FY25 should be good.

There may be some amount of variance that

happens between months and quarters, depending on various scenarios.

But overall, I think, like

we have said, I think we will more than meet our projections for FY25 as far as consumption is

That's really helpful.

And thank you a lot.

Thank you so much for your questions.

Moderator

The next question is from Parvez Qazi from Nuvama Group.

Please go ahead.

Parvez Qazi

Hi, good afternoon and thanks for taking my question.

So, first question is, I'm sorry, I missed the

number for the footfall growth that you had given for FY24.

Secondly, I mean, beyond the Hyderabad mall, what is our outlook towards future acquisition?

Would we continue to target let's say a million square feet number every year or I mean, we can

aim higher also?

Dalip Sehgal

So, let me just take this on.

I think at the time of the listing, we had basically indicated that

over the last six, seven years, we've added roughly one and a half million square feet to our

portfolio every year.

And we do think that's possible as we go forward into the next five years as

As far as apart from the three Hyderabad malls are concerned, yes, I think we have interest

from other developers as well.

Just to reiterate, India has about 110 odd A grade malls, out of

which 45- 50 are with, the established players .

And the rest, which is about 60 odd, are with developers who have a single or maybe a couple of

assets and for them, as you know, the mall business is not core to what they do.

So, it is possible

that they would look to sell.

So, that is our catchment really in terms of from where we acquire.

And I think we have fairly good traction.

Also, I think for a single mall owner to be part of a much

larger, let's say portfolio is beneficial because you're de-risking your business from being a single

mall owner to being, part of a much larger group.

I think our management skills and capability

because we have size and scale is also very good.

And REIT as an instrument allows people to convert their physical assets into financial assets

without any implication as far as capital gains tax is concerned.

Also, the distribution is almost

two-thirds tax-free.

So, from all perspectives, I think REIT is a good instrument for people to roll

in and we do hope and expect that over a period of time, they will continue to do so.

Parvez Qazi

And lastly, any thoughts about Greenfield retail development?

Dalip Sehgal

So, we are not averse to it.

I think we must recognize the fact that our core model is still acquisition,

but there could be markets or there could be opportunities where it makes a lot of sense for us to

at least evaluate Greenfield projects or Brownfield projects and we would certainly do that.

Parvez Qazi

Thanks, and all the best.

Dalip Sehgal

Thank you so much for your question.

Thank you, Parvez.

Moderator

The next question is from Praveen Choudhury from Morgan Stanley.

Please go ahead.

Praveen Choudhary

I just wanted to congratulate you for good results and also thank you for taking my question.

have two questions.

The first one is related to the DPU guidance for FY 25.

If I look at the fourth

quarter number and analyze it, from that point to FY25 growth, I just wanted to get what will that

be to the midpoint of your guidance.

And it sounds like you can beat that based on the trajectory

of consumption.

So, I just wanted to see if low expectation and actual reality could be better.

So, that's on FY25 DPU growth.

And the second question I have is, there has been some

consumption downgrade in certain areas.

I understand in malls things are better.

I just wanted to

Nexus Select Trust

understand how do you see overall consumption trend in India and the impact on your business.

Thank you so much.

Dalip Sehgal

Let me take the second question first and then I'll pass it on to Pratik to answer your first

As far as consumption is concerned, you've seen the numbers.

I think at 13% odd, it's

Even last quarter at 9% was pretty good.

Like I mentioned earlier in answer to some

other question, as long as the macro indicators in India are good, you have GDP growth in excess

of 6% and you have inflation below 6%, fiscal deficit at 4% or 5%, I think we are in for a very

good consumption period in the years to come.

There will always be some variances that may

happen from month to month or quarter to quarter.

But I think mid to long term, the outlook on

consumption is still very, very strong.

You do a simple number and you say if inflation for our

kind of products is between 5% and 6% and real GDP growth is at least 6%, then you're looking

at high single digit growth, at least as far as consumption is concerned.

So, to answer your question,

I think we will still see a pretty strong growth as we go forward.

Pratik Dantara

So, Praveen, I think let me try and answer this in two parts on the DPU front.

We've distributed

about INR 2 per unit every quarter.

That would mean about INR 8 annually and INR 8.7-8.8

guidance would mean a 9-10% growth over that.

The other way to cut data would be if you take it

from the period of listing and you annualize the number of INR 7.08 per unit you get to a number

of about INR 8.15 per unit and an INR 8.7-8.8 on an INR 8.15 would mean a 7-8% growth.

that's how we would probably try and cut data on the DPU front.

Dalip Sehgal

And this is all organic growth.

This is no bolt-on, no acquisition.

It's all organic.

Praveen Choudhary

Thank you for that.

Can I follow up on that acquisition then?

You did mention that there are 60

malls out there that can be a candidate for a very robust balance sheet.

How do you understand the

urgency and the timeline on an annual basis if that's where the growth is coming from in terms of

Dalip Sehgal

Sorry, I think your voice is not...

Praveen, if you could just repeat what...

The last bit we didn't

Praveen Choudhary

Yes, let me repeat.

I was asking the question about acquisitions.

And because you said you have

60 malls out there who you can acquire, I just want to understand the speed at which you want to

Obviously, pricing is very important, but given the pricing is better, would you be doing

it one mall a year, one million square feet a year?

What is your steady state growth through

Dalip Sehgal

I think if you reflect back on what we said same time last year at the time of the final offer

document, we had basically indicated that over the last six, seven years, Nexus as a platform has

added one and a half million square feet a year.

We would hope to, there's no guidance or anything

here to add at least a similar number as we go forward into the next three to five years.

So that is part one.

On your Greenfield question, like I said earlier, I think in some cases where

there may not be anything up for acquisition, and still, it's a very important market for us, we may

look to do Greenfield as well.

Praveen Choudhary

Okay, that's very clear.

Thank you so much.

Moderator

Thanks, Praveen.

Thank you very much.

That was the last question in queue.

to hand the conference back to the management team for any closing comments.

Pratik Dantara

Thank you everyone for joining.

If you have any further questions to reach out to us, we'll be happy

Moderator

On behalf of Nexus Select Trust, that concludes the conference.

Thank you for joining

us, ladies and gentlemen.

You may now disconnect your lines.

Disclaimer – The transcript has been edited for language and grammar, it however may not be a verbatim representation of the