Release Date: January 29, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Mindspace Business Parks REIT (BOM:543217, Financial) achieved a re-leasing spread of 17.1% on 450,000 square feet leased during the last quarter.
- Committed occupancy increased to 86.1%, with an average rent of INR78 per square foot, up from INR68.
- Revenue from operations grew by 13.5% year-on-year, excluding one-off items.
- The company is building 4.4 million square feet of new Grade A quality assets, indicating future growth potential.
- Mindspace Business Parks REIT (BOM:543217) has a low Loan-to-Value (LTV) ratio of 21%, providing headroom for both organic and inorganic growth.
Negative Points
- Despite positive NOI growth, distribution growth has not kept pace due to increased interest costs and the absence of debt support.
- The company faces challenges in leasing SEZ spaces, with 3 million square feet currently vacant.
- Hyderabad market faces oversupply issues, although the company has not been significantly impacted due to its location.
- Physical occupancy in business parks is at 65%, indicating that a significant portion of space is still underutilized.
- Mindspace Pocharam asset in Hyderabad is completely vacant, and the company is in the process of divesting it, which has been a drag on occupancy rates.
Q & A Highlights
Q: REITs have struggled to show dividend growth commensurate with NOI growth. When will we start seeing dividend growth similar to NOI growth?
A: Our distribution growth has been impacted by increased interest costs and the elimination of debt support. With SEZ policy reforms, we expect to lease vacant spaces, which should translate to distribution growth over the next few quarters. β Preeti Chheda, CFO
Q: Could you quantify the significance of the demarcation of certain floors to non-processing areas?
A: We have applied for demarcation of about 4 lakh square feet in Airoli and are working on other areas. This will help us lease these spaces more effectively. β Preeti Chheda, CFO
Q: Will the GCC boom benefit Airoli park post-SEZ denotifications?
A: Yes, we see significant opportunity in Navi Mumbai. We are focusing on denotifying SEZ spaces and targeting clients in BFSI, telecom, media, and tech sectors. β Ramesh Nair, CEO
Q: Do you see any pressure in taking rental escalations or mark-to-market in Hyderabad given the oversupply?
A: Despite oversupply, our well-located parks with metro connectivity have mid-teen vacancy levels. We expect Hyderabad rentals to eventually reach higher levels seen in other cities. β Ramesh Nair, CEO
Q: What is the estimated timeframe for converting SEZ spaces to non-processing areas?
A: We plan to lease SEZ vacancies over a 2-to-2.5-year period. The government has been proactive in addressing queries, and we are applying for denotifications in phases. β Ramesh Nair, CEO
Q: What is the current physical occupancy in your parks?
A: Physical occupancy has increased to 65%, up from 60% last quarter. Many clients are asking employees to return to the office, which is a positive sign. β Ramesh Nair, CEO
Q: What is the leasing pipeline compared to two or three quarters back?
A: Office absorption is expected to increase from 42 million to 46 million square feet this year. Demand is strong across all our markets, and we expect better performance in 2024. β Ramesh Nair, CEO
Q: Which sectors, apart from GCCs, are showing traction in terms of inquiries?
A: We are seeing significant demand from domestic corporations, especially in Mumbai. Our domestic share has increased from 15% to 27%, reducing dependence on IT services. β Ramesh Nair, CEO
Q: What was the area that came up for contractual leasing this quarter, and what percentage was re-leased?
A: We have 3 million square feet of expiry this financial year, with 90% of non-SEZ space already re-leased. Excluding Pocharam, our occupancy would have improved by 40 basis points. β Ramesh Nair, CEO
Q: What is the expected timeline to reach pre-COVID occupancy levels of 88-90%?
A: We expect to reach early 90s occupancy levels over the next year and further increase in FY '26. β Ramesh Nair, CEO
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
