Release Date: February 13, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Achieved a second consecutive quarter of record new leasing since IPO, with 0.5 million square feet for the quarter.
- Gross leasing for the quarter surpassed 1 million square feet, reflecting increasing demand for high-quality Grade A office assets.
- Significant growth in operating lease rentals by 90% to INR393 crores compared to the same period last year.
- Strong organic growth with existing leases delivering a 7% average escalation on 1.3 million square feet during the quarter.
- ICRA assigned a long-term rating of ICRA AAA with a stable outlook, indicating a strong balance sheet and limited refinancing risks.
Negative Points
- Unexpected expiries faced in K1, with space being vacated by Cognizant.
- NOI margin for N1 down to 94% this quarter due to exceptional expenses not recovered from tenants.
- Concerns about re-leasing space in Downtown Powai, with 334,000 square feet due for renewal in FY25.
- Challenges in G2 property with no renewals this year, raising concerns about tenant retention.
- Income support for N2 is ending in the middle of Q4, potentially impacting short-term financials.
Q & A Highlights
Q: My first question actually is with respect to the unexpected expiries that you faced in K1 and how do you think about releasing this space, and do you see further risk in K1 going into FY25 as well?
A: We have seen space being vacated by Cognizant, but we have applied for almost 0.6 million square feet of space for de-notification at K1. With the SEZ reforms, this K1 asset has been rerated. We are at advanced stages of discussions with non-SEZ tenants for closure and signing of term sheets, and we see no risk of any kind of surrenders. We are hopeful to backfill the vacant space at much better rentals and lease profiles. - Alok Aggarwal, CEO
Q: On Downtown Powai, about 334,000 square feet is due for renewal in FY25. How is that shaping up in your discussions?
A: Downtown Powai has seen renewals with CRISIL and Deloitte. Some surrenders might happen, but the momentum is good. We are able to get good mark-to-market rentals and escalations. - Alok Aggarwal, CEO
Q: Can you comment on what exactly you are doing for tenant improvements in your CapEx projects?
A: We commit a budget for tenant improvements, which can be used for upgrading common areas like lobbies and toilets. These are more exceptions than norms and are generally categorized as asset upgrades rather than tenant improvements. - Alok Aggarwal, CEO
Q: On your NOI margin, especially for N1, that seems to be down. How should one read that?
A: The NOI margin in N1 is 94% this quarter due to an exceptional CAM true-up expense that could not be recovered from tenants. This is not a recurring issue. - Sanjeev Sharma, CFO
Q: What is driving the new space taken up by IT services companies, and should we expect this trend to continue?
A: The trend is continuing as IT services companies have increased their headcount but reduced their real estate portfolios. As employees return to offices, they need more space urgently. This trend is expected to continue. - Alok Aggarwal, CEO
Q: What is your view on the renewals of the projected expiries in the forthcoming year?
A: We have about 1.1 million square feet of expiries in the next few months. We estimate that 50% will get vacated and 50% will be renewed. - Alok Aggarwal, CEO
Q: What is the expected timeline for the dividend component enhancement?
A: We expect the NCLT to approve the capital reduction schemes by the September quarter, and the dividend component should increase by the December quarter. - Sanjeev Sharma, CFO
Q: Can you provide an update on the physical occupancy rates?
A: Physical occupancy is in the range of about 74% to 75% and is growing every month. - Alok Aggarwal, CEO
Q: What percentage of distribution could be in the form of a dividend post the capital reduction scheme approval?
A: You can model it in the range of 15% to 20% of the total distribution post approval of these schemes. - Sanjeev Sharma, CFO
Q: Is it fair to say that the current committed occupancy of 80% is the bottom line and should look up from here?
A: Definitely, 80% is the bottom. We expect occupancy to be 88% in the next 15 months. - Alok Aggarwal, CEO
Q: How should we look at the rental growth in Kolkata after applying for 0.6 million square feet to be de-notified into non-SEZ?
A: We expect rental growth in both SEZ and non-SEZ spaces. In Kolkata, we can consider about 10% to 15% rental growth for this particular asset. - Alok Aggarwal, CEO
Q: What was the rent previously for CRISIL House, now renewed at INR187?
A: The previous rent was INR140. - Alok Aggarwal, CEO
Q: Can you give some color on the market rentals for all of your core markets?
A: Rentals are holding out and moving up in core markets with limited supply. For example, Downtown Powai rents range from INR165 to INR185, G2 is around INR90 to INR95, N2 is around INR65 to INR67, and G1 is in the mid-80s. - Alok Aggarwal, CEO
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
