Embassy Office Parks REIT (EMBASSY) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Embassy Office Parks REIT Earnings Conference Call. [Operator Instructions]. Please note that this conference is being accorded. I now hand the conference over to Mr. Ritwik Bhattacharjee, Head of Investor Relations at Embassy REIT. Thank you, and over to you, sir.

Thank you, Raymond. Hi, everyone. Welcome to the Fourth Quarter FY 2020 Earnings Call for Embassy REIT. Embassy REIT released its financial results for the quarter ended March 31, 2020, a short while back. As is our standard practice, we have placed the audited financial statements, an earnings presentation discussing our quarterly and full year performance and supplemental financial and operating data book on our website at ir.embassyofficebox.com, in the Investor Relations section. As always, we would like to inform you that management may make certain comments on this call that one could deem forward-looking statements. Please be advised that the REIT's actual results may defer from these statements. Embassy REIT does not guarantee these statements or results and is not obligated to update them at any time. In particular, there are significant risks and uncertainties related to the scope, severity and duration of the COVID-19 pandemic, the actions taken to contain and mitigate the pandemic and the direct and the indirect economic effects of the pandemic and containment measures on Embassy REIT and on our occupiers. Joining me on the call today are Mike Holland, the CEO; Vikaash Khdloya, the Deputy CEO and COO; and Aravind Maiya, our CFO. Mike will start off with the fourth quarter and full year highlights, business overview and strategy, followed by Vikaash and Aravind. We will then open the floor to questions. Over to you, Mike.

Thank you, Ritwik. Good evening, and thank you for joining today's call. These are challenging times across the world and wherever you are, we sincerely hope that you, your family and colleagues are healthy and safe. Today, we announced our fourth quarter and full year FY '20 results. In a world, which is exhibiting unprecedented uncertainty, we are pleased to report a great outcome for FY '20, with Q4 distribution of INR 5,317 million. That's a total distribution for FY '20 of INR 18,821 million, ahead of our revised guidance last quarter, and an NOI growth of 15% year-on-year. All demonstrating the resilience of our business despite COVID-related disruptions in March 2020. Our core business proposition of predictable, low volatility cash flows and quarterly distributions has delivered in FY '20, what we said at the beginning of the year, a record 2.4 million square feet new leases, 15% year-on-year growth in NOI, early delivery and healthy pre commitments on our 1.4 million square foot on-campus development, culminating in the strong distributions for our unitholders. Notwithstanding this strong set of results for FY '20, our full focus now is on our business today and the year ahead. Given the difficult external environment, which has enveloped global and Indian markets since the COVID outbreak. In India, COVID-19 started to emerge as a potentially significant business disruptor in late February. We entered this crisis in a position of great strength, the result of a number of years of prudent and proactive management of the business. Our strong balance sheet, ample liquidity and long-term lease contracts with our 160-plus corporate office occupiers, the strong relationships and trust we have built with them over the years, and our first-class on-ground operations team across the country all contribute to the resilience of our platform and surely that resilience will be required over the coming year. Since the outbreak and subsequent lockdown by government, our focus has been to facilitate business continuity for our occupiers operating critical services from our parks and ensuring the health, safety and well-being of all our stakeholders. Our parks remained open for business to support core business functions of our occupiers throughout the national lockdown within the parameters laid out by the central government in the multiple states in which we operate. The many accolades from our occupiers reflects the hard work and unwavering commitment of our on-ground teams. And we acknowledge and sincerely thank all of our frontline employees and service providers for their efforts to date. We are in very early stages of this global business disruption. And there is a great deal of uncertainty. Many views and speculative comments about potential impact of issues such as social distancing, work from home, workplace dedensification, business travel reductions, liquidity squeeze and so on. In addition, we're still operating in a restricted environment even today. And it is difficult to estimate with a reasonable level of certainty as to how long the current challenges will persist. However, amid this uncertainty, we have a positive view on a number of areas. Firstly, it is clear that a significant reduction in the densities of the workplace is coming, given increased priority to employee wellness, and this will drive demand. Some of this de densification, but certainly not all, will be offset by more flexible work styles, including work from home. The work-from-home experiments in India has delivered in this crisis that my recent interactions with many corporate occupiers lead us to a preliminary assessment that while the industry may see more flexibility in employee work styles, the total business environment, which Embassy REIT provides to its occupiers and their employees cannot, in India, be fully replaced by solitary work from home changes. One business leader from a global corporation explained to me that for his people, a young demographic of digital tech experts serving cloud, cybersecurity and data needs of Western corporations, the -- I quote, "the office is their home." Our conclusion is that workplaces will more than ever be the venue for building company culture, collaboration, training and teamwork. The workplace of the young Indian workforce provides a social, professional and community space as well as the necessary infrastructure and productive environment, which is so often lacking at home. We are not alone in our view that we will see demand shifting to higher quality, lower density workspaces in the coming years. This aligns well with our overall product offering and strategy, the total business ecosystem. Secondly, it is clear that a sector which is shining in the COVID-19 world is technology as a facilitator of new lifestyles. And as we have highlighted in the past, our existing portfolio continues to be around 50% technology occupier focused. We have a positive bias to India's leading tech city, Bangalore, further enhancing the resilience of our business in times such as today. We underline our previously articulated message. We have a bias to the right sector, the right product and the right markets in India. The third point of certainty is that our business is focused on delivering best-in-class office premises and amenities to the best corporations globally. And in India that we entered this phase with record office demand and low vacancies, and we foresee a dramatic tightening of new supply. Our core customer base operates here in India because this remains the global hub for technology talent. This, and the fact that India continues to have a significant employee cost advantage and affordable rentals has not changed. In fact, again, technology has become even more important to the functioning of the global economy and consequently, many technology companies are prospering in this environment. Over the coming months, as we start to emerge from this pandemic, we will see how these things play out. Over the medium term, though, we do believe that this phase will result in continued consolidation in the Indian office market, considerable reduction in annual supply and the higher market share for high-quality institutional landlords in India such as Embassy REIT. Before I hand over to Vikaash to discuss our business and operating performance, I would like to announce that earlier today, our Board accepted the resignation of Rajesh Kaimel, the CFO to the REIT manager since August 2018. Rajesh is moving to take on the Group CFO position at Embassy Group, and our Board also approved the appointment of Aravind Maiya as CFO to the REIT manager with immediate effect. Aravind has deep knowledge of finance, is fully familiar with the REIT business and well suited to lead, given that he has been operating as Deputy CFO since May 2019. We are very grateful to Rajesh for his leadership and guidance in our first year post listing, and we wish him great success in his new role. Combined with our existing management and today's announcement of the new Chief Financial Officer, Embassy REIT continues to have an experienced, world-class leadership team. Vikaash will now discuss in detail our business and operating performance.

Thanks, Mike. Good evening, everybody. Business highlights for the fourth quarter of FY '20 include: Business continuity of our occupiers and safety of their employees with our parks open for business throughout the national lockdown; 389,000 square feet of new lease-up during the fourth quarter with a forward lease pipeline, totaling 300,000 square feet; occupancy certificate for the 1.4 million square feet on-campus delivery, 62% of these new completions already committed to occupier; overall occupancy of 92.8% on 26.2 million square feet operating office portfolio, with same-store occupancy of 94.5% considering March 2019 as base year; and robust rent collections of 92% for April as of date. So let's dive into the details. I will first cover updates on each of our key focus areas of business continuity, leasing, new development and asset management initiatives, including an update on our hotels. And later, we'll discuss business outlook for FY '21, both on demand as well as supply side, ensuring business continuity during COVID-19. Our response to COVID-19 focused on our immediate priorities of ensuring the safety and well-being of all employees, our vendors, our occupiers and our own team and delivering on the business continuity commitments to our occupier. In early March, when social distancing and government regulation started to impact day-to-day operations in our properties, we activated our detailed business continuity plan on March 4, much ahead of the government's locked announcement, and this BCP has been reviewed on a daily basis since then. All our properties continue to be operational throughout lockdown, and our team has done an excellent job for our over 160 occupiers to provide for the business continuity needs in the face of the pandemic and related government guidelines and restrictions. The pillars of our response has been around 4 key themes: people, medical, communication and at the heart, excellence and operational response. We provided daily pan-India and property-specific updates to over 1,000 occupier touch points besides creating a 24x7 centralized helpdesk to address occupier needs. Our largest properties in Bangalore recently moved to a less restrictive regime wherein 33% of employee staff were permitted to operate from May 4, and our properties in Noida and Pune are likely to follow a similar regime in the coming weeks. Yesterday, we estimate that around 12,000 people from 120-plus companies worked in our parks, primarily in Bangalore. Mumbai, however, currently remains on enhanced social distancing measures. We have formulated a plan and a task force to prepare our buildings for re-occupancy post lockdown. We are proud of our people and the dedication they have shown through this difficult period. Feedback from our occupiers on a response has been very positive. Our sense is that large occupiers are going to focus on how we did things differently during this challenging time, and that will only continue to build our reputation and deepen our relationship with them. And the trend and focus towards better managed, safer properties will work to our benefit as concern for employee safety for the best corporate occupiers will, quite rightly, always trump cost Next, we had a record year of leasing. We entered the fourth quarter with a healthy pipeline in excess of 500,000 square feet. Despite COVID-19 business disruptions and resulting decision-making delays, we closed the quarter with 389,000 square feet of new leases across all our locations. For the full year FY '20, we achieved our highest absorption in previous 5 years, with approximately 2.4 million square feet new leases signed with over 25 occupiers, 53% re-leasing spreads on 1.1 million square feet of re-leases and 19% renewal spreads on 600,000 square feet of renewals during the year. These are impressive numbers and once again demonstrate the continuing appeal of our total business ecosystem product as well as the embedded demand from within our portfolio. Our robust leasing has helped us achieve strong business performance in the previous fiscal and has kept pace with the growth of our portfolio. We started the year with an occupancy of 94.3% on 24.8 million square feet operating office portfolio and closed at 92.8% on 26.2 million square feet. On a same-store basis, our occupancy increased during the year to 94.5%. we have a forward lease pipeline totaling 300,000 square feet and of our 1.4 million square feet lease expiries in the next 12 months, corresponding to 6% of our overall rents. Approximately 400,000 square feet or 32% are currently in advanced discussions, and our immediate priority is to convert these. However, it is clear that leasing decisions will be deferred over the next few months, while corporate occupiers figure out a long-term strategy. While it is unclear how long this pause will last, we continue to stay fully engaged with occupiers. Moving to our on-campus development projects. During the fourth quarter, we received occupancy certificates for the 1.4 million square feet new on-campus deliveries in Embassy Manyata NXT and Embassy Oxygen. With a further 232,000 square feet lease-up in NXT building in FY '20 fourth quarter, 62% of the 1.4 million square feet new completions are now committed. Although occupiers had initiated fit-out work before the lockdown announcement, we do expect lockdown and subsequent disruptions to impact rent commencement on these key commitments potentially by 1 to 2 quarters. During the fourth quarter, we halted construction activity on 2.6 million square feet new development in accordance with government lockdown directives. Given supply chain disruptions and labor migration challenges, delivery time line is likely to be impacted by 1 to 2 quarters. We will resume construction as soon as lockdown restrictions are eased in respective locations. And our projects team is fully geared up to implement new social distancing and other wellness procedures at each of the sites to ensure safety and health of all our workers. We do not have any near-term new supply in our portfolio over the next 2-plus years. And hence, we plan to continue with the 2.6 million square feet early-stage development projects with an existing office campuses with delivery time line starting only 2023 onwards. As we move forward, we will continue to monitor market dynamics prior to committing any additional new development, and we have flexibility to control our supply timing over the medium term. Let me touch on our asset management initiatives, which are core to our business philosophy with updates on our rent collections, lease management, our operating hotels and other planned CapEx projects. Over the last 3 months, we have worked extensively with our occupiers in providing business continuity and minimizing their hardship through active dialogue. This, in turn, has helped us to limit COVID-19's impact and manage risks around income loss. We have collected substantially all of March rent and 92% of April rent as of today with commitments from occupiers that would bring April collections to 95% by the end of this month. A number of our ancillary amenity and small business tenants and certain of our office occupiers have requested rental waivers and/or rent deferrals for April 2020 and beyond. We have consistently maintained that office occupiers are required to comply with their lease obligations and pay rents. However, we have considered modest rent waivers for our food court, retail and small business tenants, whose contribution to overall revenue is negligible. Moving to the impact of COVID-19 on our existing leases and our lease management strategy for the coming year. Our top 10 occupiers comprise very strong global means and they contribute a significant 42% of our total revenue. Our detailed risk assessment shows that sectors directly impacted from the pandemic, such as co-working, hospitality, aviation and retail together constitute only 6% of our rents. Further, on the back of successful contractual equations on 5.5 million square feet in previous fiscal FY '20, we have an additional 7.1 million square feet fully contracted escalations ranging between 12% to 15%, which come up in the next 12 months and whose rents are currently 33% below market. These escalations will be a key driver of NOI growth in current year. And as of today, we do not see material risk in these escalations. Our 2 operating hotels, Hilton at Embassy Golflinks and Four Seasons were initially projected to account for approximately 2% of NOI in FY '20. Our Hilton Hotel has been a consistent high performer given the on-surface nature of the offering. Four Seasons, which opened last year and which witnessed slow ramp-up initially was gaining good [ ground ] in Q4, reaching 36% occupancy and breakeven for the month of Jan '20. However, since February '20, occupancy has been severely impacted at both hotels due to the pandemic-induced business travel restrictions, and we suspended operations in March of '20. We are presently working closely with both hotel operators and have instituted several cash conservation measures. We will resume hotel operations once the lockdown restrictions ease. Though hospitality demand globally and in India is likely to be severely impacted in short-to-medium term, its effect on our overall business will be limited given hotels contribute a very small proportion of our NOI and asset base. Regular investment in our properties by undertaking select infrastructure and upgrade projects is core to our asset management strategy and helps us increase entry barriers. While we continue to be judicious in our discretionary capital spend, we will continue to pursue select projects, which fit our long-term value creation plan and which help in our total business ecosystem offering to occupiers. We are positive on the long-term complementary benefit that our hotels offer, and hence, we continue to work on our 619 keys dual branded Hilton hotels at Embassy Manyata. Construction activity on the hotels was halted given the lockdown disruption and delivery is likely to be impacted by 1 to 2 quarters, with completion now estimated in June of 2022. Given the external turbulence and our priority to focus on COVID-19 response, we have paused our assessment of the Embassy TechVillage ROFO opportunity and will revisit that in due course. Our top priority remains our existing business. Moving to our business outlook for FY '21. 2019 was a year of record absorption for the India office market and vacancies were also at record lows at year-end. In the post COVID world, consultants are projecting net absorption down 28% to 33% for this year with occupiers likely to defer decision-making on new leasing, while they focus on delivering business continuity to their dislocated workforce. The actual absorption recovery timeline remains uncertain. However, we do believe that global technology spend will continue to grow, especially in digital, cloud, data services and cyber security to support new lifestyles. Further, increased cost pressure on global businesses may increase offshoring to the benefit of India office demand in the midterm as was the case post global financial crisis in 2009. Global companies will increasingly prefer the best properties with high levels of compliance and service and landlords with strong financial and operational qualities. Occupiers are likely to have an increased focus on wellness and enhancement of safety protocols for property management, which we believe will drive demand to a high-quality portfolio. On the supply side, there has been considerable supply shrinkage in last quarter with consultants reporting 35% to 40% year-on-year drop. This trend will continue, and supply is expected to drop significantly in the midterm due to supply chain disruptions, labor relocation challenges and liquidity pressure. While consultants estimate 25% drop in the announced supply over the next 2 years, actual competing and comparable supply for REIT properties may be even lower. This will further consolidate demand for institutional quality projects with healthy financing and project completion predictability to our benefit. As we move ahead into FY '21, implementing our business plan, we are now focused on execution excellence in a period of high uncertainty. Given the potential impact of COVID-19 on businesses globally is unclear and evolving, we continue to proactively manage our portfolio to mitigate its impact and emerge even stronger. We believe that our total business ecosystem leads us at the top of the pyramid in competing for occupiers that are focused on operational excellence and long-term approach to value creation will continue to make us the landlord of choice in India. Over to Aravind now for the financial updates.

Thanks, Vikaash. Good evening, everybody. I will be covering 3 areas with you today. Firstly, our Q4 FY '20 performance, along with the roundup of our full year FY '20 performance. Secondly, a brief discussion on our balance sheet strength, including access to liquidity. And lastly, broad outlook for FY '21. To start with, despite the daunting challenges arising from the fallout of the global pandemic, Embasy REIT has once again delivered a resilient financial performance for Q4 and for full year FY '20. Financial highlights include our net operating income for fourth quarter FY '20 grew year-on-year by 10% to INR 4,618 million and cumulatively grew year-on-year by 15% for FY '20. Our distribution for fourth quarter FY '20 stood at INR 5,317 million or INR 6.89 per unit, representing 100% payout ratio for fourth quarter. And full year cumulative distribution totaled INR 18,821 million or INR 24.39 per unit, representing 99.8% payout ratio for FY '20. And our balance sheet remains strong with ample liquidity and low leverage. Existing cash and undrawn committed facilities comprised INR 13.5 billion. And our leverage remained low at 15% net debt to TEV, with only 1.3% debt maturing in the next 2 years. Our results once again highlight our efficient model as flow through of net operating income to distribution was approximately 104% for full year. Further, we delivered full year distributions of INR 24.39 per unit representing 98.5% of our initial target before the start of FY '20 and exceeding the higher end of the revised guidance range of 96.5% to 97% provided during our third quarter earnings call despite COVID-19-related challenges in March '20. I will now discuss in detail our fourth quarter earnings performance, including the roundup on our full year results for FY '20. The revenue from operations for the fourth quarter grew by INR 423 million or 8% year-over-year and by INR 2,679 million or 14% for full year FY '20, mainly on account of a strong leasing momentum as well as contracted rental escalations of our office yields. Net operating income for the fourth quarter grew by INR 418 million or 10% year-over-year and INR 2,428 million or 15% for full year FY '20, mainly due to increase in our revenue from operations as well as reduction in operating expenses due to successful implementation of certain cost-saving initiatives at our Embassy Manyata property. In terms of our NOI drivers, contracted rental escalations, new lease-up and mark-to-market re-leases contributed over 95% of the year-over-year NOI increase. Our operating margins once again reflect the benefits of our scale, our operating -- operational efficiencies and our cost optimization efforts. Both our NOI and EBITDA margins stood healthy at 85% and 82% for the full year FY '20. As you will note, we have been able to achieve impressive year-over-year approximately 100 basis points margin improvement in both our NOI and EBITDA, reiterating our overall commitment to maximize unitholder distributions and value across everything we do. Consequently, EBITDA for full year also grew by INR 2,510 million or 17% year-over-year. I would like to highlight that our NDCF for the fourth quarter at the REIT level stood at INR 5,314 million despite the recent COVID-19 outbreak. The Board of Directors of the manager to the Embasy REIT, in their meeting held earlier today, declared a fourth quarter distribution totaling INR 5,317 million or INR 6.89 per unit representing a distribution payout ratio of 100% for Q4 FY '20. We are committed to delivering on a quarterly distribution and our balance sheet and access to liquidity gives us the confidence to do so. For the full year FY '20, Embassy REIT has now cumulatively declared distributions totaling INR 18,821 million or INR 24.39 per unit with an overall annual payout ratio of 99.8% and annual distribution yield of 8.13% based on the unit listing price. The record date for Q4 FY '20 distribution is May 28, 2020, and the distribution will be paid on or before June 3, 2020. Moving to our balance sheet updates. Let me highlight our disciplined approach, our conservative balance sheet and how our low leverage of 15% net debt to TEV places us in a strong position to weather external uncertainties in the near-term due to COVID-19 disruptions and pursue accretive growth initiatives as we move forward and drive our business priorities. To summarize the balance sheet strength, we continue to maintain a strong liquidity position with INR 13.5 billion of total liquidity as of 31 March, 2020 consisting of INR 9.5 billion of cash and treasury balances as well as INR 4 billion in undrawn committed facilities. With only 1.3% of our existing debt maturing over the next 2 years, we have no significant debt maturities until Q1 of FY '23. Also, our underlying covenant of high-quality creditworthy occupiers is reflected in our rent collections for April '20, which continue to be robust as Vikaash mentioned earlier. All of these provide ample liquidity for our business continuity despite broader liquidity squeeze in the market. During full year FY '20, we remained active in the debt market and raised INR 22 billion debt and refinanced INR 30 billion. We are one of the most well capitalized companies in the real estate sector in India. Our net debt of INR 47.9 billion represents very low leverage of 15% of our total enterprise value and provides us additional pro forma debt headroom of INR 114 billion. Further, as of May '20, credit rating agencies, CRISIL and ICRA, once again reaffirmed our AAA stable credit rating in respect of a listed bond and REIT issuer ratings, respectively. Our net debt-to-EBITDA of 2.7x and the interest coverage ratio of 4x further reflects our conservative leverage position. I will now briefly cover a few updates relating to our annual valuations, recent DDT rollback and our cost-saving initiatives. Our independent valuers undertook a detailed property valuation exercise as of March 31, 2020, and assessed the gross asset value of the portfolio at INR 331.7 billion, with over 92% of REIT value from our core commercial office segment. We recognized an impairment loss of INR 1,776 million in our hospitality business mainly due to slower-than-anticipated occupancy ramp up at our Four Seasons Hotel in Bangalore, coupled with uncertain economic conditions due to COVID-19-induced business and travel disruptions. Factoring the above, our net asset value as of March 31, 2020, stood flat at INR 374.64 per unit compared to our previous NAV of September 30, 2019, underpinning our asset quality. Moving to DDT. As you may recollect earlier in February 2020, the government of India Union Budget had proposed to impose a tax on dividends distributed to REIT investors. This now has been rolled back by the government after numerous representations by industry stakeholders, subject to the condition that REIT SPVs will not opt for the alternate tax regime of lower corporate tax rates. We view the recent DDT rollback as a long-term positive for REIT, and it makes the REIT product appealing for both foreign and domestic investors. Further, in line with our earlier commitment to simplify our holding structure and optimize distributions for Embassy REIT, the Board earlier today approved a scheme of arrangement, which enables collapsing of the legacy 2 tier holding structure of Embassy Manyata SPV into a single level, subject to necessary regulatory approvals. We expect the overall process to be completed in the next 4 to 5 quarters. Moving to my last section on financial update relating to outlook for FY '21. As Mike and Vikaash previously mentioned, given the unprecedented degree of economic uncertainty due to COVID-19 disruptions, the full impact to global businesses and economy caused by the pandemic cannot be currently ascertained. Although our office rent collections were strong in April '20, it is difficult at this stage to estimate possible outcome for FY '21 with any reasonable degree of certainty. Hence, we believe it is prudent to defer guidance for the fiscal year FY '21. However, I will summarize few of the commentary provided by Mike and Vikaash earlier in respect of each of our business components, which may have a bearing in our FY '21 NOI and distributions. Our commercial office segment contributed over 91% of our full year FY '20 NOI and gross asset value. This segment remained relatively resilient given underlying covenant of 160-plus credit towards the corporate occupiers. However, approximately 6% of our occupiers are from directly impacted sectors such as aviation, hospitality, retail and co-working. They have an additional 7.1 million square feet fully contracted escalations ranging between 12% to 15%, which come up in the next 12 months and whose rents are currently 33% below market. In addition to our 1.9 million square feet current vacancy, we have 1.4 million square feet upcoming expiries and renewals during FY '21. Of these, as of date, we are in advanced lease discussions for approximately 650,000 square feet. Additionally, rent commencement from our 62% pre committed area on the recent 1.4 million square feet of completions is likely to be delayed by 1 to 2 quarters due to disruptions for our occupiers undertaking fit out work. And also due to deferred takeup on expansion spaces by these occupiers. Our hospitality segment contributed 0.6% of our full year FY '20 NOI and 5% of our gross asset value as of 31st March 2020. Operations on both our operating hotels are currently suspended, and the hospitality demand is likely to be severely impacted in the short to medium term. Consequently, contribution to NOI from this segment is likely to be impacted due to slow anticipated occupancy ramp up and fixed operating costs. On the expense side, we achieved significant efficiencies and cost optimization in FY '20. We are now fully focused on cash conservation and collections optimization as we move forward in the current year. And we may incur certain additional operations and maintenance costs in current fiscal FY '21 given enhanced safety and wellness initiatives and expectations from occupiers. With the above information, we have provided you the building blocks, which will assist you to come up with an estimate of our earnings in FY '21. Over to Mike for his concluding remarks.

Thank you, Aravind. So another solid quarter and the completion of our first full year post listing, delivering to all stakeholders through our total return predictable business. We have delivered on our distributions for FY '20 and delivered on a full year total return of circa 25% exceeding full year FY '20 returns of U.S. and Singapore REIT indices as well as the domestic Nifty Realty Index. We are now focused on FY '21 and managing business priorities through a period of uncertainty with an unknown time horizon. You've heard how we've entered this in great shape and that our key focus areas for the coming quarters and into FY '21 include, continuing our deep occupier connect and unparalleled customer service, maintaining high occupancy levels at our properties and being the landlord of choice, delivering our ongoing on-campus new developments, focusing on robust fiscal management, collections, cost savings and minimizing discretionary capital expenditure and continuing our hands on and active asset management, including a focus on our 2 operating hotels and the few occupiers from COVID-impacted sectors. We remain committed to our business strategy to deliver total return through regular and predictable quarterly distributions supplemented by growing NOI through multiple accretive growth initiatives. In the short term, the pandemic will certainly slow the growth velocity of our business in FY '21. While Embassy REIT will not be immune to the dramatic disruptions in global and domestic economic activity, the business is in great shape and well positioned to weather this period of uncertainty. We have highlighted in the past that our portfolio of high-quality assets, our long lease terms with strong credit occupiers, our balance sheet and capital structure have always been real strengths. In today's uncertain environment, these really come into play and give us a strong foundation for a challenging year ahead in FY '21, positioning us to continue to gain market share and stretch our leadership that the market continues to consolidate towards fewer, more resilient institutionalized landlords. So that's the business overview for FY '20. Let's move to Q&A, please.

[Operator Instructions] The first question is from the line of Abhishek Bhandari from Macquarie.

Mike, I had 2 questions. First, while I understand you cannot give a guidance on revenue given the uncertainty. But is it fair to assume that the REIT would payout -- would maintain the 99% to 100% payout as they pay out to the unitholders, at least for FY '21? Or do you plan to hold some cash should there be need for it in terms of some client-related issues?

And the second, you said there was a?

Yes. The second question is basically, you mentioned 92% collection has already happened in April, and it will touch 95% in a few weeks' time. Just wanted to know what is the regular collection pattern? Is it also a similar thing that you collect 95%, 96% in the current month and the remaining spills over to the next month? And a related part to it is that the 6%, what you mentioned as the impacted sector because of COVID, do you foresee an immediate risk of bankruptcies or vacancies from those clients? And what are the protections you have in terms of deposits should those happen?

Okay. Abhishek, thank you. There's 3 great questions there. Look, I'm going to pass across the collections question in a second to Aravind and the 6% impacted sector to Vikaash. In terms of the -- you asked about percentage on distribution. Look, we are obliged under the REIT regs to distribute 90% of our net distributable cash flows. We will comply with that. We have always said that we will endeavor to maximize on that number, and I don't think anything's changed on that. But to stipulate what exactly is that number, I think we can't do that at the moment. Aravind, can I ask you to comment on the collections, 92%?

Sure. Abhishek, say in comparison to the 92% collection, what we have for April 2020, typically, we would collect more close to 100% by the end of the month. Yes. So just -- if I can just take on the first question a little bit more, adding on to want Mike said, Abhishek. I think what gives us the confidence to give out distributions is the access to liquidity, which we have, which I did mention in my prepared speech of the current cash balance as well as the undrawn committed facility of INR 13.5 billion. I just wanted to add on that point before I hand over to Vikaash.

Thanks, Aravind. Abhishek, just to -- on your question of the impacted sectors and how we -- what's our plan on that. So if I could refer you to Slide 18 of our presentation, we mentioned that approximately 6% of the rental, as we stand today, are from occupiers with -- from directly impacted sectors. Of course, today, we are still in the middle of it, and we have to wait and watch for how this pans out, but we are working very closely with these occupiers, adopting a proactive and nimble approach to assist them during this pandemic. We are closely watching how the businesses shape up and the solutions, quite frankly, will depend case to case. It won't be appropriate for us to comment on any specific finance business here, but we do have robust risk management processes, including the security deposits that you mentioned. And we will continue to actively manage our leases as and when we do determine that there are certain businesses, which will be disrupted by this pandemic. So we'll have to work through the details, see how it pans out and take it from there.

The next question is from the line of Mohit Agrawal from IIFL.

A couple of questions. Firstly, you mentioned that the April rentals have been -- probably have been 92%. Just a clarification that pertains only to facility rentals or it includes the maintenance CAM recoveries also? So that's the first question. Secondly, could you give a sense on how the month of May is shaping up in terms of collections? And one more on -- you mentioned about the consolidation bit in the commercial space. Now I understand that you've said that the go-forward that we were considering has been put on hold, but how would your overall approach acquisitions in case of any distressed deals come your way given the strong balance sheet that we have? And how do you look at the valuations and cap rates, considering that there is a lot of distress in the market?

Okay. I will take the first part of the question. So in relation to the 92%, which you mentioned, that includes both facility as well as the common area maintenance income which we bill out. And in relation to your second part on May collections, looks healthy as of now. As of today, we have collected about 75% of our main delivery. I'll now hand it over to Vikaash for the second part of the question.

Right. So in relation to acquisitions, in general, our view on acquisitions remains the same, REIT is a vehicle well suited for accretive inorganic growth and especially given our disciplined balance sheet. We are keen to look for opportunities that are accretive and for irreplaceable trophy assets, which are dominant in their respective micro markets. And this is the key criteria. As of today, on timing, I guess, it is too early. We are currently focused on our existing business. We are right now staying in the market on the opportunities, but we do believe that as market moves past the pandemic-induced tensions, in a quarter or 2, acquisitions will be -- also become a priority as balance sheet issues and liquidity squeeze provides some interesting opportunities. In terms of valuation and cap rate, I guess we'll have to work through the detailed basis each of the specific opportunities. But we do think that the liquidity squeeze will dry up the market for potential sellers who would have limited choices and we -- and that would be beneficial in terms of just having dominant irreplaceable assets, which is really the key focus area, and then we'll work through the pricing.

And the next question is from the line of Murtuza Arsiwalla from Kotak Securities.

Just a couple of questions from my side. You have some amount of area, which is up for re-leasing in the current year as well. Now as my understanding would be that you typically plan ahead of the expiry. So can you give us some color on where that discussion is? Or do you see risk, so how much is that risk in terms of the amount which is up for re-leasing? And similarly, on the construction, some color on how much time we could have lost or revised time lines on the construction part? I'm sorry, if I missed it, if you'd had already said it previously.

Thanks, Murtuza, Vikaash here. So I'll just quickly take the second part of your question first. In terms of the construction, we did had to halt construction on the 3 projects, 2.6 million square feet in March. We do expect delay of 1 to 2 quarters. We're waiting and seeing how the regulations and the notification from the lockdown go and how. But we do think that both prices as well as labor migration will be elevated. And these will be impacted by 1 to 2 quarters. However, we are sufficiently well funded, and our plan is to continue with this development. Because in any case, they come up for delivery in 2023. And with dramatically supply squeezing, we think it would be an opportunity. Now coming to your question on expiries. Actually, that's a great question. And if I can guide you to Slide #31 of our investor and earnings presentation. So we have upcoming expiries and renewals of approximately 1.4 million square feet in our portfolio in the next 12 months, roughly representing 5.5% of the rents. As of today, as we discussed earlier during the scripted remarks, we are in advanced discussions for 400,000 square feet, which is approximately 32% of the rents that are expiring in the coming year. I just want to highlight here that the entire 1.4 million square feet does not come up in one go, and it comes up over a period of time during the next 12 months. Having said that and the fact that we've secured 32% in terms of advanced discussions, we do think that the demand pickup will be slow for the next 2 to 3 quarters. And we do think that the backfill and the re-leasing may be subdued for the next 2, 3 quarters as occupiers focus on their existing businesses rather than new CapEx. We'll have to wait and watch how it pans out, and we'll be working through this with our on ground teams.

Vikaash, if I could just put a follow-up, even for the assets which have been commissioned recently, how much of it has already been pre leased? And how much remains? I remember it being a number around 40-odd percent last quarter.

Sure. So thanks, Murtuza. So in terms of the recent deliveries, 1.4 million square feet, approximately, 62% of that is currently pre committed, and they have certain growth options, which may take the number up to 64%. So that's across the 1.4 million square feet, both in Bangalore and Noida put together. The balance right now is available for being let up. And again, our view is the same, as I mentioned, that over the next 2 quarters, we may see demand being subdued, and then you'll have to wait and see when it returns. We do believe that both the projects, Manyata NXT, as well as Oxygen are the best quality products in their respective micro market. And whenever we do see a return of demand, we think these properties will see healthy traction.

The next question is from the line of Kunal Lakhan from CLSA.

Congratulations Aravind on your elevation. My first question was on -- I mean, basically, have we heard from any of our large clients, have they given any indication on consolidation of the portfolio? And to be more specific, actually, Cognizant, which is our second largest tenant, in its earnings call highlighted that there would be a net reduction in its employee base in FY '21. And moreover, they would be looking at optimizing the mix of employees in terms of working out of office and working from home. So just basically, like any indication from our large clients on consolidation of their portfolio?

Yes. So thank you very much for that question, which covers a fair bit. So have we heard from our large clients about consolidation? One of the things that we make great efforts to do is to be in touch with our occupiers and understand what they are doing. And we've been in touch with a couple of dozen of them through the COVID period last couple of months, where there's been that work from home, which you mentioned in relation to Cognizant. Just some feedback on that work from the home side of things. I think it's clear that the outcome is going to be that there will be more flexible work styles but there will certainly be a core base at the office place. We've heard from those corporate occupiers that the work from home program through this lockdown has been competent, but not comfortable was a phrase that one of the users applied. There's clearly many problems and challenges around the work from home side. I mean, the company that you mentioned, they had to procure significant amounts of hardware to have their people work from home and so on and so forth. Many of the companies that we've spoken to have confirmed that they've had challenges around the digital infrastructure at home, the physical infrastructure. If you think about the demographic that works for these companies, it's young, often single, sometimes staying in PG accommodation. One occupier told me about individuals who are literally working from home, sitting on the edge of a bed for 2 months. And clearly, that doesn't work. Another business leader outlined to me that their demographic, which is that young tech demographic, they want to be in the office. He said, the office is their home. It's somewhere that they come to for food, they come to for friendship, they come there for the company culture. Many of the business occupiers have talked about how do we build company culture if people are in their home. So we definitely feel that we work is something -- sorry, work from home is something that has been challenging, that there will be more flexibility as we go forward. But certainly the core people from the office -- from the company will be based at the office. And then it's challenged as well by this whole move for more social distancing and de-densification, whereby people will need more space. So yes, some level of flexible working, but actually if you do the numbers in terms of employees with de-densification companies are likely to need the same or, in fact, more space in the medium term.

Vikaash, here. Just to add to -- I guess, a quick snippet on that. We've also seen, during the pandemic, tenants which have had some positive impact, notably in areas like digital transformation, cloud, some of the companies that support technology for the retail sales in their respective home markets, some of the gaming infrastructure companies. And in fact, outsourcing in few areas, as the -- some of the companies have discussed has increased. So again, we'll have to wait and watch how this plays out. I think if there is a trend towards consolidation, it will actually benefit the larger landlords such as Embassy REIT. I do think in the next 2 quarters, 1 to 2 quarters, everything will just -- make a good detailed assessment of the health and safety of employee as well as where they stand, return back to and then kind of move on to some of these decisions, and we'll see how that plays out then.

Fair enough. And my second question was on -- if I see from your presentation, I mean, from your commentary, our mark-to-market expectation still stands at about 30% higher than our in-place rent, which is basically unchanged compared to the pre-COVID expectations. Now concerning the overall slowdown expected in the IT spending globally and the fact that north of 50% demand continues to be driven by IT Sector, how confident are you achieving the 30% mark-to-market growth.

Again, Vikaash here. So again, a couple of things, one, we do think re-leasing decisions will get deferred over the next 1 or 2 quarters at a minimum. Lease-up will take time given the demand has softened. But one of the things that kind of works in our favor is our ability to be patient and hold on to rents. That's one of our strengths. We are obviously nimble and hands-on in our approach. And while there will be pressure on rentals in the near term, especially on the reversion, we think that given that tenants have already spent in CapEx, we will have to kind of make an assessment of CapEx and relocation, whether they just renew and focus on the employee safety and some of the other challenges posed by the pandemic. It's still early days, and we'll have to see where we go. But based on the early discussions and on the 400,000 square feet advanced stage renewals and that we are currently underway for the FY '21, the mark-to-market has been relatively resilient, but we have to make it here.

The next question is from the line of Adhidev Chattopadhyay from ICICI Securities.

My first question is on, again, rental escalations. Obviously, there is a space which is up for renewal, but there are also some, I guess, escalations, which are automatically triggered in the contracts, right, either a 5% annual escalation or a 15% escalation every 36 months. So do you see any risk to that? That is one. Secondly, just wanted to clarify on the facility management, at least for your power, what is going to be using across the office parks? They're typically on take-or-pay contracts? And do the tenants have to pay this? Or do you have to pay the -- what you say -- and with the energy and whoever is supplying you the power?

Yes. Thanks for the question. On rental escalations, it's a standard contractual position. In the past, we've escalated many millions of square feet every year under contract. It's something that there will always be some endeavor to negotiate, but it's not something that we see material risk around. There will be pressure for sure. But it's a straight contracted position. So we don't have concern on that. In terms of power, it is a pass through cost. It's fully recovered from the tenant for their space. That's it.

Yes. So actually, I just want to ask, is take-or-pay mean when you purchase power, right, it means regardless, at least -- I'm just coming from what happens in malls, right? Many guys have a year-round contract, the supplier, and they have to pay regardless of whether the thing is running or not. So I just want to understand how it works in your case.

Yes. So this is Vikaash here. So just to kind of -- I'm just going to break this into two. One is certain occupants procure power directly from the BESCOM, and that's fully variable in the sense, they get billed by the BESCOM and we act as facilitator based on actual usage. Now on the power that -- on the portion that the tenant supplies power from our solar power plant in Karnataka. On that, of course, again, they are billed on what they utilize. But we have generally seen that there is healthy take up for 200 million of units that a solar plant generates. Obviously, the generation doesn't cost anything as a solar plant, but we would want to max out on the utilization of the units that is generated. What does happen is by the discount that is the electricity authorities is that we do get facility of banking. So any unutilized units during the course of a financial year can be utilized at any different point in time during that financial year. So for example, in April and May, where offices were working at low capacity and they were, let's say, 50% of units generated in that month, which was not utilized, we can bank it. It's more like a credit with the authorities, which we can draw down later when occupants pick up activity to full speed. And basically, power is then treated as a fungible commodity.

The next question is from the line of Pulkit Patni from Goldman Sachs.

My first question is in continuation with what some of the other participants asked. If you specifically look at, say, a business park of the size of Manyata, where we are talking about the difference between in-place rent and market rent, the increased significant, almost 26%. Just wanted to understand from you that as you negotiate some of this and I understand most of these tenants are pretty large sized, would it be fair to assume this kind of mark-to-market opportunity at this point in time? Because clearly, we are in a very different world post-COVID. So just wanted to get a sense on mark-to-market potential, particularly for these kind of escalations, what you are expecting in Manyata? That would be question #1 for me.

Okay. Well, let me take that. Actually, the reality about large occupiers, the challenges of relocating thousands or sometimes tens of thousands of their employees, finding another park of a similar scale, quality and size is something that takes years to plan. So this is a dislocation that's come in the last 2 months. We will approach each negotiation individually, independently. And we believe the quality of the total business ecosystem that we're providing in the large part, particularly you've given an example of Manyata. It's something that is unmatchable actually in that micro market in North Bangalore. So by way of example, an occupier will have to look at somewhere that's got hotels that they can have their staff staying. And they'd have to look at conferencing centers. They have to look at sports facilities for that stuff. They have to look at developers who are providing the health and safety, the governance, the compliance that we're able to provide and so on and so forth. So it's not only about the price. And it's also something that takes time. Large-scale occupiers would generally be discussing these a couple of years in advance. So our conversations to date, we're comfortable with where we're at with our large-scale occupiers.

And just to add to that, Pulkit, 2 minor points from my side. One is the -- all the expiries don't come up in a single year or a single point in time within the same year. And what we are seeing right now is an extreme period of uncertainty, but with the hope that life gets better as we move forward, we do think that the expiries, which are spread over a period of time and within the same year, they will kind of achieve some of these mark-to-market. And the second thing I want to mention is for the existing occupiers, you interestingly mentioned Manyata, which is a great example with 99-plus percent occupancy. The last thing that an occupier would want to do today or the next 2, 3, 4 quarters is to kind of do a large consolidation exercise or a complete complex math on where next to relocate, how to make the employee commute to work, what capital infrastructure investments that the operation needs to make, and we would like -- just like to focus on existing landlords, guys with whom they have great comfort, happy with the quality, do more of the same and actually focus on multiple other challenges that they would have in the business. So both in the short term, as you see, guys whose expiries are coming up in the next 1 year, especially the existing brands, they just want to continue with the same thing. And hence, Mike said that they will obviously want to come back and ask for a little bit of a favorable terms, and that's the strength of our team. That's how we end up negotiating that. But in the midterm, we do hope that the demand scenario improves. So we just have to patiently work through this and be very active on our lead management and will -- in the next 2 or 3 quarters, we'll see how some of these things play out. We remain relatively positive on the strength of some of these mark to markets.

No, fair point. My second question would be, are you also seeing any change in the way these contracts are structured in terms of both the length of the contract and future's escalation? Any comments on that post the COVID world?

So I mean, a, we're not yet post the COVID world. But so length of contract, we haven't, in the last couple of months seen anything arising from that. Certainly, people will be looking closely at the force majeure clauses within their contracts, because as it stands, most contracts do not favor the occupier from that perspective. But I think, again, to go back to Vikaash's points, most occupiers today are not focused upon transactions and leasing. They're focused on trying to sustain their existing businesses, manage the very challenging environment about work from home and manage the return to office protocols. Vikaash mentioned that today -- yesterday, there were 12,000 people, 120 companies working in our parks. It's a very complex and challenging process to get those people back to work in a safe and healthy way. That's what the corporate real estate team are focused on at present. One of the large-scale occupiers in Manyata had actually said to me that they will spend probably 6 months in working out what's happened and what's their strategy to respond going forward. So it's not something that was here yesterday and gone tomorrow, something that will take at least a couple of quarters before people figure out where things are going.

The next question is from the line of Amandeep Singh from AMBIT Capital.

I have 3 questions. Firstly, following up on the question from one of the earlier participants. Can you help us understand so far based on your interactions with tenants that tenants from which sector and micro market are coming for downward renegotiation of rentals? And as a follow-up to this, from the upcoming 1.4 million square foot renewals in FY '21, how much would be from these sectors?

I think we spoke about 6% in 4 different sectors, which is shown there on a slide in the deck, it's Slide 18. That is the directly impacted sectors for sure. I really want to highlight this issue about our technology focus in our portfolio. And if there's 1 sector that is prospering and shining through this challenge, it is the technology sector. We've got many examples of companies that are doing extremely well through that. So our interactions with tenants and of course just business intelligence would line us up towards travel, aviation, retail, direct retail. Not, for example, a number of our retail tenants are supporting omnichannel retailing in the U.S. and the Americas. Those companies are actually doing very well because of the high percentage around e-commerce.

Just -- and in terms of your query on the percentage on the 1.4 million square feet. It is approximate -- it is less than 1% of the occupiers that are from the directly affected sectors. Again, I just want to mention something that while we have done a preliminary assessment of the sector, how some of the businesses play out, we'll have to see over the next 2, 3, 4 months. I think, as of now, we think it is a very low percentage of our next 1 year expiries. And again, I just want to highlight. And one thing which may be reflective of this is that we've already collected or have got commitments for 95% of the April rent, which was during the height of the pandemic. And May collections, actually, we think is also going to achieve some new level.

Sure. That's helpful. Secondly, how much of incremental cost are you expecting resulting from increasing safety measures like security protocols, thermal scanners, sanitization, et cetera? And how much of this would be shared with the tenants?

Again, Vikaash here. So just to break that into 2, one, on most of the operating and the regular initiatives in terms of safety, hygiene protocols, enhanced wellness related initiatives that we will undertake. All of that is recoverable from the occupiers. It is fully chargeable to them as part of the common area maintenance. And in fact, this is one area where, neither we as landlords nor the tenants would want to kind of compromise. We want to adhere to the best standards possible. But we may incur a very small proportion, on the top of my mind, if I have a number, it is sub INR 10 crores. On some of the CapEx, which we are thinking as of now. And again, this is evolving. As of now we're thinking of some thermal cameras in all our parks, and that may cost sub INR 10 crores on CapEx, which we'll bill to our account. All the OpEx will be to the occupier or the company.

Sure. That's helpful. That's very helpful. And lastly, to what extent do you expect de-densification requirements post-COVID-19, offsetting adverse impact resulting from emerging trends like work from home, which you were mentioning earlier?

Yes. So the best way I can answer that question is that almost verbatim response that a top-tier banking company explained to me. He said, "I can only accommodate under the new spacing protocols, 28% of my full-time employees within my building, if I bring them all or as many as I can back to the office." It's not 50%. For him, it was 28% with appropriate spacing between desks. And that's an occupier with a couple of thousand employees here in Bangalore. So de-densification is something that should not be underestimated. And it's quite possible that it will more than exceed the percentage of people that would be at sort of work from home basis, which is why my comments earlier on that it's quite possible that there may be an additional space requirement. And we certainly believe that occupiers, the best occupiers will be looking for more space per employee for that collaboration and communication and culture building that we spoke about. Large international companies, particularly in the tech space have been moving that way for a number of years, high-quality space, low-density space, and we think that, that's a trend that will continue, and will work in our favor.

The next question is from the line of Manasvi Shah from ICICI Prudential Asset Management.

Aravind, can you run us down as to how have you calculated this impairment loss for the hospitality segment?

Sure. In relation to impairment, basically, what we've done is the gross asset value first has been done by our independent valuers, which is [indiscernible] with value assessment by CBRE. So what they've done is, they've looked at the impact to some of the key assumptions into the business valuation, including occupancy, be it the gross operating profit or the ARR. So the potential impact of the pandemic into some of these key assumptions over the next, let's say, 1 year has been factored. And this is current knowledge, what could be the long-term impact has been assessed and factored into the valuation done with them. So this is basically the base for arriving at what we look at as the recoverable value for these 2 assets. That's been compared with our book value, and that's the basis for arriving at this INR 1,775 million of impairment.

Okay. Fair. And operationally, what sort of impact do you, aside from the valuation perspective, what sort of impact do you envisage for the hospitality business over the next 1 year? What are the -- and I mean, just to understand what sort of fixed costs, et cetera, will you still have to consider to -- still continue to incur without any revenue, if you can just provide some details there?

Sure. Again, Manasvi, this is Vikaash here. 2 or 3 things. One is, just to highlight for FY '20, the financials and results of this business stopping hospitality contributed 0.6% of the annoyance. So it's a very small proportion, whether you look at it from an NOI, gross asset value or distribution -- contribution perspective. However, hospitality segment is one of those segments, which is severely impacted. And I think it will be -- it will take time before both occupancies and ARR tick up. We do not foresee when that will be. But our guess is at least for the next 3 or 4 quarters, business will be significantly muted. So having said that, what we have done, what we understand the values have done is factored some of this outlook perception that they have on the hospitality into the valuations, which has resulted in this impairment, which obviously reflects the value of the asset at that point in time, based on today's assumptions. In terms of the drag of hospitality on the overall distributions for the current year and/or what are the fixed costs? Across both the hotels, approximately we believe that the per month fixed cost, presuming we do not earn even $1 of income or we do not rent out even 1 room day, we believe that our expenditure would be approximately INR 50 million, INR 5 crores across both these parks post the cost conservation measure that we have instituted. So that's going to be the impact, INR 5 crore per month, both hotels put together. We do hope that some revenue kicks in as we -- as the situation improves, but this is the absolute 1 scenario. Does that help?

Yes, that's very helpful.

The next question is from the line of Murtuza Arsiwalla from Kotak Securities.

Just a follow-up. We saw some drop in occupancy in a couple of assets, Embassy 247, Quadron, et cetera. Can you just highlight what the outlook for occupancy looks for them for the year going forward? Do we have any visibility or it's something that we will have to look at?

Sure. Again, Vikaash here. So a couple of things. I think both Embassy One, which we have consistently maintained is taking more time for lease-up and certainly post the COVID the traction -- we think the stabilization would take even more time. So we'll just have to be patient. We want to hold on to the rents which a project of this quality deserves. But in terms of 247 park, it is, as of today, fairly occupied with occupancy over 90%. It does have certain tenants from the impacted sectors, mainly retail as well as co-working. So we are working through that. But we recently completed a fantastic repositioning exercise in Q2 of the last year. And we think that this is one of the better assets in the micro market with the best quality amenities. We'll have to just wait and see how this pandemic pans out, but as of today, occupancy is at comfortable level. Coming to Quadron. Quadron has been impacted, and we do have -- even in the upcoming expiries figure, we do have expiries in Quadron, which will come up. And again, this is majorly not specific to the asset or specific to the industry, to which caters, which is technology, it has more to do with 1 or 2 occupiers wanting to do a mega consolidation in the last quarter, wherein they consolidated about 1.5 million square feet on other side of the town, actually paying much higher rentals, but they just wanted to be in a different location. And we just couldn't offer a product in that location. So Quadron, again, it's in the right market, good product, but we do believe that it will -- we will have to be patient for the next 2 quarters as we see demand returning post the shock that it is -- post the COVID shock. Sorry, one last thing, again, that's the benefit of a portfolio of this scale. There will always be certain moving pieces and few assets. But we try and leverage and focus on where we can kind of maximize occupancy to ensure, at a portfolio level, we are at a high occupancy of 93%, 95%.

The next question is from the line of Rakesh Vyas from HDFC Mutual Fund.

I have 3 quick questions. First, if you can just highlight as to what proportion of tenants would have invoked force majeure clause so far and would be paying rent under protest or -- that's point number one. Point number two, if you also can highlight the legal framework for any tenants to partly surrender the space? And how do we compensate ourselves against that possibility? Why I'm asking this is related to point number three, we are hearing of a new brand in which earlier, there used to be a lot of mega consolidation of workforce at specific location. Now given how scenario is changing, there is a thought process of deconsolidating this workforce again. And therefore, there might be thought process by tenants to take out some part of their workforce into newer locations, and therefore, they would want to surrender some of the space. So that's probably the 3 questions that I have.

Yes. Can I deal with perhaps these in reverse order, what you call this new trend of reverse consolidation, perhaps. I think it's way too early to be talking about new trends. That is nothing other than speculation in the marketplace. And it works for some providers, it doesn't work for others. One thing is for sure that there will be a trend towards better quality, better governed space. The idea that companies would fragment their existing holding in order to spread across the city. We're nowhere close to the companies even have worked out a strategy. I mentioned earlier on, there's 1 company that we were talking about, they would take 6 months to figure out what happened and what's our strategy going to go forward. So I think with respect, that's nothing but speculation. The second piece, this legal framework on partial surrender. The lease structure is such generally that it will be all or nothing. There are some leases that would certainly be with some of the large occupiers and legacy leases that may permit part, usually, full floors or old buildings to be surrendered. It's quite unusual that leases would all be coterminous. So they'd be all expiring at different times. But generally, the legal framework is that it's an all or nothing surrender. In terms of the numbers of tenants who attempted to invoke force majeure, it's not something that, frankly, is problematic for us given our lease structures. I think tenants are aware of that. It's well known. And that, again, back to Vikaash's point goes to the fact that we've collected 92% to 95% of rentals. We have had tenants -- even tenants with billions of dollars of cash on their balance sheet who would try to negotiate, but they paid their rent. That's just business. So I think we're comfortable with where we're at with our lease structures. There -- generally, it's all or nothing. The tenants have to give all of their space back or stay in place. I hope that answers the 3.

We'll take that as the last question. I would now like to hand the conference back to Mr. Ritwik Bhattacharjee for closing formants

Mike, you want to conclude with closing remarks.

I just wanted to say thank you to all of you. I know that like us, you'll be spread over a number of locations, but thank you for making the time to dial in and for those excellent set of questions. I do hope that you can see, we've had a great FY '20. So we're really pleased about that. The distribution that we spoke about at the time of our listing, just over 1 year back, we've delivered on that. We're very happy about that. We're very focused on business continuity, and that will demonstrate the resilience of the Embassy REIT business model in the coming months and years. So thank you for your time this evening. Stay safe and take care.

Thank you very much. On behalf of Embassy Office Parks REIT, that concludes this conference. Thank you for joining us. Ladies and gentlemen, you may now disconnect your lines.