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

Ladies and gentlemen, good day, and welcome to the Embassy Office Parks REIT Q1 FY '21 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded. 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, operator. Good evening, everyone, and welcome to the First Quarter FY 2021 Earnings Call for Embassy REIT. Embassy REIT released its financial results for the quarter ended June 30, 2020, a short while back. As is our standard practice, we have placed our quarterly financial statements, earnings presentation discussing our quarterly performance and a supplemental financial and operating data book on our website at ir.embassyofficeparks.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 differ from these statements. Embassy REIT does not guarantee these statements or results and is not obliged to update them at any time. In particular, there are significant risks and uncertainties related to the scope, severity and duration of the ongoing COVID-19 pandemic; the actions taken to contain and mitigate the pandemic; and the direct and 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 first quarter highlights, the 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, everyone. Thank you for joining today's call. As the challenging times brought about by the pandemic continue across the world and here in India, we sincerely hope that you, your family and colleagues are healthy and keeping safe. Today, we announced our first quarter FY 2021 results. You'll recollect that the nationwide lockdown in India commenced on 24th March, and it has now been recognized as one of the world's most stringent lockdowns. Despite the unprecedented challenges, and thanks to the resilience of our business and the efforts of our management team, we have successfully navigated our business through the quarter, maintained a healthy 92.2% occupancy, collected a robust 98.9% of rentals, and the Board has earlier today approved our Q1 distributions of INR 4,499 million. This clearly demonstrates the strong fundamentals of our business and underpins our ongoing commitment to deliver value to our unitholders, including through our regular quarterly distributions. This quarter began during the early stages of the COVID-19 pandemic for our markets in India. We set clear priorities for our business to navigate successfully through the multiple challenges brought by the pandemic. These priorities included ensuring the health, safety and well-being of all our stakeholders; facilitating business continuity for our occupiers; and delivering on our rental collections and quarterly distributions. We are on track on all of these priorities. Our parks and buildings were open and operational throughout the quarter within the guidelines laid out by the government. This has been delivered through the seamless pan-India execution efforts by our on-ground teams. Given that India's COVID-19 status is behind the European and U.S. time lines and many of our occupiers are following protocols defined by their global headquarters, employee ramp-up is expected to remain slow and cautious. We continue to be actively engaged with our occupiers in each city every week, supporting their return to workplace and ramp-up plans. There has been much discussion on emerging trends affecting the dynamics of commercial office industry globally. While the impact of the pandemic still continues to evolve through our conversations with a number of major occupiers, these inputs over the last quarter have reinforced the initial assessments which we articulated on our previous call. Firstly, on the next-generation workplace. There's been a great deal of conjecture around work-from-home domestically as well as globally. However, it is clear that in India, working from home has significant challenges around physical and digital infrastructure as well as the softer issues of career, community, learning and the building and maintenance of corporate culture. It is indeed likely that there will be more flexibility in terms of workplace with a hybrid of traditional office and home locations. We believe that this will ultimately play out with more flexibility in terms of working hours and location, but with the office as the core business hub providing better quality, lower density spaces with high standards of safety and wellness for the best international companies. Offices will continue to be a core amenity for the Indian STEM talent, which these companies seek. The young demographic workforce, who want to come together for the benefit of their career, for product innovation, for business productivity, company culture and the desire to learn, which gets satisfied and enriched through colleagues and mentors in the best corporate workplaces. This shift will work to the advantage of a portfolio such as Embassy REIT and our total business ecosystem product, with our high-quality, large-scale, integrated campus environments and a broad range of amenities for our occupiers and their staff. In terms of demand outlook, it is clear that one sector which is prospering through this pandemic is the technology sector. And nothing illustrates that better than the recent results and press articles on global high-tech companies expanding their office footprint in key Indian cities. Numerous observers have reported an acceleration of digital transformation globally by a couple of years and bring-forward of the technology spend, especially for the cloud, digital, data services and cybersecurity sectors. Also, Indian technology companies continue to shine through the pandemic as reflected by the large deal wins announced recently. The strong focus on technology occupiers within our portfolio, therefore, continues to be one of our key strengths as this translates into future demand for our product. India remains the most attractive and cost-efficient destination for global corporates, who rely on the talent pool, and is home to the technology skill sets, which supports so many global companies, whether it be through India's 1,400 captive centers, 17,000 tech sector businesses or the 4.4 million technology specialists, many of whom work from our properties. In the immediate short term, though, it is clear that many corporate occupiers have paused their capital investment and leasing decisions while they focus on employee safety and reassess their real estate strategies. We, therefore, remain confident that once demand returns post this phase of uncertainty, as it certainly will, there will be an even stronger preference for high-quality institutional-grade Indian office, the core product of Embassy REIT, and that this will drive higher demand for our properties. In terms of supply, forecast market supply has been in decline since late 2019 and is further shrinking post the COVID-19 outbreak and the consequent labor and liquidity challenges for most developers. The 2-year forward supply estimate by independent consultants has fallen from 119 million square feet in January to 80 million square feet in June of this year, a 32% decline in just 2 quarters, and this trend is likely to continue. Our assessment is that actual comparable and competing supply for our portfolio is a significantly lower proportion of this reduced supply estimate. So as we emerge from this pandemic, and in India, this has not yet peaked, we are very confident that this phase will result in continued consolidation in the Indian office markets. And taking all factors into account, we are optimistic of securing greater demand and market share for Embassy REIT over the medium term. I'll now hand over to Vikaash to discuss in detail our business and operating performance for the quarter.

Thanks, Mike. Good evening, everybody. A couple of weeks back, we provided an operational update for Q1, wherein we highlighted business continuity during the COVID-19 lockdown period, our robust rent collections and our 14% rental increases on 1.8 million square feet of office leases. In addition to these, business highlights for this quarter include: our leases signed for the quarter stood at 526,000 square feet with 201,000 square feet of new lease-up and 325,000 square feet of renewals at 20% mark-to-market spreads. Our occupancy remained healthy at 92.2% on the 26.2 million square feet of operating office portfolio with same-store occupancy at 94.1%. Our construction activity resumed on the 2.7 million square feet on-campus development across 3 of our existing properties. And our operations team continues to be actively engaged with occupiers to support the return to workplace strategies. Let me take you through the details. First, an update on our COVID-19 response. Our properties were open throughout the quarter even during the lockdown periods to support the business continuity of our occupiers. We continued to monitor the ramp-up in the number of employees returning to our buildings. Currently, over 90% of our occupiers are operating their core business functions from our parks, albeit with less than 10% of the employee headcount. Many occupiers are planning only a gradual return to workplace, and we continue to prioritize delivering a safe workplace for their employees. We have implemented international standard safety procedures, including enhanced sanitization and deep cleaning, fumigation, social distancing protocols and daily communications with occupiers. We have also initiated technology-driven solutions in our properties such as optical thermal cameras, touchless visitor management, advanced air filtration and UV cleansing systems. Our teams have ensured that all of our properties are COVID-19 secure, and we have shared comprehensive return to workplace workbooks -- playbooks with all occupiers to assist them in managing the phased repopulation of their offices. To date, the feedback on the assistance we have been providing to our occupiers has been very positive. Our extensive work with our occupiers to help them navigate through the crisis is also reflected in our robust 98.9% rental collection numbers for Q1. Moving to our leasing and lease management initiatives. During the first quarter, we maintained a stable occupancy of 92.2% on our 26.2 million square feet operating office portfolio, with a same-store occupancy at 94.1%. Of our 7.1 million square feet of leases due for escalations during the course of FY '21, we delivered 14% rental increases on 1.8 million square feet across 22 office leases during Q1, in line with our target schedule. We are confident to deliver 13% rental increase on the remaining 5.3 million square feet leases due for revision during remainder of this financial year. Our healthy occupancy, robust collections and the successful rental increases form the base of our NOI and distributions. In addition to above, we signed 20 office leases during Q1, totaling 526,000 square feet, comprising both new leases as well as renewals. New leases comprised 12 deals totaling 201,000 square feet, leased mainly to occupiers providing digital analytics and technology support to their global businesses. The renewals of 325,000 square feet were across 8 office leases at 20% renewal spreads to existing rents, demonstrating the embedded growth in our portfolio. In addition to this, we have a forward lease pipeline of 150,000 square feet for the current quarter. Demand impact of COVID-19 played along the lines we anticipated during the previous call, wherein we had projected 2 to 3 quarters of muted demand. This is mainly due to a pause in decision-making while corporate occupiers get past the short-term operational challenges and determine the midterm strategies. Given that COVID-19 infection spread has not yet peaked in India, this pause in decision-making is likely to impact new deals throughout this financial year. And thereafter, we anticipate decision-making and deal activity to pick up. Demand is likely to be driven by tech occupiers and continuing investments by global captives, expanding their presence in India, and our properties are well positioned to benefit from this increased demand. Moving to our lease expiries. Of our FY '21 lease expiries of 1.9 million square feet, we have already backfilled or renewed 400,000 square feet or 21% of expiries at 17% mark-to-market spreads in Q1. We are in discussions to renew an additional 254,000 square feet, which expires only during later part of this year. The remaining 1.3 million square feet expiries are likely exits during the course of this financial year, of which 0.5 million square feet relates to occupiers facing COVID-19 headwinds and cost pressures and the balance 0.8 million square feet is part of normal occupier churn. These include instances of occupiers relocating to a different micro market, consolidating to self-owned or another property, rebalancing existing portfolios and undertaking portfolio housekeeping. We view churn as part of business as usual and see it as an opportunity to replace legacy occupiers with higher-quality growth occupiers and reset rents to market. By way of an example, over the last 4 years, we have backfilled 4 million square feet in total or 1 million square feet annually at an impressive 47% re-leasing spread. The likely exits for FY '21 form only 5.5% of our annualized rental obligations, and current in-place rents on these leases are 13% below market. While there may be a timing gap to backfill these spaces given overall pause in decision-making, we remain positive on new deal activity as corporates finalize their plans. Our on-campus development projects have resumed. Post easing of the lockdown restrictions in June, we resumed construction work on our 2.7 million square feet ongoing on-campus development projects due for delivery beginning to -- June 2022. We continue to invest in health and safety of our workers through numerous safety precautions at all our construction sites. While the labor ramp-up in Bengaluru and Noida is encouraging with around 50% of peak capacity, Pune ramp-up has been slower, given the severity of lockdown restrictions in Maharashtra. Our on-campus development is an integral part of growth of our existing large-scale business parks. Our strong balance sheet puts us in a robust position to invest and deliver these new projects despite overall supply deferrals and slippages in the market. Also, our occupiers resumed fit-out works on 0.8 million square feet, relating to the 57% pre-committed spaces in the recently delivered buildings in Embassy Manyata NXT and Embassy Oxygen, and they target to go live by the end of this year. Finally, I will cover our asset management updates. First, an update on our hotels, which represent less than 1% of our pre-COVID NOI. Both globally and in India, the hospitality sector has witnessed a challenging operating environment due to the pandemic with a virtual halt to travel since early March. We, therefore, temporarily closed our two 477 key operating hotels in April and reopened them in mid-June 2020 post lockdown relaxations. Both hotels continue to witness skeletal occupancy, and we expect hospitality demand to remain muted for the remainder of this year. Our hospitality team has implemented several cost-saving measures while adequately servicing occupied rooms. As both Hilton and Four Seasons are reputed global brands, they've instituted safety protocols at par with global standards, and this will aid in occupancy ramp-up when travel reopens. Regular investment in our properties by undertaking select infrastructure and upgrade projects is core to our asset management philosophy and helps us increase entry barriers and widen our competitive moat. Our comprehensive infrastructure program at Embassy Manyata, comprising construction of a new flyover, development of 619 key dual-branded Hilton hotels and master plan upgrade initiatives are all on track. Additionally, we have launched a comprehensive repositioning initiative at Embassy Quadron in Pune. We continue to pursue select projects to add long-term value to our existing properties and make them future-ready for the post-pandemic world. In early April, we instituted a cost savings program for FY '21 targeting savings across our operating hospitality and corporate overhead costs. We continue to remain judicious on our costs, and our NOI margins reflect the positive progress made on this initiative during our first quarter. As you can see, through the course of this pandemic, we actively managed our leases and our properties and remained focused on operational excellence in a period of heightened external uncertainty. Our strategy has always been to remain fully engaged with occupiers. We have strengthened our occupier relationships through our continuing response and support during this pandemic. We've followed an active and nimble approach to lease management, and where needed, we have let occupiers with weaker business models exit our portfolio. We continue to invest in growing our portfolio through our on-campus development and continue to selectively reinvest in our properties. All of these factors reinforce our commitment to growth and creating long-term value. As we look forward into 2021 and beyond, we are optimistic of consolidating and growing our market share as occupiers and businesses emerge from this pandemic. Over to Aravind now for the financial updates.

Thanks, Vikaash. Good evening, everybody. We delivered a resilient financial performance for the quarter. Financial highlights for Q1 include: our net operating income was INR 4,569 million, up marginally by 1% year-on-year. Our NOI and EBITDA margins were 88% and 87%, up by 400 basis points and 600 basis points, respectively, year-on-year. Our distribution for the quarter stand at INR 4,499 million or INR 5.83 per unit, representing a 100% payout ratio for the quarter. And our balance sheet remains healthy with ample liquidity of INR 12.6 billion and low leverage of 16% net debt-to-TEV and only 1.3% of total debt maturities until FY 2022. I will now discuss our Q1 FY 2021 earnings performance in detail. Revenue from operations for the quarter stood at INR 5,162 million, representing a 4% decrease year-on-year. This decrease was entirely due to the impact of COVID-19 on our hospitality business. In terms of a segment-wise revenue performance, our commercial office revenues of INR 4,739 million for the quarter remained in line year-on-year. However, our hospitality revenue was impacted due to the temporary closure of hotels as well as ongoing suspension of travel, contributing to a decrease of INR 207 million in the overall revenue from operations or approximately 4% year-on-year. Net operating income for the quarter stood at INR 4,569 million, representing a 1% increase year-on-year, mainly given the resilience of our commercial office business, which contributes over 90% of our pre-COVID gross asset value and NOI. In terms of a segment-wise operating performance, our commercial office NOI was INR 4,306 million for the quarter, an increase of 3% year-on-year. However, our hospitality segment incurred an operational loss of INR 111 million for the quarter. Our NOI margin improved year-on-year by 400 basis points to 88%, mainly reflecting the change in segment mix with commercial office segment contributing a higher proportion of the NOI as well as cost savings achieved during the quarter. EBITDA for the quarter stood at INR 4,507 million, representing a 3% increase year-on-year. Our EBITDA margin improved to 87%, that is a 600 basis point increase year-on-year. As we have mentioned previously, our operating margins once again reflect the benefits of our scale, efficiency of our business model and our low manager fees. Next, to give you an update on our distributions. Our net distributable cash flow for the quarter stood at INR 4,495 million, and the Board of Directors of the Manager to the Embassy REIT in their meeting held earlier today, declared Q1 FY 2021 distributions totaling INR 4,499 million or INR 5.83 per unit, representing a payout ratio of 100% for Q1. This distributions comprise of INR 5.83 per unit -- sorry, this distributions of INR 5.83 per unit comprise INR 2.14 per unit towards interest receipts from SPV; INR 3.33 per unit towards amortization of SPV level debt; and INR 0.36 per unit of dividends. The record date for the distributions is August 14, 2020, and the distributions will be paid on or before August 21, 2020. Given our robust rent collections and resilient operating performance, we continue to be committed to quarterly distributions. And a strong balance sheet and ample access to liquidity gives us the confidence to do so. Moving now to our balance sheet strength. We maintained a strong liquidity position with INR 12.6 billion of liquidity as of June 2020, comprising of INR 9 billion of cash and treasury balances and INR 3.6 billion in undrawn committed facilities. With low leverage of 16% of our total enterprise value, additional pro forma debt head room of INR 112 billion and only 1.3% of our existing debt maturing until FY 2022, we have ample liquidity to manage our business and navigate the current COVID-19 environment. We, therefore, remain one of the most prudent and well-capitalized companies in the listed real estate sector in India and globally. Our disciplined capital management approach places us in a robust position to navigate through COVID-19-induced global uncertainties and allows us to pursue accretive growth initiatives to the benefit of our unitholders. Moving now to other financial updates. As Vikaash mentioned previously, our office rental collections have remained strong. We achieved 98.9% collections for the first quarter. Further, to support our food court, ancillary retail and small business tenants through the pandemic, we have provided rental rebates totaling 1.4% of our annual rents. To arrive at our net distributable cash flows, our EBITDA is adjusted for items such as working capital changes, cash taxes and refunds, interest and principal repayments and borrowings, dividends from our investment entity, Embassy GolfLinks, and trust level expenses. Our earnings materials include a detailed walk down of our EBITDA at SPV level to NDCF at the REIT level. Amongst these items, working capital changes include movements in security deposits and other current assets, some of which may not recur given the onetime nature of these cash flows. As updated during our previous call, we filed the scheme of arrangement to collapse the legacy two-tier holding structure of Embassy Manyata SPV, and we expect to receive regulatory approvals in March 2021. Upon simplifying the holding structure, the proportion of our dividends to our overall distributions is likely to increase to over 60%, comparing favorably to 6% for this quarter. We anticipate that our dividend and SPV level debt amortization components, taken together, will represent over 75% of our distributions post March 2021. This will be a positive, given REIT dividend is fully tax-free for investors and will further enhance the overall post-tax distribution yield, especially for domestic, institutional and retail investors. Lastly, I will update on the outlook for the remainder of FY 2021. Given COVID-19 pandemic is still evolving, we are not providing formal guidance due to the continued uncertain environment. However, I would like to provide some high-level perspectives for the remainder of the year. Our rent-yielding commercial office business continues to be resilient with 92.2% occupancy levels, given strong underlying covenants of our 160-plus credit-worthy corporate occupiers. Despite the lockdown, we collected 98.9% of our office rent in the first quarter. Our rental increases of 14% on 1.8 million square feet during the first quarter is in line with our target schedule. An additional 5.3 million square feet of contracted escalations come up in the remainder of this financial year with an estimated 13% rental increase. Given these leases are already 49% below market, we remain confident to achieve these rental increases. Our existing occupancy of 92.2% on 26.2 million square feet operating portfolio translates to a 2 million square feet vacancy across the 4 cities in which we operate. Also, 1.3 million square feet or 5.5% of our annual rents may be likely exits during the remainder of this financial year. While backfill may take time given overall pause in decision-making by occupiers, we remain positive on return of demand in 2021 given in-place rents on these leases are 13% below market. Our 0.8 million square feet pre-committed spaces in recently delivered buildings are likely to be operational by end of this year, given occupiers have resumed fit-out works post the lockdown-induced pause. Further, construction activity on our 2.7 million square feet underdevelopment building has resumed, and the buildings are expected to be delivered starting June 2022 onwards. And our 477 key operating hotels reopened in mid-June 2020. However, occupancy ramp-up is expected to be muted given the pandemic-induced travel restrictions. The hotel business is expected to marginally impact NOI, but on the positive side, our cost savings program for FY 2021 is progressing well. With the above information, we have provided you the building blocks, which will assist you to come up with estimates for the remainder of the financial year. Over to Mike for his concluding remarks.

Thank you, Aravind. So despite the challenges of the first quarter, we delivered strong distributions of INR 4,499 million. For the coming quarters, we're focused on continuing to deliver on organic growth for our business through active asset management and lease management and building a healthy leasing pipeline as occupiers formulate their midterm real estate strategies. We also continue to actively pursue acquisition targets and opportunities, which are value-accretive and complementary to our existing portfolio in terms of scale, quality and location. With our strong occupier connect, robust balance sheet and prudent capital management, we are well positioned to deliver on these focus areas. Before I conclude, 2 other events since we last reported. One, the dilution by one of our sponsors. And secondly, the reported forthcoming listing of India's second REIT. We welcome both events. On the trade, the resultant increase in our free float to 38% and increase in liquidity addresses the feedback from a number of our unitholders. The potential inclusion in global and regional benchmark indices could be another positive outcome. As India's REIT -- first REIT, sorry, we welcome the new REIT listing as a natural part of the evolution of India's office markets moving away from the fragmented, low-scale, variable quality market to a more institutionalized, consolidated, higher-quality compliance market, providing better products to occupiers end users and investors. Finally, we remain committed to our business strategy to deliver total return through regular quarterly distributions supplemented by our organic and inorganic growth initiatives. In the short term, the pandemic has certainly slowed the growth velocity of our business and the industry as a whole. But we are extremely well positioned to navigate this period of uncertainty and emerge even stronger. We are confident of the importance of the physical workplace for international companies in India, and there is a clear opportunity to benefit from the continuing consolidation and flight to quality as businesses emerge from the pandemic. So that was the business overview for Q1 FY '21. Let's move to Q&A, please.

[Operator Instructions] The first question is from the line of Murtuza Arsiwalla from Kotak Securities.

Yes. Mark -- Michael, just a couple of questions from my side. One is on the NDCF walk-throughs. If you look at Slide 49 where you detailed the walk-through from the EBITDA to NDCF. A couple of items out there, working capital, other adjustments tend to be very volatile as can be seen between 1Q '21 and compared to 1Q '20. Could you walk us through a typical EBITDA to NDCF sort of bridge so as to better enable sort of forecast for the sale? Also in the context on Slide 43, where you talk about the debt maturity, where you have a substantial amount of about INR 40 million, which is due for refinancing and given that it's a zero-coupon bond allows part of that, how should one think of that in terms of distributions for FY '23? The second question that I have, which is more operational sort of clarity. If you look at Slide 27, when you talked about 0.5 million square feet of new leases being signed -- 0.5 million square feet of leases being signed, of which re-leases are 0.2 million square feet. How does one differentiate between re-leasing and renewals in that sense? So 2 parts to the question. One is on the entire NDCF bridge and how does everything to go to debt, working capital, servicing, et cetera? And the second is on how does one differentiate between re-leasing and renewals?

Great. Thank you, Murtuza, for those two questions. Great. I'm going to ask the first one to be fielded by Aravind.

Thanks, Mike. Thanks, Murtuza, for the questions. So just adding on to what I did mention in my transcript, Murtuza. So as you mentioned, I refer back to Page 49 of our earnings deck, which gives a walk down, and I will want to talk through about 5 primary items, which are either added or reduced to the EBITDA to arrive at the net distributable cash flow, which should give you some clarity on how these numbers flow through. Firstly, we reduced the taxes paid and any refunds received. As I mentioned before, the cash taxes work out to approximately 6.5% to 7% of revenues for the year. Second item is all the noncash income and expenses which are mainly accounting-related, safe-planning adjustments to revenues, which are removed from our EBITDA. Third, Murtuza, is the interest in principal repayments, which we made during the year on external borrowings. This basically represents interest in principal repayments on the borrowings taken for completed properties. On a quarter-on-quarter basis, if you see, you will see an increase in this number basically because of completion of NXT in T2 blocks in Q4 of last year. Fourth item is the cash flows, which we received in the form of dividends as well as repayment of investment in debentures like Golflinks, which is made at the Embassy REIT level. Note over here is that the debenture investments made in Golflinks would be fully repaid by August 2020, post which the REIT will receive dividend income in proportion to its shareholding percentage, which is 50%. And the last item is all working capital changes in other current assets and liability balances, which might result in an inflow or outflow depending on the nature of these items. For Q1, the working capital changes were INR 117 million, whereas the previous year Q1 number was INR 857 million, and for full year, it was INR 1,969 million. Some of the numbers in previous year include contractual deposits, receivable balances and other security deposits, which are unlikely to recur going forward. I think -- I hope this walk-through of the key 5 line items helps you get a bridge of this. And I quickly move to your next question, which is in relation to debt maturities. While the next 2 years, we have very low maturity, as you said, the NCD is coming up for maturity in FY '22. We are pretty confident in terms of refinancing this debt at that point in time. A couple of stats which I want to mention is, as we stand today, we are at 16% net debt-to-TEV, very lowly levered, triple A rated company. And with flight to quality, what we've seen from lenders and a discussion with them, we're pretty confident of refinancing this at pretty impressive terms. The additional add-on item, I would say, is that with the GCA compressing, we've seen quite a bit of compression in rates. And I believe that we will be able to refinance this at much favorable terms when it comes up for maturity.

So would that be in the form of a zero-coupon again or via coupon bidding?

Yes. So Murtuza, I think our stated policy in terms of refinancing the NCD has been -- the whole concept of NCD is to mirror our underconstruction. If you see today, the underconstruction as a value of overall portfolio is about 13%, which mirrors the ZCB as compared to the total enterprise value. As it comes up for maturity, we will make an assessment of how much is the range-generating assets which we've completed by then. And we'll refinance a part of this debt with a coupon-bearing instrument, and a part of it would be refinanced with another zero-coupon bond.

And just coming to the second question, Murtuza, this is Vikaash here. So if I can just run you through Slide 27 of the deck. So the way we kind of break down on new leases, and we did sign 526,000 square feet in Q1, the first full quarter of COVID pandemic. The new leases are leases which we do on existing vacant spaces. It could be first-generation vacant spaces, which are the new buildings that we have delivered, or second-generation vacant spaces, which is basically space vacated in the past by another occupier, which we are backfilling. So that's how -- what we term as new leases. And within the new leases, whatever is the second-generation space, which is being re-leased, which is being leased to other tenant, we term it as re-lease and compute a spread on that. So in this quarter, 163,000 square feet out of the 201,000 square feet of new leases was on existing spaces vacated by other tenants in the past or the current quarter, and we backfilled that at 21% of the early -- compared to the earliest existing rents with the earlier tenant. Renewals. The way we view it is, renewals is the end of lease tenure expiries, which we renew with the same tenant, the existing tenant. So for example, if a lease comes up for renewal with a large occupier in a particular part and we do renew with the same occupier at 20% above market, then we call it a renewal at 20% renewal spread. All in all, I just want to mention the fact that both on our re-leases -- re-leasing spread of 21% or a renewal spread of 20%, all the leases that we did in Q1 were of market rent, and we achieved the re-leasing spread or the renewal spread that we would target in normal course. Was that helpful?

Yes. Just to be absolutely clear, 163,000 square feet is a subset of 201,000 square feet. So there could have been an existing property, which got vacated. And so it was empty for some period of time. And therefore, our new lease, it would be classified as. And it could be of that 163,000 square feet is being re-leased from board. And so 201,000 square feet minus 163,000 square feet would be absolutely first-generation sort of [indiscernible]? Is that the right way to think of it?

That is correct. And just the difference of that is, if you could see on the right-hand side, relates to the 37,000 square feet leased to GlobalLogic, which we've disclosed, which is in relation to a new building, which was never leased earlier in Oxygen. It was the first lease post the building completion.

Okay. And if a lease expires from a certain tenant and a new tenant sort of takes it, another tenant, would that still qualify as a renewal or it would be a re-lease?

That we term it as re-lease. So re-lease, anything which had a tenant earlier, renewed it -- basically renewed with that same tenant. If it's a different tenant, then we call it a re-lease.

[Operator Instructions] We'll take the next question from the line of Abhishek Bhandari from Macquarie.

Congrats on a great execution on NDCF and payouts. I had a question on Slide #30. So you mentioned that there will be 1.3 million square feet of likely exits by the end of this year. If you could help us know the time, in terms of which quarter do you think this would go vacant? That's the first question. Second question on that would be, are these spread out across various properties? Or are they concentrated on 1 or 2 of them? If you could name those, that will be helpful. And lastly, in terms of -- do you think there is scope for you to probably drop the rentals from the current M2M of 13% or a lower number and probably accelerate the leasing out here?

So let me speak in a kind of generic sense, particularly around that last question, Abhishek. I think our view is that there has been a pause in decision-making from the corporate real estate executives. So as you can see, our new leasing dropping from 500,000 square feet to 200,000 square feet this quarter is a reflection on that. We believe that, that muted decision-making is going to go on for at least another couple of quarters, possibly to the end of the year. And so on new deals, it's not actually necessarily about price or reducing that mark-to-market because there simply isn't the volume in the market. So there will be an increase as compared to, say, last year, which is the record year for leasing. There will be an increase in the void period between exit and re-leasing. So that's just as a general comment. Vikaash, do you want to take the question about the exits and when we foresee those coming?

Absolutely. Abhishek, Vikaash here. So let me just break it down -- break down the 1.3 million square feet which we have mentioned as likely exits in FY '21 on Slide 30. So again, a couple of things. One, if you look at it from a perspective of what's the split between business as usual churn and COVID-induced exits, we mentioned that the COVID-induced exits form about 0.5 million square feet of those exits. And I'll come to what are those companies and what are the exits relating to. And the normal business as usual churn is the 0.8 million square feet, talking to the 1.3 million square feet, which we view as likely exits in -- during the course of FY '21. In terms of who are those COVID-19-induced occupiers whose business models have been challenged and who've vacated out. In some cases, we have actively let them go. Just to give you a flavor, these tenants relate to hospitality sector; some of the weaker, smaller co-working players; occupiers servicing the airline industry; some of the retail occupiers; some of the office spaces relating to those retail occupiers as well as newspaper industry and occupiers there who are facing great headwinds in their business, given the COVID disruption and whom we do not think will -- businesses will survive this downturn or where we think that they would not be able to kind of afford the rentals. In terms of the analysis by city, I think, if you break the 1.3 million square feet, 50% of that is from Pune by area, especially in one of our parks, Quadron. And I did mention that we are doing a refurbishment and repositioning activity in Quadron. So Quadron, actually, we've had a banking client who wants to consolidate in the east side of Pune, and in fact, they wanted to grow and consolidate with us, but we didn't have anything to offer to them in Pune. And hence, they would be exiting, and they would be relocating to east side with another developer. And obviously, we also have another tenant, who is a very large-scale occupier and doing its own housekeeping across its large-scale portfolio as a result of which it's cutting back on some small percentage of its surplus space in its overall large portfolio. So this is just to give you a flavor in terms of what are the exits in Pune. Apart from that, Bengaluru forms the next bucket where we had 33% by area of the 1.3 million square feet exits. And again, a significant portion of that relates to a technology client who is consolidating in the east side of Bangalore and where we couldn't offer them any product, and hence, they will likely exit. Just again, coming to the last point on what's the breakup by quarter. If you see in terms of the -- I'll give you the number -- percentage of rent, maybe that will be more useful. Q2, we expect -- of the 5.5% of the rentals, Q2, we expect 1.6% of the rentals coming up as likely exits; Q3, approximately 2.7%; and Q4, 1.2%. So that kind of totals to the 5.5%. There are 2 other minor points I'd wanted to make. One, obviously, these are likely exits. In many cases, these are still not confirmed. But based on our assessment, we do take a more proactive and pragmatic view and -- so that we can start working on the backfill. And the two -- the second point I want to make is all of these exits do not come during the -- at any one point in time and come up during the course of the full year. So the actual impact on the rentals for this financial year would actually be much lower than the 5.5%. And we actually have backfilled about 1 million square feet on an average last 4 years. So we view it as business as usual. Of course, the COVID-induced exits are an addition to that. But we've used this as an opportunity to strengthen the portfolio, let some of the weaker occupiers exit, and prepared ourselves, when the demand returns, we can capture it and offer solutions to occupiers who are looking for contiguous space.

That's very helpful, Vikaash. And Vikaash, just if I can ask one more question. On FY '22, this 1.2 million square feet, which is coming for lease expiry, have you initiated the discussions with the clients? The reason I am asking is, what typically is your schedule of going and asking the clients whether they want to take up that space or not, especially in the current context, when it might take longer than usual for re-leasing or finding a new tenant should be right, if I could have guessed. That will be my last question.

Yes. Thanks, Abhishek, for that. So the way we look at it is, especially in cases like you referred to in FY '22, where there's a mark-to-market of 57%, even assuming there is muted rental growth over the next 2 to 3 quarters before demand surges back, what we, as a strategy, do is we want to -- if we are in a stronger micro market such as Bangalore and Pune and the rentals are way below market, we would want to kind of take it a little more closer to the actual expiry. That way, we have a better negotiation power with the occupiers. And given there've already some big CapEx and the absolute inertia today in the market to incur any fresh capital investment, I think we stand a really good chance to achieve those healthy mark-to-markets, which we've delivered in the past. So in this case, I would say, because of the mark-to-market and because majority of that is Bangalore, we would initiate only 6 months prior. In other cases, we would kind of engage more like 9 to 12 months prior to the expiry. Today, because of the occupiers having a pause and not taking any decision, I think it's a good strategy to kind of let them figure out their strategies. We are helping them wherever they require a help on the existing ramp-up. And when they're ready for a decision, that is the right time to kind of start the negotiations, we get a better outcome.

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

Yes. So my question is, firstly, on the hotels. So what is the plan for the CapEx on the upcoming hotels in Manyata? Do we want to get it operational in phases now? Or we're going ahead with what was originally planned prior to COVID?

Okay. And your second question, please?

Yes. I think the second question, I think, has been addressed by previous participants. So I'm just -- restrict just to this question.

Great. That's an interesting question, Adhidev. So why don't I take the question. If I could refer you to Slide 38 of the earnings material. And so this hotel, just as a background, when we planned the hotel, we view it as complementary to our office offering as part of the total business ecosystem. And we see that this really adds moat to the business that helps the office occupiers because of which we have been able to achieve the market-leading and premium rentals in Golflinks and now in Manyata. In terms of the Hilton hotels, if you see the status of the hotels, the -- both the blocks, actually, the structure is complete and façade is done for both, the Hilton Garden, and the façade is likely to get completed in the next quarter or so. And MEP has started. So in that sense, given the fact that both the hotels come up for deliveries only in June of '22, and that we usually have about a 6- to 12-month period just to operationalizing the hotel, we have taken kind of a view that we will continue with the hotels, given that the balance spending costs for these hotels is approximately INR 560 crores, which is disclosed in the supplementary deck. We think the earlier we do this, it will help in operationalizing the hotel and making it revenue-generating. And by which time, we do believe that demand for hospitality will return. And that's one of the strengths that we, as a REIT, with a disciplined balance sheet can take. We take a little more medium-term view. While today the world is in the middle of a pandemic, we do know that the demand for hotel will return, especially in the park, where approximately every single day, 100,000 people work. So about 1 lakh people work in the park. We do think that the demand to catering to a 619-key hotel room, we feel pretty confident about it, especially given the fact that within the 10-kilometer vicinity, we do not have any comparable hotel complex. So we are going ahead with the hotel. We will launch in June of 2022, and we remain positive on the ramp-up in that hotel.

Okay. So there is no change to our earlier business planning, also the ARR and whatever assumptions we would have worked with when we started out. Is it what you're saying? We're maintaining our starts?

That is correct. The only thing I would like to highlight, which we did from last -- which we had done in the last quarter is we had pushed the delivery out by a quarter or 2 depending on the -- each project simply because of the lockdown and to factor for the time loss. We don't expect any changes. As of today, we have revisited the business plan on the hotel, the ramp-up and the ARRs. And we remain confident as of today, these are the available information that those are realistic assumptions.

The next question is from the line of Lokesh Garg from Crédit Suisse.

I wanted to ask you on the revenue for the quarter. Basically, there are 3 adjustments that we sort of glean from the presentation. One is that previously, you had probably INR 300 million of one-off receipt from Sun Plant, which is part of the revenue line. There is possibly just the fact that [indiscernible] leads to INR 200 million lower revenue, which is [indiscernible] from the base. And also, there is a rent relief that you have given to some of the retail-type tenants, which to quantify that, roughly INR 225 million to INR 250 million. If we adjust for these 3 numbers, which is you reduce INR 300 million from the previous year, and you add a hotel and rent relief to this year, you end up with a 12% revenue growth for the quarter. Now is that a good way of thinking about it with your feedback? And second question turns back because there is another way of looking at it. You seem to say that office rentals are flattish on a Y-o-Y basis. Unless you lose sort of tenants [indiscernible] on at least same-store occupancy basis. There should have been 5%, 6% revenue growth in any case. But you seem to suggest that office rentals in some data adjusted, which is INR 4,739 million number that you shared. So 2 ways of looking at the revenue line, just wanted to look at how you -- what's your view on these?

Okay. So let me take the first question. So just I will make one small correction. You are largely right. So one, yes, we had a one-off free termination fees of close to INR 300 million in the last year. Number two, hotels, yes, we are down by close to INR 200 million on a like-to-like basis. But in terms of rent relief, what we've provided of close to INR 290 million, that's for the full year. So the rent rebates just for Q1 will be approximately INR 90 million. So if I were to just factor all of this, the revenues would be higher by approximately 7%. Just give us a second, Lokesh. So -- sorry, Lokesh. So in terms of the same-store, what we provided in the supplementary deck, that represents fully the office portfolio, does not include hotels or does not include a solar park. So what you've provided is the unadjusted number. If I were to adjust it, the revenues on a same-store basis would have been higher by 1% and the NOI would have been higher by 9%. I hope that answers your question.

Yes. And the second question, sort of again, reading data from the presentation is, your 4Q occupancy was 92.8%, it's 92.2% now. So there is some 0.6% drop in occupancy because we write same between 4Q and now. And also, just [indiscernible] from 1.4 million square feet of area that came up afresh in Oxygen and Manyata, the net occupancy seems to have gone down a little bit, not dramatically, but a little bit. So is that a fair observation?

Yes. This is Vikaash here. Just to give you an overview, in this quarter, we had expiries of about 350,000 square feet, which is in our supplemental deck, the reco of what was occupancy earlier and now in the vacant space. So it's -- refer to Page 8. I'll walk you through it. So we had about 350,000 square feet of exits or vacancies during the quarter. And as mentioned, re-leases, we have nearly 200,000 square feet, which is the new leases that we mentioned. So that takes you to a net decrease in occupancy by 200,000 square feet approximately, 150,000 square feet, and that is why there's a drop in occupancy from 92.8% to 92.2%. In terms of the expiries in the way we presented, if I can refer you to Slide #30. FY '20, the 1.9 million square feet bar that we present is a rolling updated bar, and it already factors in any exit that's happened and the re-leasing of that. So this is the forward-looking net expiries position as of the particular point in time for the remainder of the year. So as we stand today, [indiscernible] has a lease-up of 2 months. Occupancy is 92.2%. And as of June 30, the forward expiries is 1.9 million square feet, of which we have locked in 400,000 square feet and in advanced discussions for 254,000 square feet and the balance, as we mentioned in our assessment, are likely exists of about 1.3 million square feet. Does that help reco the math?

Yes. And is there a marginal reduction in commitment for 1.4 million square feet? Or not?

Sorry, can you just repeat that question? I did not get that. Is there a marginal reduction in the commitment on?

On the 1.4 million square feet of new area that came up recently?

That is correct. That is correct. So there is a marginal decrease of 65,000 square feet and that is due to one of the occupiers reassessing their forward-looking strategy and then deciding that they want to just pause for some more time and reassess the headcount and fit them in their existing cities in my case. But we are in discussion with another really sophisticated technology company, which appears in the 150,000 square feet pipeline bucket, which we have laid out, and we hope to ramp that up during this quarter, and we can then backfill that space.

The next question is from the line of Saurabh Kumar from JPMorgan.

Sir, two questions. One is on the total NOI loss of INR 11 crores. Fair to assume that if things don't improve, you should be able to control it, as you said, at this level? And secondly, your supplementary deck has about 1-odd-million square feet of leasing in Manyata, expiry in Manyata over '22 and '23, where the mark-to-market is now pretty substantial from INR 32 to almost INR 90. So how confident are you of achieving those numbers? And just one more thing on Manyata. Why has the NOI gone up so much quarter-on-quarter?

Okay. So, why don't -- Saurabh, so why don't I take your first 2 questions. This is Vikaash here. On hotels, the way we look at it, Saurabh, and we had laid it out in the last quarter. So roughly, if today we need to do, we need to not rent out any room night across the full year, then we would look at a INR 60 crores fixed and any variable expenses. So that -- it will impact NOI by INR 60 crores, roughly INR 5 crores a month. And if we do factor in the cost-saving initiatives that we have put in place, then that number would go down to approximately INR 48 crores, INR 4 crores a quarter. And that's what if you see the loss for this quarter is approximately INR 4 crores into -- for the 3 months, about INR 12 crores. So we -- that INR 1 crore balance reflects the cost-saving measures that we have put in place. So we do think that this will continue for this year. And we think this quarter's revenues are reflective of what we expect for the remainder of the financial year, unless world changes for the better and there's a vaccine and travel resumes substantially in the fourth quarter. So this is our view on the hospitality. In terms of the Manyata mark-to-market, which you were referring to on Slide 9 and 10 of the supplementary data book, our view on mark-to-market has always been the same. While the numbers and percentages look substantial, the 2 things which I'd like to point, one, obviously, the in-place rent in Manyata are at INR 33 on those leases. And in our view, the leases which we have done on Manyata NXT, of course, it's a newer building and a little more upscale, it's actually been at higher than the market rent that we are expecting on these leases in FY '22 of INR 96. So those leases have been -- NXT has been at least at a 15% premium for the 1-year forward rent that we have -- that CBRE has estimated on Slide #9 in terms of market rent as expiries for this reason in FY '22. In terms of why is it so low and do you really expect to get this mark-to-market, given it would -- it may be a legacy large occupier? I think, one, these are -- this is the typical end of 15th year kind of lease tenure for some of the first leases in Manyata. I recollect that this was one of the first leases done with a large occupier. We are in conversations with them. Again, we remain confident that we will be able to achieve this. And given the fact that there's a complete feed in capital investment by both large and small occupiers, I think we are seeing a lot of momentum on renewals. And occupiers, of course, will come back and want a discount on it. It will be a little bit of a conversation, but we remain confident that we'll achieve the mark-to-market opportunity. In fact, in many cases, the occupiers are engaging with us ahead of time, 1, 2 years ahead, because they know that as they delay and as time passes, they'll continue to lose the negotiation ability, and they know that they'll be staring at a -- not only the market trend, but a premium to that because we then have the negotiation ability.

Can I just add to that, Saurabh. Of course, that supply shortfall that we spoke about earlier on is something that will strengthen our hand in such negotiations because in a couple of years' time, we believe that there will be a significant supply shortfall.

All right. Mike, I mean, my only question was [indiscernible] for that. That is where I was coming to.

As Vikaash alluded to, actually, the longer that those large leases are left, actually it works more to our benefit. So -- but those -- there have been conversations, and it won't come as a surprise.

Yes. And Saurabh, some of these occupiers, in specific, this occupier, they are fairly sophisticated. They engage with their advisers, the internal system and with us ahead of time because they do know that there's a massive shock coming their way simply because they have just been significantly below market for a long point in time. So that's how we look at it. And in a market like Bangalore with some 5% vacancy, and even if you assume that this year's muted demand, I think the estimated is going to be -- the vacancy is going to be 6.5% in Bangalore. With comparables, we can see even lower. I do think that mark-to-markets in Bangalore are realistic, especially if it is beyond FY '21 because we do hope that situation will normalize and demand will actually return and bounce back quite nicely by then.

Saurabh, just taking your last question on Manyata NOI increase. If you see there's an 18% increase in NOI, largely attributed to the 16% increase in revenue. The revenues increased for all the leases, which happened during the course of last year as well as some of the straight lining, as I mentioned, has kicked in for our NXT projects. So that's the primary contributor. Of course, the 2% delta in NOI is the cost-saving measures, which we have done, including the 220 kV substation, which got installed in later part of June 2019.

I'll take this offline. I think I'm getting an 8% quarter-on-quarter.

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

Firstly, the supplementary deck shows ROFO opportunity of 43.2 million square feet. However, since Embassy Knowledge Park and Concord, which is cumulatively 26.2 million square feet will be merged into Indiabulls and Embassy sponsor entity post the announced merger. Is it fair to assume that the REIT will have to reenter into ROFO agreement as the parent entity would change?

Yes. And Amandeep, can we have your second question, please?

Secondly, if I'm seeing on the Slide 48 of your investor deck, where in-place rentals are higher than market rentals in FIFC, Embassy One and Embassy TechZone. So in that context, are you seeing any downward rental revision pressures from any of your tenants?

Yes. Sure. So let me take that, and Mike, see if you could just pitch in. In terms of the ROFO question that you made, Amandeep, I think just -- we want to all just highlight that REIT is a separate entity independently managed by the manager, which reports to the Board, and it is separate from any of the sponsors. Any of the contemplated merger you refer to, which has been announced in the public domain, I think, this would not impact any existing ROFO rights for the REIT. It will continue. Although I do want to highlight that there will be no new ROFO rights, which will be established or any conversation of that today with the new concentrated entity. So existing right will remain, and we will continue to have that. However, on the new area, we will see -- we will have a conversation. But I do think that because most of the projects, other than these 4, are really large space, I don't think -- I think we are pretty far out in terms of when they come up. I think the 4 immediate projects defined as ROFO are the most realistic in terms of time lines of completion for an asset that we would look at as a stable asset income-producing for the REIT. So I think that answers -- that could answer your question, the first question. In terms of the portfolio summary and negative mark-to-market, which we refer to Slide 48 of the earnings deck, yes, we do agree that there is a negative mark-to-market in FIFC. Again, it is one of the top-notch technology companies. They are above market. But they are under a lock-in. And in fact, they've just renewed some portion of it. So we don't expect any immediate downward revision. But yes, the way we look at the business and we would also guide you to it is, whenever the leases come up for renewal, we take it back to market. So while majority of our portfolio is on a positive mark-to-market spread, there are some legacy leases which are -- which have a negative spread. These are very small in quantum. And if you apportion it with the area that we're talking about and the area of that in the context of the -- of that property versus the entire portfolio, we think it's not going to be material. Embassy One, which you mentioned, this is a recent lease. Again, here, we don't think this is a negative spread. This is CBRE's assessment of the market rent. We do believe that the rent at which we have leased out, which is referred to as INR 156 in-place, and we think that's reflective of the quality of this particular project, which has hotel and conferencing facilities. So we remain fairly confident on this lease, but it's in lock-in. On TechZone, we have a couple of leases, which are very marginally above market. We again don't think that there's any immediate figure on those leases.

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

Yes. I have two of them. In terms of revenue and occupancy, clearly we've done a very good job in this quarter. But when I'm looking at your detailed P&L, I'm looking at some of the cost line items, I just wanted to get a sense as these are sustainable at such low levels. So miscellaneous expense has pretty much become 25% of the usual level. Similarly, there's no CSR at all in this particular quarter. As I look at brokerages and commissions, that number is also negligible. We've got other income on income tax refund, which is a sizable number. So what I'm trying to understand is sustainability of costs at these levels and sustainability of the NDCF, at least for the next couple of quarters? That would be my question number one.

Okay. And the question number two, while we just get that straight two together.

Okay. My second question is in terms of the incremental area that we've leased in this particular quarter. Any changes in terms and conditions relative to what we usually have, either in terms of duration? Are these leases longer in terms of duration? What is the kind of typical escalations agreed compared to what we typically do? So just wanted to understand if the market has in any way changed post-COVID in terms of these new leases that we've signed?

Okay. Thank you, Pulkit. So Aravind?

Yes. Pulkit, thanks for the question. So in terms of expenses, let me give you first a broader overview, and then probably I can take some of these specific line items, which you indicated. So as we did mention in the transcript, we have instituted quite significant cost-saving measures across the portfolio, especially in the hotel portfolio. If you look at quarter-on-quarter basis, our expenses have dropped quite close to 19%, and that's a 300 bps as a percentage of revenue. And we believe for the entire year, this percentage reduction in cost is something we want to sustain through the year through the cost-saving measures. Some of these specific expenses, which you highlighted, which has been miscellaneous brokerage, these are items which are part of the hotel portfolio. Since the hotels were shut, the expenses are much lower. But if these expenses increase during the course of the year, that will be because the hotels start operating. And accordingly, we'll get incremental revenues as well. CSR is something which might not necessarily be spent equally over the quarters, yet we have a 2% obligation in specific SPVs. That is something which we will continue to meet the specific obligations during the course of the year. And your last point on IT refunds. I mean that -- these we get as and when we get. The number over here is extremely small of just INR 1.1 crores. So that's, I think, not a material item, which will say numbers quarterly or on the yearly basis. Yes. And on the second question, in terms of the leases that we have done, 201,000 square feet, the new leases, there's no change as of today on the terms that you would do in a pre-COVID world. So basically, 15% escalation, the standard security deposits and a typical 5 plus 5 tenure. Some of these are Mumbai leases. So that's why the wait of these new leases come to 9 years. So we have not seen a change. But I just want to say 2 things here. One, much of this was -- discussions were initiated pre-COVID in early March, simply because it takes 2 quarters to convert the pipeline and the RFPs in a typical cycle. In these reasons, we did see the force majeure clauses, occupier stable, they requested clearly, we would want to ensure our interests are protected on that given there's a renewed focus on that. But otherwise, the terms have been standard. What -- with the new trend we are seeing is the new pipeline and the RFPs that are coming or the initial discussions we are having is, clearly, occupiers are looking for flexibility, so in terms of lease tenure, in terms of CapEx, in terms of lock-ins. And this is something we actually see it as an opportunity because in a market where there's a lot of uncertainty, and occupiers do want to go forward. And these are occupiers who are actually doing really well globally, right? They just are saying, "I want 300,000 or 100,000, but I'm not sure a year or 2 later, if things may change." And we actually don't -- we actually see that as an opportunity because once they do those CapEx, we know that they will stay. So that is some of the newer trends we're seeing for high-credit marquee occupiers. We are actually keen to structure some solutions so that their short-term concerns are addressed. And I think flexibility will be something which will be an ongoing theme in the next couple of quarters, certainly until there's a vaccine and the uncertainties go away.

We'll be able to take one last question. We take the last question from the line of Kunal Lakhan from CLSA.

In the last quarter, you had mentioned that the ROFO of TechVillage, we had put on hold. Just wanted to get an update on how are we thinking about it? And especially considering, I think, Mike also mentioned in the opening remarks that we remain positive on the Indian tech space and also considering the positive response to the IPO of the second REIT. So investors seem to be positive on good quality portfolio/assets. But how are we thinking on the business side in terms of acquiring those assets?

Yes, Kunal, thanks very much for that question. Yes, for sure, I mean, one thing that we are all observing is that every few weeks, the overall environment changes significantly. I think mid-last quarter, we were very focused around keeping the ship sailing around business continuity for the occupiers, and at that time, we pressed pause actually on looking in detail at the -- that ROFO. We have recommenced our analysis of that. And we will come back with some news as and when that's appropriate. So we're definitely feeling positive about the medium term. Our comments about the occupier side strengthening is really a reflection of what we're hearing from the tenants. Our view that supply is becoming constrained, that there are a number of people out there who will have challenges around liquidity, all of those factors put together and the sort of things that make us look again at that ROFO and other potential acquisition opportunities. And we will report back as soon as we have anything material to report. But clearly, that's something that we're very interested in, given our balance sheet strength and, as you say, given the environment and the capital markets. So that being our last question, thank you all very much indeed. As I think you realize, we have the supplemental deck for this quarter now on the website. You can find a lot of detail there on the leasing, occupancy, developments, distributions and so on. I'm sure it's clear to you that we've had a resilient quarter even when the world is gripped with a high degree of uncertainty and volatility. While it may take some time to get through this challenging period, we are confident in the strength of our underlying business and our post-pandemic future. And of course, we are once again pleased to announce this quarter, the INR 4,499 million distribution for first quarter FY '21. We're very grateful to you. We appreciate your interest in Embassy REIT and for your time this evening. Thank you.

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.