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

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

Thank you, Raymond, and good evening, everyone. Thank you for joining us to discuss the transaction that Embassy REIT announced earlier today. Embassy REIT is pleased to announce the proposed acquisition of Embassy TechVillage, or ETV, a 9.2 million square feet integrated office spot located in Outer Ring Road in Bengaluru, India's best-performing office submarket. Embassy REIT is purchasing Embassy TechVillage for a total enterprise value of INR 97.8 billion or $1.3 billion. We will discuss the acquisition in detail a little later on this call. . You may wish to refer to the acquisition deck, the press release, the extraordinary meeting notice and also the transaction document that relates to today's announcement. We've placed these relevant documents in our specially created microsite that you can access via ir.embassyofficeparks.com. As always, we'd like to inform you that management may make certain comments on this call that you could deem forward-looking statements. Please be advised that the REIT's actual results or actual outcome of the proposed acquisitions may differ from these statements. Embassy REIT does not guarantee these statements or results, and is not obligated to update them at any time. Further, 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 our occupiers. Joining me on the call today are Michael Holland, our Chief Executive Officer; and Sachin Shah, our Chief Investment Officer. They will run you through the proposed acquisition and financing plan, after which we will open the floor for questions. Over to you, Michael.

Thank you, Ritwik. When Embassy REIT listed in April 2019, the appeal of the REIT to investors was the large-scale, high-quality, diversified office portfolio, a predictable and growing net operating income generated from 160 plus blue-chip largely international occupiers and organic growth coming from contracted rental escalations, embedded mark-to-market on re-leases and accretive on-campus development. . Embassy REIT has performed strongly on all these organic growth levers. Since listing, we have leased 2.7 million square feet, achieved a 45% mark-to-market spread on 1.4 million square feet of re-lease, delivered 1.4 million square feet on-campus development with 60% already pre-committed and launched a further 2.7 million square feet of new development. During this period, we have distributed INR 27.6 billion or $372 million to our unitholders. And consequently, we have delivered a total return of 25% as of November 9, 2020, outperforming key global and domestic benchmark indices. In addition to our organic growth levers, we had also identified the potential for accretive growth through inorganic acquisitions, supported by our strong balance sheet and existing low leverage. Outside the existing REIT portfolio, we had highlighted the potential 43.2 million square foot right of first offer, or ROFO, pipeline from Embassy Sponsor. And we have highlighted the potential for additional third-party acquisition opportunities. As some of you may recall, in November 2019, we received a ROFO invitation from Embassy Sponsor with respect to Embassy TechVillage, or ETV, a large-scale, high-quality, campus-style business park in a key submarket in Bengaluru. Given the uncertain environment earlier in the year due to the pandemic, we have paused our assessment on this potential acquisition in order to reach a level of comfort against a number of additional criteria such as impacts on occupier businesses, occupier and leasing sentiment, rental collections, direction of the pandemic, market conditions, among other factors. And we have now reached a level of confidence against these criteria, and we have concluded our analysis of the ETV opportunity. Earlier today, the independent directors of the Investment and Audit Committees of the Board as well as the Board of the Manager to Embassy REIT approved the ETV acquisition subject to requisite unitholder and other approvals. Our acquisition rationale. We view the ETV acquisition as a very compelling opportunity for the following reasons: first, the asset is a best-in-class infrastructure-like office park with a marquee international occupier base, stable long-term cash flows and strong embedded growth; ETV comprises 6.1 million square feet of completed and income-producing offices, 97.3 leased, with 3.1 million square feet of under construction, on-campus development 36% already pre-leased and proposed development of 518 key dual-branded Hilton and Hilton Garden Inn Hotels. It also has the benefit of a planned metro station at the park entrance. ETV is an integrated office park spread over 84 acres with robust infrastructure in terms of power, safety and security, numerous employee amenities, including fresh multiple sports facilities and food courts, co-working facilities, medical center and so on. At the heart of the park are landscaped open spaces and breakout zones for over 45,000 employees of the 40-plus occupiers who work from the park today. At an asset level, ETV has a diversified occupier base and derive 88% of its gross rentals from multinational occupiers and 48% of its gross rentals from Fortune 500 companies. Existing occupiers at ETV include Cisco and Software AG from the technology sector, Great-West Financial and JPMorgan from the financial services sector, Flipkart and Swiggy from e-commerce and numerous other globally recognized companies such as Sony, Eli Lilly, Telstra and Moody's. The leases have a 9.7 year WALE, contracted rental escalations of generally 15% every 3 years and the mark-to-market on expiry averaging 34%. Notably, throughout the pandemic, and the testament to the quality of this trophy asset, rental collections at ETV were a resilient 99%, matching the performance of the REIT's robust rental collections. This occupier base and the lease terms reinforce the quality and increase the diversity of Embassy REIT's occupier profile, particularly in the financial services and e-commerce segments. The acquisition will also result in a reduction in the contribution to the gross rentals by the top 10 occupiers from the current 42% to 37%, with no single occupier contributing to more than 10% of the portfolio gross rentals. Secondly, the acquisition will strengthen Embassy REIT's presence in India's leading office market. Bengaluru is the largest and strongest office market in India, accounting for 25% or 165 million square feet of the pan-India Grade A stock, while representing 30% of pan-India absorption, i.e., 14.2 million square feet per annum over the past 6 years. Notwithstanding COVID-19-induced delays in decision-making this year, Bengaluru has seen 7.1 million square feet absorption year-to-date, 29% of pan-India year-to-date absorption. This asset will deepen our strategic presence in Bengaluru and will provide us with a unique presence in a third and Bengaluru's largest submarket, ORR, highly complementary to our existing presence in North and CBD submarkets. This ORR submarket is home to global captive centers for corporations such as Goldman Sachs, Northern Trust, Intel, Adobe, Oracle, Google, Microsoft, Amazon and many more, with over 650,000 people working in this submarket. ORR is the largest office submarket in India with a 54 million square foot stock. In fact, over the past 7 years, ORR submarket has absorbed more space than any one of the cities like Shanghai, New York, Hong Kong or London. It is a submarket which has witnessed an 8.8% CAGR in rentals since 2014. And given its continuing appeal to marquee occupiers, this submarket is currently running at a 2% vacancy. The opportunity to add new products in such a supply-constrained submarket gives ETV further competitive advantage for the midterm. Multiple estimates by leading property consultants indicate that occupier demand will continue over the coming years. We plan to cater to that resilient demand and further grow the asset's operating income and distributions through the addition of 3.1 million square feet of on-campus development at ETV, 36% of which is already pre-leased to JPMorgan on a build-to-suit basis. So in one of the most active office markets in the world, India, this asset is located in the largest and most active office market, Bengaluru, and the top-performing submarket in the city, ORR. And third, the acquisition will enhance Embassy REIT's scale and strengthens its position as the largest commercial REIT by area in Asia Pacific. The ETV acquisition will add 9.2 million square feet of leasable area to the REIT's existing 33.3 million square feet, to bring the total leasable area to nearly 42.4 million square feet, reinforcing Embassy REIT's position as one of the largest commercial REITs in Asia Pacific. Further, this acquisition positions Embassy REIT well for the anticipated post-pandemic resurgence in demand for safe, people-friendly, high-quality office space in India. With 32.3 million square feet of completed area and 10.2 million square feet of future campus development, the asset is wholly complementary to our existing portfolio and will add another large-scale campus-style development in India's leading submarket. And very importantly, the acquisition is accretive across all key financial metrics, including NOI, DPU and NAV per unit. So let me now ask Sachin, our CIO, to run you through the key metrics of the proposed deal.

Thank you, Mike. We are excited to be announcing this unique transaction today. Embassy REIT is exercising its right under the ROFO agreement it entered into with Embassy Sponsor to acquire Embassy TechVillage. . Embassy REIT is acquiring ETV on a trailing NOI yield of 7.5% compared to the REIT's trading cap rate of 7.2%. On a pro forma basis for the 6-month period ending September 2020, the transaction is accretive across key metrics, including growth in NOI by 28% and NDCF by 27%, increase in NAV per unit by 3% and accretion of 4.2% to DPU. Let me now take you through the details of the transaction, including the key components, pricing, our financing plan and, finally, the next steps and time lines. First, let me cover the transaction components. Embassy TechVillage is being acquired from 3 selling shareholders, Embassy and Blackstone entities and an existing third-party landowner. The ETV acquisition comprises 6.1 million square feet of completed area, 3.1 million square feet of under construction area, of which 36% is pre-leased to JPMorgan, proposed 518 dual-branded Hilton Hotel keys within the ETV campus and the common area of maintenance contracts business associated with the completed area and the area pre-leased to JPMorgan. The pricing considerations and financing plans are as follows: total enterprise value for the ETV transaction is INR 97.8 billion or $1.3 billion. Of this, INR 87 billion relates to the first component comprising the 8.1 million square feet total leasable area, and the balance INR 10.8 billion relates to the 1.1 million square feet built-to-suit area. We proposed to finance this acquisition through an equity issuance of INR 60 billion in the following manner: INR 23 billion or $312 million through a preferential allotment of units and INR 37 billion or roughly USD 500 million through an institutional placement of units. The proposed equity issuance will significantly increase the REIT's public float from the current 38.4% to 42.6%, excluding the preferential allotment units. This will enhance liquidity and potentially facilitate inclusion in to select benchmark global equity indices. We may also refinance a portion of the in-place ETV debt of up to INR 36 billion, which is roughly USD 492 million, through coupon-bearing instruments, which may be a combination of REIT-level and SPV-level debt. We have the flexibility to do so given our strength of our balance sheet and our conservative leverage levels. Based on the above indicated financing plan, post acquisition, our gross debt to GAV ratio increases to 22%. We will continue to maintain conservative leverage ratios post the ETV acquisition, thereby providing the flexibility for future growth with an additional pro forma INR 14 billion debt headroom. We continue to actively monitor and analyze our cost of capital to adopt prudent financing options and believe that the pro forma capital structure maintains a strong balance sheet and presents an attractive opportunity for existing and new unitholders. Lastly, our governance framework is in line with leading global practices. Given this acquisition qualifies as a related-party transaction under SEBI's regulations, Embassy REIT would like to highlight that the transaction meets all the related body safeguards and is in line with leading global standards most notably. Embassy REIT is purchasing ETV at a discount of 4.6% to the average of the 2 independent valuations required to be obtained as per the REIT regulations. The independent directors of the manager approved the proposed ETV acquisition and have recommended to the public unitholders. HSBC Securities delivered a fairness opinion on the value of the proposed ETV acquisition to the independent directors of the manager to the Embassy REIT and opined that, from a financial point of view, the transaction is fair to the public unitholders of the REIT. There is no acquisition fee payable to the manager for the proposed ETV acquisition. The transaction will require the approval of a simple majority of unrelated unitholders for its undertaking the acquisition and the approval of at least 60% of the unitholders for both preferential allotment to third-party shareholders and the institutional placement. Embassy Sponsor and Blackstone Sponsor Group will abstain from voting on the ETV acquisition resolution. We have conducted extensive financial, tax, legal, title and technical diligence, as is customary for a transaction of this size and scale. Our advisers for this transaction included Morgan Stanley, Kotak Investment Bank, Ernst & Young, S&R Associates and Clifford Johns LLP, amongst others. Next steps in time lines. As next steps, we will shortly seek unitholder approval for the proposed acquisition and related financing. For this, a virtual extraordinary meeting of the unitholders is being scheduled for December 10, 2020. Subject to applicable regulatory approvals, closing actions, unitholder approval and a successful fundraise, we are targeting to complete the transaction on or before Jan end 2021. In conclusion, we believe ETV is a difficult-to-replicate asset with significant scale and high quality. The ETV transaction is accretive for existing unitholders across key metrics, and we believe that the acquisition presents a compelling opportunity for Embassy REIT. Let's move to Q&A, please. We'll also be joined by Vikaash Khdloya, our Deputy CEO and COO; and Aravind Maiya, our CFO.

[Operator Instructions] The first question is from the line of Saurabh Kumar from JPMorgan.

So obviously, the asset is good, and congratulations on that. I just want to understand the valuation breakup. So that INR 530 crore NOI you were saying will be valued at 7.5% cap rate. So effectively, that gives you a valuation of about INR 7,100-odd crores. And what will be the value of the 1.1 million square feet which is trading and the development portions? So can you just break up the value between what is completed, what is this 1.1 million and what is the remaining 2-odd million square feet which you're purchasing into that INR 9,800 crores?

Thanks, Saurabh. I'm going to ask Aravind Maiya, the CFO, to run you through those good questions.

Saurabh, so just taking you to the numbers into a little bit of breakup on valuations. So we are buying it for a total value of INR 9,782 crores, let's say, approximately INR 9,800 crores. In terms of breaking up the values between completed, under construction as well as splitting up the under construction between ETV, excluding the 1.1 and the 1.1 million square feet, the purchase price can be split as INR 7,384 crores for the completed assets and INR 2,398 crores for the under construction. Of the INR 2,398 crores, about INR 1,082 crores is for the 1.1 million square feet of total assets. Now the numbers which I gave you are the approximate breakup of the purchase price. If you were to just link it up to the 2 independent valuations, which have been received, which is at 4.6% additional as compared to the price which you're buying, the completed value of -- the average of 2 valuers is approximately about INR 7,800 crores and the balance split between ETV and Kurla at INR 1,320 crores and INR 1,144 crores. So overall, 76% value towards completed and 24% towards under construction. And just the last point, the 24% under construction also includes the 1.1 million square feet, which is completely pre-leased.

Okay. And so this INR 530 crore NOI that you have this year, how much does it grow to next year? So basically, how much is your contractual growth? I'm guessing it will be about 5%, plus the 1-odd-million square feet, which is contributing. So I'm just trying to get what is the fiscal '22 kind of NOI there?

Yes. So Saurabh, in terms of numbers, what we can lead you or guide you towards is the historical numbers of 6 months because that is what is permissible to be disclosed as per the regulations. And the NOI for 6 months basis, which all of these attrition numbers have been presented, is approximately INR 275 crores, which is for the completed property. We will not be able to give numbers in relation to our future as projections are not really permissible. But what -- a couple of things that I would like to guide you towards is that the 6.1 million square feet which is completed is 98% occupied. The 1.1 million square feet, which is fully pre-leased, sums up for rent commencement from April of 2022. But the only incremental point, what I want to mention is that this acquisition is made with necessary rental support commitment from the sponsor from the date of acquisition itself.

So rental support will mean that from the date of acquisition they'll continue to pay the rent. So from an industry perspective, that 1 million square feet, you will continue to get that INR 90-odd rent? That's a fair assessment?

Saurabh, Vikaash here. Yes, that is correct. Only quick clarification, from a accounting perspective, it will not be the NOI, but it will subtracted by DCs and the distributions. And that amount will be held back in a [indiscernible] from the purchase price at the time of closing, pretty in line with the tenders...

The next question is from the line of Kunal Tayal from Bank of America.

Sure. Congratulations. A couple of questions from my side. The first one is if you could talk about what would it take to successfully integrate the acquisition. . So at the outset, we do know that it's a largely stabilized asset and it comes from the house of your sponsor. And basics seem to be in place, but is there something else we should watch out for? That's one. And then the second one is on the acquisition process itself. I just want to understand, was there any competition, any time during the process? Or because it's a ROFO asset and the REIT was interested, others really did not get a look in? What I'm trying to understand is what drives the 4.6% discount to the market value? Why couldn't it have been higher or, let's say, at par to market valuation?

So let me deal with the first one, Kunal. Thanks a lot. The successful integration of the asset. The asset is very well known to us. We have had an association for a number of years with that asset prior to the creation of the REIT. . We have our management team, which I think you're aware, is now close to 100 people with expertise in the leasing projects and the operation side. We are excited and confident around the integration of the property management side of the business. And we also have some level of crossover with some of the key tenants that are out there at Embassy TechVillage with our existing REIT portfolio. So an example on that would be that, for example, JPMorgan are our existing tenants at GolfLinks. And of course, the build-to-suit there, TechVillage is a significant part of that as well. So I think we have all the ingredients for a successful integration over the next few months. We've done that actually on a number of properties over the last couple of years. We're strong in that area. So Vikaash, do you want to comment on the issue about the discount and the competitive elements?

Sure, Mike. Kunal, so on the process for the ROFO, as you're aware, we received the notice last November. One, this is one of the advantages we have with the sponsor like Embassy Group that we get a ready pipeline. And in terms of the way the process works is, we do not have a competition. We had a first look at it. Of course, we did extend the time a couple of -- shift the timeline a couple of times when we paused this during the COVID period. But if you take a step back and look at it, the way we proceeded with the process is, one, we did enter into independent negotiations. As you're aware, manager is independently driven and especially because of the related-party transaction here, we took guidance from the independent Board of Directors. So that's one. Two, of course, the ability of the on-ground teams and Mike mentioned about the management team, their ability to underwrite the transaction in terms of assumptions, what's happening at the operational level, the intimate knowledge of the micro market, that helped us to kind of really kind of underwrite and accurately take some of the assumptions on how we see the market panning out. So that really helped. Third, obviously, ability to handle scale what we already do and understand how large-scale assets move and what are the various levers to drive value that helps us to come up with a value, which was at an arm's length basis negotiated. Of course, it is at 4.6% discount, as you mentioned, but what we did is we went bottom up and arrived at what we thought was the right value and went ahead and kind of started negotiating that with the selling shareholders, in this case the sponsors. Also the fact to note here is that one of the existing shareholders of VTPL, which is a large component of the entire transaction, who owns 40% of the asset. They are also swapping for units. So that's a big testament the fact that this deal was -- we'll be able to kind of convert existing land on a partner to swap for units in the REIT. And we like the fact that it's a large-scale acquisition, 100% control. And most importantly, we did make the 1.1 million square feet JPMorgan pre-lease, which was not part of the original ROFO as part of the deal. So just to give you a background, that 1.1 million square feet of the highest tech building, and it is right at the front of ETV. So all in all, we have an independent process and turned into arm's length negotiations. It took a couple of rounds, factored in some of the learnings we've had over the last 2, 3 quarters given the COVID. And I think we've come up with something which we feel really excited about.

Sachin, anything to add here?

So I think the key thing over here really is that, look, there was a third-party shareholder that's a 40% owner out here. And whatever price we negotiated had to be fair to him as well. And I think we're really driven by that. How do we get all 3 shareholders kind of add to the finish line, and I think that has taken some time, but I'm glad we've reached that.

Right. If I can squeeze in a small one. The high yield that you get with the assets. Is that a function of the kind of work that gets done out of the park? Or are there a few different other parameters?

I think, Kunal, it's actually -- and you're right, is that, that 9-plus-year WALE, it's a reflection of a relatively new asset, same lease structures, the 5-plus 5-year lease terms that we have. But I think it is more linked to the quality of the occupiers and the relatively newer style of development.

The next question is from the line of Abhishek Bhandari from Macquarie Securities.

Congrats on the acquisition of the assets. I have 2 questions. My first, Vikaash, probably to you. Recently, we had Blackstone do a similar transaction with Prestige where some of the Outer Ring Road assets were also bought over by them. And it seems that the valuation at which those new deal assets have been bought are upwards of [ 8.45 ]. So I was just trying to understand what the rationale of us paying 7.5% in terms of the yielding portion of the ETV? That's one. And the second question is, I see a very round figure of $500 million in terms [indiscernible]. It's just a round figure? Or do you have plus or minus on that? If you could help on that.

Abhishek, I'm Shah. So I'm going to take it one by one. So first, while we would not like to comment on other transactions, I think it maybe is pertinent to note that the cap rate for the deal you were referring to is a blended cap rate as in our understanding, both for commercial and retail. And given the impact of the pandemic on the retail, it is probably likely that the cap rate on the commercial component would have been tighter versus the retail component. For the most market participants, disclose the NOI yield or the cap rate on a forward basis or NTM basis, while we have disclosed it on a trailing NOI yield or NTM NOI yield. We have disclosed on a trailing NOI yield. And our NTM NOI yield is expected to be meaningfully higher than the trading NOI. You know that our acquisition is 7.5% of completed portion for the period ended September 2020. And we also have de-risked near-term growth through the 1.1 million square feet GPM pre-lease that is scheduled for completion FY '22. So all in all, the blended NOI yield for the completed portion on FY '22 is something which we believe would reflect both the growth potential that we have, intrinsic growth on the existing portfolio due to contractual escalations as well as the near-term de-risk development that comes up. So we would guide you to that. Given that we are doing an institutional placement, we are not allowed by regulations to place the forward -- to make forward-looking statement of the next 12-month cap rate. So that's on one. And quickly, I will cover the second one in terms of -- Ritwik, do you want to cover that?

Yes, let me just take that, Abhishek. I think just very directly, the 500 million number is a round figure and there is flex. I think the way that we thought about this is one is, obviously, have the financing mix that makes the returns work and make this transaction accretive. . But I think it's also sort of a broader picture. The bigger picture here is also increasing the flow and really sort of stabilizing the register a little bit. I think it's an open secret that -- and we've got this from sell-side analysts, we've got this from the buy side, that there's clearly a need for the stock to be a little more liquid. And I think this really provides a perfect opportunity for us to raise a significant quantum of equity, which really helps -- which we believe will help to stop in the liquidity and stabilize a little bit. There are, to the extent, we can actually go out there and potentially raise a little more. We would certainly evaluate that. I think there is clearly sort of the opportunity to de-lever at the target should the need arise. So yes, there is some room out here to wait a little more equity and get the market what it's been asking for.

Sure. And Mike, my last question is to you, while this marquee asset acquisition in Bengaluru is a base thing given the competitive advantage for [indiscernible]. But somewhere the other now we'll have 72% of our GAV coming from a single city. So kind of very, I would say, all eggs in 1 basket kind of scenario. Is it fair to say that now, going forward, we'll try and look for more opportunities out of Bengaluru? That is my last question.

Well, look, I think I'd start by saying, we've always had a focus to the areas where we feel there are greatest opportunities in terms of the tenants that we cater to. . So Bengaluru continues to account for, for example, 39% of all of the pan-India exports in the technology services field come out of this city. It's the largest city source of global captives. There are so many reasons why the focus needs to be on Bengaluru. Largest office absorption market across the country. And in fact, I mentioned those steps about the scale compared to Asia Pac markets. And then I've highlighted the fact that this submarket actually is as big as some of the global city markets in itself and that low vacancy of 2%. So I think the focus for us is to identify where are the areas of greatest opportunity. And we, in this case, we've identified ORR and the ETV asset as providing that. We have always stated that we would look at the top 6 cities that we would, in some senses, follow the customer. We would see where our high-quality international tenant base is present or is going to. And we've spoken about in the past the 6 markets that we would look at. And the different dynamics of the different markets we're aware of, and we've got some knowledge of. But I think, of course, we will continue to look at other markets within those top 6 cities, but this we see as a really high-quality opportunity.

The next question is from the line of Prashant Kothari from Pictet.

Yes, 2 questions. First one, how much do we need to spend more to complete whatever is proposed in? And if you could break it up between the office space and the hotels?

Okay. And the second? You said second?

Okay. Office and the hotel?

Prashant, Vikaash here. So very quickly, the balance construction cost roughly would be about INR 1,050 crores for the office and about INR 665 crores for the hotel.

I'm sorry. INR 665 crores for one of those hotel. And?

INR 665 crores for the hotel and INR 1,050 crores for the office.

Okay. Understood. And what was the shareholding of ETV before the acquisition?

Sure. So if I could just guide you to -- I don't -- if you would have the deck, otherwise, I'll just guide you through. If I could just guide you through the acquisition deck Slide 45. So the way it works is there are 2 level holdings. So at the asset entity level, which is called VTPL, this comprises 8.1 million square feet of the total 9.1 million square feet we are proposing as acquisition. So the 8.1 million square feet breaks up into 6.1 million square feet completed and the 2 million square feet potential office development, plus the 518 keys. So this entity will have 40% by the third-party land owner, which Ritwik earlier mentioned about and the holding company, which is the EOPPL, was help -- was holding 60% of this asset only entity. So it was 60-40 split. The holding company in turn was held between the Embassy Sponsor and the Blackstone Sponsor, roughly in the mix of 64%, 36%. So that kind of factors in for the 8.1 million square feet. And then for the 1 million square feet, which is the 1.1 million square feet, which is a JPMorgan pre-leased area, it has a separate entity directly by Embassy Sponsor. And which is why it from -- the 100% of this entity come in Embassy Sponsor. So all in all, just to summarize, we are acquiring 3 legal entities from 3 different existing shareholders. Does that help?

Yes, yes, it does. Yes, I think it is clear. But moreover, why is it that the shareholding of the sponsors is not changing up to the acquisition then?

So it is changing. So if I can guide you to Slide #40, given that the way the financing structure is set up, the indicative plan where we have the institutional placement to cater to the selling shares of the sponsors, the sponsors take us -- move to 50.5% based on the indicative financing plan. So it is changing.

Okay. So the third-party shareholders are getting consideration in form of shares in the REIT or the sponsors are getting cash? Is that right?

That is correct. That's correct.

Okay, okay. Understood. And the last question is the debt that you'll be taking, what do you think would be the approximate cost of that?

Yes. So in terms of debt cost, what we have currently assumed for putting out the pro forma numbers is a 7.25% coupon debt. . I mean when you compare this to our recent one, what we've done, this is done at 6.7%. So considering the quantum, et cetera, we have taken a 7.5% coupon as of today. But this is something we'll evaluate over the course of the next 3 to 4 weeks to see where we finally land that when we look at refinancing the existing debt.

The next question is from Pulkit Patni from Goldman Sachs.

I have a few. My first question is on the fact that we already have significant presence at Manyata. And for this asset, we obviously -- is a pretty mature asset. We've known it quite well. Could you highlight a few areas where we could add value beyond what the previous owner could have done? So is there any major tenancy changes that we intend making? And I understand you can't talk about forward-looking numbers, but just give a sense of how we could add more value compared to what the asset already has? That would be my first question.

Okay. And just -- yes, yes.

My second question is more like a bookkeeping question. The INR 356 of official allotment, is that a sacrosanct number? Or is that also something that could change? And my third question is out of the 6.1 million square feet, could you also highlight what is the sort of expiry schedule over the next couple of years in terms of leases? So those are the 3 questions.

Pulkit, interesting question. So why don't I take the first one? So our philosophy at Embassy REIT is, obviously, one, we are long-term owners of asset. We like creating moats around our business. And most importantly, we want to [indiscernible management. So given our experience with our existing properties of 24 million square feet operating, 24 million, 25 million square feet and our presence already in market size GolfLinks, the 2, 4 micro markets in Bengaluru, I think in ETV, for us, makes strategic sense because we cover all the 3 top micro markets in Bengaluru. So the strategy we follow is that if we can cover all the -- if you can offer to an occupier who wants space and offer them multiple solutions in different micro markets, then we kind of retain the occupiers within our ecosystem, and we get that net flow effect benefit. So we really think that helps. Because if someone wants in an ORR offer them ETV, someone wants to not be opposite to [indiscernible], somebody wants ETV [indiscernible]. So basically we can then retain the existing occupier relationships and expand the new ones to the ecosystem. More importantly, while we do note that 6.1 million is completed, we still have about 2 million square feet of early construction, which we think we can -- based on the strength of our teams, et cetera, we can kind of add more value to that in terms of driving the NOI and early completions. Third is, obviously, there are lots of stuff that the team can do more in an integrated pan-India approach on our properties. So on the asset management with its operations, whether the way as we look at savings costs, whether it is standardizing our current communications, expanding and extending that. I think -- and also the fact that we get 35 new occupier relationships we don't currently have, we think it really helps us. So that's the way we look at it. And given the fact that ORR actually contributes about 45% of the Bengaluru absorption, however it's completely made just other nominate assets in Bengaluru, apart from the 2 we already have. On the second question, yes, the prep pricing for the swap of units or allotment of units to the third-party land owner, partner at ETV, that is driven by the regulations. So there is a regulation which requires it to be an average of the 26 and the 2-week high and low from a particular cut-off point, which in this case is 26, which in this case, is 10th of November.