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

Good morning, ladies and gentlemen. We welcome you to the third annual meeting of the unitholders of Embassy REIT. I would now like to introduce your host for today's meeting, Mr. Ritwik Bhattacharjee, Head of Capital Markets and Investor Relations for Embassy REIT. Sir, you may begin.

Thank you, operator, and good morning, everyone. Welcome to the third Annual Meeting of the unitholders of Embassy REIT, and I hope you're all safe wherever you're dialing in from. The videoconferencing facility enabling this third annual meeting had opened 15 minutes prior to the scheduled time and will be available for 15 minutes after the scheduled period ends. Unitholders can use this facility on a first come, first served basis to join the meeting. Embassy REIT is also hosting this third annual meeting live on its website at embassyofficeparks.com. To ensure satisfactory participation in the third annual meeting, we encourage all unitholders to refer to the instructions provided in the notice convening the annual meeting or to the instructions that appear on the video conference page. In case unitholders face any difficulty, they may reach out on the help line numbers provided on the video conference page. After the third annual meeting proceedings, please note that the NSDL portal will remain open for 15 minutes to enable unitholders to cast their e-votes. Also unitholders who wish to express their views or ask any query may do so in the chat box enabled on their screens by clicking on the Communicate tab. Unitholders will need to mention their full name, along with their DPID and client ID or their folio number as the case may be, along with their questions. A relevant person from our team shall answer your query during the meeting. Now let me take the opportunity to introduce you to your Board of Directors joining this meeting. May I request each Board member to show his or her hand when I call out their name, please? Mr. Jitendra Virwani is the non-Executive Director and the Chairman of the Board of the Manager of Embassy REIT. He's also Chairman and Managing Director of the Embassy Group of companies. He has over 25 years of experience in the real estate and property development sector. He is a fellow of the Royal Institution of Chartered Surveyors and a member of the Equestrian Federation of India. Mr. Robert Christopher Heady is a non-Executive Director on the Board of the Manager of Embassy REIT. He has been with Blackstone since 2000 and is currently the Chairman of Asia Pacific and the Head of Real Estate Asia for Blackstone. Mr. Tuhin Parikh is a non-Executive Director on the Board of the Manager of Embassy REIT. He's been with Blackstone since 2007 and is currently a Senior Managing Director and the Head of Real Estate India for Blackstone. Mr. Aditya Virwani is a nonexecutive Director and the Board of the Manager of Embassy REIT. He's also the COO of Embassy Group, and he is on the Board of several Embassy Group companies. Dr. Punita Kumar Sinha is an Independent Director on the Board and the Chairperson of the Stakeholders Relationship Committee of the Manager of Embassy REIT. She is the founder of Pacific Paradigm Advisors LLC. Previously, she was the CIO of The India Fund and the Asia Tigers Fund. She was also a portfolio manager at Oppenheimer Asset Management. Mr. Anuj Puri is an Independent Director on the Board and the Chairperson of the Investment Committee of the Manager of Embassy REIT. He's a fellow of the Royal institution of Chartered Surveyors and a fellow of the Indian Institute of Insurance Surveyors and Loss Assessors. He holds the title of chartered insurance practitioner from the Chartered Insurance Institute. Mr. Vivek Mehra, is an Independent Director on the Board and the Chairperson of the Audit Committee of the Manager of Embassy REIT. He was at PricewaterhouseCoopers for 19 years, and he retired as a partner in 2016. Dr. Ranjan Pai is an Independent Director of the Board and the Chairperson of the Nomination and Remuneration Committee of the Manager of Embassy REIT. He is the Chairman of the Manipal Group of companies. The management team of Embassy REIT also joins us for this meeting. We have with us Mr. Mike Holland, the Chief Executive Officer; Mr. Vikaash Khdloya, the deputy Chief Executive Officer and the Chief Operating Officer; Mr. Aravind Maiya, the Chief Financial Officer; and Ms. Deepika Srivastava, the company Secretary and Compliance Officer. The following key persons are also attending the meeting: Ms. Mangalagowri Bhat and Mr. Shreya Singhal, the representatives of Axis Trustee Services Limited, the trustee to Embassy REIT. [ Mr. Ada Shankar ], a Partner; and Mr. Nikunj Shah, a Director representing S. R. Batliboi & Associates, the statutory auditors of Embassy REIT; and Mrs. Rupal Jhaveri, Practicing Company Secretary, who is present here as the scrutinizer of the meeting. We will now play a short corporate video highlighting Embassy REIT's key strengths and achievements for the fiscal year ended 2021. [Presentation]

I hope everyone was able to view the video highlighting our key strengths and achievements. With this, I now hand over the meeting proceedings to the Chairman for today's meeting, Mr. Jitendra Virwani.

Dear unitholders, on behalf of the Board of Directors of the Embassy REIT, thank you for taking the time to join us today. I hope you all are safe and are in good health. Due to the ongoing COVID-19 pandemic, concerns of lockdown and social distancing norms. We are holding this annual meeting as conferencing in accordance with the SEBI norms. Since we are having -- we have the requisite for -- through video conference to conduct the proceedings of this meeting, I call this meeting to order. The Board of Directors are joining us on this call from various locations. Before we start the main proceedings of the meeting, I would request my colleagues on the video conference to introduce themselves, along with the details of their location from which they are joining the meeting. Robert Christopher Heady.

Good morning, unitholders. I'm Robert Christopher Heady, non-Executive Director of the Board of the Manager of Embassy Office Parks REIT. I'm attending the meeting from my office here in Hong Kong.

Tuhin Parikh.

Good morning, unitholders. I'm Tuhin Parikh, non-Executive Director of the Board of the Manager of the Embassy REIT. I am attending this meeting from New York.

Virwani.

Good morning, unitholders. I'm Aditya Virwani, non-Executive Director of the Board of the Manager of Embassy REIT. I am attending this meeting [indiscernible].

Dr. Punita Kumar Sinha.

Good morning, unitholders. I'm Punita Kumar Sinha, an independent Director in the Board. I'm the Chairperson of the Stakeholders' Relationship Committee of the manager of Embassy Office Parks REIT. I'm attending the annual meeting from New Jersey, U.S.A.

Hi, my name is Anuj Puri, and a very good morning to the unitholders. I am an independent Director on the Board and Chairperson of the Investment Committee of the Manager of Embassy Office Parks REIT. I'm attending this annual meeting from my office in Gurgaon.

Vivek Mehra.

Good morning, unitholders. I am Vivek Mehra, an independent Director of the Board and Chairperson of the Audit Committee of Manager of Embassy Office Park REIT. I am attending the virtual meeting from my residence in [ Bakreshwar ] [indiscernible].

Dr. Ranjan Pai.

Good morning, unitholders. I'm Dr. Ranjan Pai, an independent Director on the Board and Chairperson of the Nomination and Remuneration Committee of Embassy Office Parks REIT. I am attending the annual meeting from my home in Bangalore.

Thank you. The purpose of this meeting is to give you an update on key developments of Embassy REIT and to [indiscernible] on the matters stated in the annual meeting notice. It gives me immense pleasure to update you that in 2 years of listing [indiscernible] 2019, we have paid out more than INR 3,000 crores in distribution and delivered over around 24% in total returns to unit shareholders at 2021. Embassy REIT has been a trailblazer, and our performance has helped other Indian REITs to raise in the IPO since our IPO in April 2010. Approximately $2.6 billion has been raised or around INR 19,000 crores of REIT equity capital has been raised. This underscores India's potential of a vibrant REIT market and it bodes well for the future of commercial real estate in the country. It's a reality that as a publicly listed entity, Embassy REIT has operated under the shadow of COVID-19 pandemic for a significant period of its existence since it's [indiscernible] in March 2019. Even then, our business has proven to be resilient to the benefit of [indiscernible] March 31, we collected over 99% [indiscernible]. We leased 1.2 million square feet across our core office markets. We acquired an accretive growth in the form of a world-class business called the Embassy TechVillage located in one of Bangalore's best-performing submarkets. We are able to reduce our overall cost of debt, which further enables our business growth. I thank unitholders for their support to our business. From our global and domestic institutional holders who continue to be the largest holders [indiscernible] and continues -- and to continuously growing number of retail holders who rely on our distribution, we continue to operate in the best-in-class business with leading governance standard so that our unitholders can receive quarterly distributions as well as benefit from the capital appreciation that comes in owning a best-in-class office REIT as such as ours. I request Mike Holland, our CEO of Embassy REIT, to take us all through the business and financial performance of the Embassy REIT. Mike Holland.

Thank you, Jitu, and good morning, unitholders. While COVID-19 cast a shadow on the global economy for over a year now, we are pleased to note the strong fiscal year's performance for FY '21. We were strong on our operating fundamentals. During the year, we collected over 99% of our office rents, and we signed new leases and renewals of 1.2 million square feet over 43 lease deals with re-leasing and renewal spreads of 18% and 13%, respectively. Even in today's challenging market, our year-end occupancy stood at a healthy 88.9%. Our financial results demonstrate the resilience and strength of our business. Our revenue grew by 10% year-on-year, while our net operating income and EBITDA grew by 12%. As a result of this strong performance, we delivered distributions totaling INR 1,836 crores or INR 21.48 per unit for the full year FY '21 on target with our full year DPU guidance. So as Jitu mentioned, having now completed 2 full years since listing, one of which was fully under the shadow of the pandemic, we've delivered 24% in total returns, including quarterly distributions totaling approximately INR 3,700 crores or USD 500 million over the 8 quarters since listing. Last year's performance highlights the strength of our underlying business, the quality of the portfolio of long-tenured leases with our high-quality technology-focused and international occupier base, our strong balance sheet and the wealth of experience that our Board and management team bring to the business. This gives us confidence for the future once we deal with the pandemic-induced challenges of today. From the outset of the pandemic, we set clear priorities for our business to navigate these times. These priorities included ensuring the health, safety and well-being of all our stakeholders, facilitating business continuity for our occupiers and delivering on our rent collections and quarterly distributions. All our properties were operational throughout the year while adhering to the regulatory restrictions. And our teams did an exceptional task of meeting the business continuity requirements of our occupiers across our pan-India portfolio. We were quick to respond and mobilize vaccination drives for frontline workers across our portfolio, over 7,500 to date for frontline workers. We thank all those frontline workers, medical personnel, police, cleaners, security personnel and all of the first responders who have worked tirelessly to ensure that our parks have been safe for our corporate occupiers. We are encouraged by the continued downward trend in active COVID-19 cases and the progress on vaccine rollout. We continue to be actively engaged with our occupiers in each city every week supporting their return to workplace and ramp-up [indiscernible]. We continue to make great strides on our infrastructure and amenity upgrade initiatives across our portfolio. And despite the pandemic, we delivered a strong leasing performance with a total of 1.2 million square feet across 43 deals in FY '21. Half were new leases on 23 deals with those 18% re-leasing spreads, and the balance were renewals across 20 deals at the 13% renewal spread. We achieved rental escalations of 13% on 8.4 million square feet across 94 leases, and we are on track for an additional 14% rental escalation due on 7.7 million square feet and 89 leases in this year, FY '22. Despite a general pause in decision-making around leasing, we successfully backfilled 900,000 square feet of expiries at a 10% mark-to-market spread. Of the 1.9 million square feet upcoming expiries in this financial year, 500,000 square feet are likely renewals. We continue to be prudent on our capital management and maintained a strong balance sheet, and we remain well positioned to capitalize on attractive investment opportunities. These attributes, built over a number of years, have helped to deliver our resilient performance despite the unique challenges of this last year. We successfully raised INR 5,200 crores of debt at a 6.9% interest rate through a combination of REIT-level listed debt and SPV debt. We refinanced INR 3,280 crores at 6.9% interest rate, giving over 330 basis points interest cost savings. We continue to maintain a strong liquidity position of INR 1,550 crores and low leverage of 22%. With our AAA credit rating and our headroom to raise debt at competitive rates, we're in a strong position to pursue growth through on-campus development and accretive acquisitions, enhancing returns to our unitholders. We remain one of the most prudent and well-capitalized companies in the listed real estate sector, not only in India, but also globally. It is this strength that allows us to navigate such unprecedented times, but also to take advantage of potential acquisition opportunities to drive our growth, for example, ETV, a key milestone last year. The completion of the INR 9,800 crore accretive acquisition of Embassy TechVillage was a landmark deal, and one of the country's biggest-ever commercial real estate transactions. The acquisition of this 9.2 million square foot integrated office park was accretive to both our net operating income and DPU. It enhanced our commercial office portfolio scale by 28% to 42 million square feet, and added another best-in-class asset to our portfolio, growing our already strong cash flows. Unitholders will be familiar with the embedded growth elements in our portfolio, the contracted rent escalations and mark-to-market. And we have a third growth lever, our on-campus development. We continue to deliver growth of the portfolio through the 5.7 million square feet of on-campus development across our portfolio. This includes the 1.1 million square foot build-to-suit office for JPMorgan due for delivery later this year. The balance, 4.6 million square feet, is to be delivered over the following 3 years to FY '25. And following on from the ETV acquisition, we continue to evaluate acquisition opportunities, both from our ROFO options through Embassy sponsor as well as opportunities through our partner network and third-party opportunities. Turning to ESG, environmental, social and governance, an increasingly important consideration for our international corporate occupiers as well as a focal point for our institutional investor base. For Embassy REIT, delivering energy efficiency and sustainability of operations, collaborating with our corporate occupiers for community development and operating a business with good governance principles have always been core foundations to our business philosophy. We are now taking this existing foundation and building further to enhance our commitment to integrating ESG measures within our business strategy and execution. Embassy REIT is well positioned as occupiers increase their preference for sustainable inclusive environments, which prioritize carbon reduction, responsible use of energy, water and disposal of waste, a focus on all stakeholders and work in and around our communities is also increasingly valued. These shifts will continue to elevate our distinctive, strong ESG product proposition. Looking to the future, our customers and the future of office, India remains the most attractive and cost-efficient destination for global corporates who rely on the highly educated and skilled STEM talent in India, which supports so many global companies, whether it be through India's 1,400 captive centers, 17,000 tech center businesses or the 4.4 million technology specialists, many of whom work from our properties. The global acceleration of digital transformation and the bring forward of technology spend, especially for cloud, digital, data services and cybersecurity is already driving new hiring in India. And we continue to be optimistic about the future technology companies and global captive centers which form the basis of our customer base as they continue to grow their operations in India. Our existing portfolio is comprised of diversified, resilient and high credit quality global occupiers, over half of them from the technology sector. An additional 21% of our occupier base is from the banking, finance and insurance sector. And other sectors, including e-commerce, telecom, health care and pharma, globally recognized companies based here in India supporting their global business operations through technology. So we underline our previously articulated message that we have a bias to the right sector, technology, the right product, our total business ecosystems and the right markets, particularly Bangalore in India. This last year has seen a great deal of discussion on the next-generation workplace and the future of office. The consensus has emerged, but the office of the future will continue to be a place for collaboration, community, learning, career building for training and teamwork. And the building and maintenance of corporate culture. Offices will continue to be a core amenity to attract and retain the Indian STEM talent which these companies seek, the young demographic workforce who want to come together 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. Our workspaces for the young Indian workforce provide that social, professional and community space, as well as the necessary infrastructure and productive environment, which is so often lacking at home. We believe that demand will continue to focus on higher quality, lower density workspaces in the coming years. We envisage an increased preference for high-quality and safe grade A office spaces, and the shift from first-generation buildings to grade A office spaces and institutional landlords will continue. This trend aligns with our overall product offering and strategy, the total business ecosystem with our high-quality, large-scale integrated campus environments and the broad range of amenities for our occupiers and their staff. In terms of demand, we believe that the acceleration of technology spend will continue to drive demand from high-quality international and domestic companies operating in India. We entered this phase with record office demand and low vacancies, and we foresee a dramatic tightening of new supply. On that supply side forecast, 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 many developers. The 2-year forward supply estimate by independent consultants has seen a 25% decline, and this trend is likely to continue. So the supply-demand balance complements the trends towards higher-quality office product, and our strategy is aligned in terms of timing, location and product. In the last year, 2 more REITs were listed in India. The REIT product is becoming better understood, thanks to our consistent performance and clear disclosures. We are pleased to note an over 3x increase in the number of unitholders in our REIT from around 4,000 at the time of listing to more than 12,000 today. We see positive progress on the regulatory side with potential for simplification in REIT participation by foreign portfolio and institutional investors. As well as last week's announcement regarding the reduction in the trading lot size for REITs. These initiatives help build market liquidity and reduce the cost of capital. Additionally, we have now enhanced the tax efficiency of our distributions through the successful restructure and simplification of the ownership of our key portfolio assets so as to increase the tax-free component of distributions to 78% for Q4 FY '21. So even in the midst of the current COVID situation, there is a great deal to be positive around our business. Our high-quality portfolio, the global technology industry we serve, the long-term lease contracts with close to 200 corporate office occupiers, the strong relationships and trust we have built with those occupiers over the years. And our first-class on-ground operations team across the country all contribute to the resilience of our platform, which has shown its mettle with strong results in FY '21 and strong foundations in place for future growth. We are using this period to accelerate our growth through the new on-campus developments to develop our acquisitions pipeline, to sharpen our long-term ESG plan, to raise the bar with our occupier engagement activities and to continue to reinforce our already strong balance sheet, all this to prepare for our next phase of growth as the world returns to work. I would like to thank all our stakeholders, our occupiers and their staff, all our employees and vendors, most importantly, all our unitholders for their continued support. We have great confidence in the future of Embassy REIT, and we are very confident that this phase will result in continued consolidation in the Indian office market and greater demand and market share for Embassy REIT over the medium term. We're now happy to address any questions from the unitholders, and I will pass it over to Ritwik Bhattacharjee to conduct the Q&A session. Thank you.

Great, thank you for that, Mike. As I mentioned at the start of the meeting, unitholders who wish to express their views or ask any query may do so in the chat box enabled on their screens by clicking on the Communicate tab. Unitholders will need to mention their full name, along with their DP ID and their client ID or their folio number as the case may be along with their questions, and a relevant member from our team shall answer your query during the meeting. Please do note that Embassy REIT reserves the right to limit the number of unitholders asking questions depending on the availability of time. We will now answer some preregistered questions that we received from our unitholders as for the instructions we provided and the unitholders' notice dated June 11, 2021. The first question is as follows: what's been the impact of the second COVID-19 wave on our business? Mike, could I ask you to take up this question, please?

Yes, sure. Thank you. First off, I think in terms of the second wave, we would look at it as really a timing issue. A year ago, when the first wave of the pandemic came through, we spoke about our occupiers looking to pause, assess and then accelerate in their decision-making around new leasing. We did indeed see that, and we were seeing the acceleration of that back to office process and leasing decisions back in February, quite strong sentiment about return to work when the second wave kicked in. Clearly, both occupiers and ourselves are well practiced now after 1 year under this pandemic. And so our on-ground staff moved into action as before our occupiers have continued to operate their key infrastructure. But one change that we have seen is a very strong vaccine rollout. We have implemented that, and I think I mentioned for over 7,500 of our frontline staff, our occupiers, I believe the numbers of their vaccination programs are now up to over 80,000. So very, very strong potential and now caseloads going down. Timing, we've said 1 to 2 quarters from now. We expect to see a return to significant leasing interest. But the good news is we continue to have our rental collections at over 99%. We continue to have high occupancies at 88.9%. And even in that pandemic year last year, we leased 1.2 million square feet. And we are certainly having a number of conversations now and seeing a number of RFPs coming through that give us optimism for the future.

Great. Thanks for that, Mike. The next question is as follows: can you comment on the leasing outlook for the rest of 2021 and for 2022? And what's the risk of tenant vacancies going forward? Mike, Vikaash, could I ask both of you to team up and take this question, please?

Sure, well, let me take the first piece of that. I mean, we are absolutely seeing many positive indicators around future demand. We're seeing growth in our customer businesses, public announcements from some of the top technology companies based here in India. Both global companies and international companies are clearly speaking about and reporting significant growth in their business order book, record orders for some companies and significant growth in hiring. So I think that is a given. We had predicted that a year ago, that actually has clearly come to pass. So growth in our customer business is clear. We are having more and more back-to-the-office conversations. Occupiers, as I mentioned, are rolling out their vaccination programs with our [indiscernible]. We are seeing more RFPs coming through. And we are seeing a significant positivity from the demand side. So while this is not the time that we will see significant new leasing, that will take a couple of more quarters. Definitely, that demand, in our view, is coming through. Perhaps I can ask Vikaash to pick up on the supply side of the equation.

Sure, Mike. So on the supply side, interestingly, the 2-year forward supply estimate as per leading independent consultants has declined by about 25%, and we think that trend will continue. So it really perfectly matches with what we are constructing today. We are going ahead and constructing the 5.7 million square feet, and the timing of that which is to be delivered over the next 3 years, fits in perfectly with the decline that we're seeing in the supply in the market by others. So we think that's an opportunity. Just to -- commenting on the query on the expiries, so we had indicated last quarter that we'll have about 1.9 million square feet of expiries in this FY '21, '22. Again, of that, about 0.5 million square feet are likely to be renewals, and the balance 1.4 million square feet likely to be exist. Again, a combination of business as usual churn, portfolio housekeeping and COVID-induced exits. However, we see this as an opportunity simply because the in-place rents that we have on these expiries are significantly below market. So just to give you a quick stat, we have about 50% mark-to-market opportunities. So the in-place rent is about 50% below the market rent. So as the demand is likely to pick up by the end of this year and early next year, we are looking to fill up the vacant spaces, achieve these mark-to-markets and go out and all. So given this overall backdrop, we remain very positive, both with the quality of our product as well as the growth in our customer base. And in fact, we have recently beefed up our leasing team appointed to policing heads to further ensure that we are able to disproportionately benefit from the ongoing market consolidation of demand, the best institutional landlords. So with that, over to you, Ritwik.

Thank you for that, Vikaash. The next question is as follow: what are the key growth drivers for Embassy REIT going forward? And how much are you can we expect in distribution/dividends can we expect in the coming year? Vikaash, could I ask you to just take the first part of the question? Perhaps, Aravind can take the second part.

Yes. Sure, Ritwik. So again, we have multiple growth levers at Embassy REIT. On the organic front, we have 4 growth levers. One, the lease-up of the vacant space. Mike had mentioned that occupancy as of last quarter was about 89%. So as the demand, the pent-up demand peaks in and we continue to lease more space, that will help us enhance NOI and GPU. Second, our increased rents on the entire portfolio is significantly below market. And as and when we do some of our expiries, I did mention that we have 1.9 million square feet this year. We'll be able to capture the market trend. Again, it helps us increase our NOI and enhance our distributions. The third lever on the organic front that we have is our escalations. Again, these are embedded enough on lease contracts. Usually, it's a 50% every 3 years. And in fact, last year, despite the full year of pandemic, we were able to achieve a full 100% of the contractual lease escalations, that we had about 8.8 million square feet. And in FY '21, '22, we have another, what, 7.7 million square feet of new escalations. Again, we expect them to be collected and that will help us enhance our NOI. The fourth lever that we have on the organic front is our on-campus development. Again, there's a lot of development, expansion of existing parts helps us cater to the growing needs of our customers. We have about 5.7 million square feet, as I mentioned earlier, which is already underway in various deals of construction. We have already pre-leased 11 lakh square feet or 1.1 million square feet of that in GP markets, and the balance comes up over the next 2 to 3 years and fits in perfectly with the anticipated increase in demand by the early next year. So that's on the organic front. On the inorganic front, given our balance sheet and low leverage of 22%, we continue to look for opportunities, which are value accretive. We want to capitalize on this fragmented office market in India. And as of today, we have a pipeline of over 33 million, 34 million square feet, both from our sponsors and [ a growth ] arrangement, as well as some third parties and partner network. So all in all, growth on the organic side as well as inorganic side, we have multiple growth levers, and we remain very positive for accomplishing these as we move forward and as the demand picks up. With this [ meeting ], Aravind, I'll hand it over to you to take the questions on distribution.

Thank you, Vikaash. Probably first off, I want to highlight that financial performance for FY '21 was very solid. We met our guidance. Our NOI grew by 12% as well as we distributed INR 1,836 crores. Coming to FY '22, while we have deferred our guidance considering the second wave, I do want to mention that our business continues to be resilient. As Mike mentioned, the collections are strong. Occupancy is -- continues to be stable. There is -- the leasing momentum is picking up as well as the interest rates continue to be down. Talking about distributions, when you look at the last 2 years, we have maintained 100% distribution payout ratio, and we expect to continue with a similar payout ratio for the coming year. Of course, we will provide a formal guidance for FY '22 NOI as well as distributions once things return back to normal. Back to you, Ritwik.

Great. Thank you for that, Vikaash and Aravind. The next question is as follows: can you give us an update on your on-campus development? And what is the expected CapEx outflow over the next 2 to 3 years? Do you have any pre-commitments as well? Vikaash, could I ask you to take this question, please?

Sure, Ritwik. Thank you for the question. So again, as I mentioned, our on-campus development is one of the levers of our organic growth. We have, as we speak, about 5.7 million square feet under development across 4 of our properties in 3 locations, Bangalore, Pune and Noida. With all of these account for delivery over the next 2 to 3 years, this includes the 11 lakh square feet or the 1.1 million square feet of build-to-suit for JPMorgan [indiscernible] we acquired recently, and that is on track for delivery by the end of the quarter -- end of the year, sorry. In terms of benefits of our on-campus development, we think one is significantly derisked given its extension of our existing parts, [indiscernible]. And over 70% of the 5.7 million square feet I just mentioned, which is under construction, is in Bangalore. Bangalore remains, by far, India's best office market. And again, we're doing majority of the construction in 2 of our largest properties, both Embassy Manyata in Bangalore and Embassy TechVillage, which is also in Bangalore. So again, we're very positive on the timing of our supply, which matches up with the anticipated pickup in demand. In terms of construction, while the delivery may be deferred by a quarter due to the second wave, but we have all the permits in place, full financial closure has been achieved. And we remain very positive on pre-commitments going forward. The one -- the 11 lakh square feet is already committed to JPMorgan, and we will commence marketing on the remaining 4.6 million square feet by the end of this year or early next year. Lastly, in terms of CapEx outflow and amount of spend that we're going to incur, we will be incurring about INR 3,000 crores over the next 3 to 4 years on this on-campus development. Again, our construction financing debt is at probably the lowest interest rates in the industry, and this will further enhance the return on our capital investment. So again, this is one of the strengths for us. And as demand picks up, we'll look to continue with that momentum on the campus development. Ritwik, back to you.

The next question is how is the ETV acquisition funded? And has the acquisition played out as expected? Let me actually start off on the ETV acquisition and then maybe perhaps hand it over to Vikaash to walk you through the operations. I think before we talk about sort of the funding on an acquisition like ETV, I think the rationale, as we pointed out, both in the video and Mike and Jitu have alluded to, it just makes sense to have a world-class asset like ETV with 9.1 million square feet that we can integrate into our portfolio to increase the scale. I think an irreplaceable asset like that is really something that turbocharges our growth. And if you think about the fact that 6 million square feet is completed, you've got 1.1 million square feet that's pre-leased to a global bank. This -- these are the kinds of opportunities that a REIT like us should be pursuing and should be financing. Now obviously, it's in India's sort of best-performing micro market. It's in a micro market that has sort of 2% vacancy. So it really makes just intuitive sense for us to take that asset on, deliver the value to unitholders. It's an accretive transaction, as we pointed out in the financials and how the math works as we distribute that. But I think the financing behind the acquisition is also very important. And what it demonstrates is our ability to access the capital markets from a position of strength despite the fact that markets were very volatile last year. So we raised roughly INR 3,700 crores in an equity placement. We were the first -- which marks the first equity placement by a REIT. We issued INR 2,300 crores in a preferential offering to the shareholders who were selling ETV into the REIT. And we financed INR 2,600 crores in a bond at 6.4%, which represents about 300 basis points reduction in costs from the first bond that we raised back just after we listed in 2019. So I think what this really demonstrates is that for an asset like ETV in a micro market that really fits into our long-term strategy of providing world-class office space in sort of the -- in the neighborhoods and in the markets where talent comes to work, there is appetite in the markets for accretive acquisitions like ETV. I think let me just hand it over to Vikaash to talk about how we've integrated the asset into our portfolio.

Sure, Ritwik. Again, as you mentioned, ETV acquisition is perfectly paid out as expected. Immediately post-acquisition in end December, we've integrated on-ground teams. We have ensured that this opportunity on the 1.1 million square feet [indiscernible] for JPMorgan, and we are on track for delivering that by the end of the current year. Plus, what we did is we immediately kickstarted development on 1.9 million square feet office spec development across 4 blocks at the front of ETV. Again, we see huge pent-up demand in a market which has less than 2% vacancy. So we kickstarted that. And the delivery of that, again, is over 2023, '24, times perfectly with how we see the demand reviving early next year. And we also initiated the collapsing of the 2 tier structure of our ETV, which will again help to make the distributions efficient to the benefit of our unitholders. Ritwik also have already covered, but we refinanced INR 2,600 crores of debt at savings of about 3%, 3.3% on interest cost. So it's -- as of now, the focus is on construction and ensuring we continue to add value to the project. Thank you. Ritwik, over to you.

Thanks for that, Vikaash. The next question is sort of a continuation of kind of the acquisitions theme. So let me take that. It's about what's your acquisition strategy going forward? And are there any opportunities currently under consideration? I think our acquisition strategy going forward is really to buy and integrate the kinds of properties we already own. And an asset profile is effectively the same as what we have in a 42 million square foot portfolio. So I think the fundamental question that comes up then is how do you add value to that 4,200 square feet and where -- what are the best opportunities. So I think if we were to take that sort of impact, an acquisition clearly has to have the growth profile from all the levers that Mike, Vikaash, that we've all spoken about. It has to have the mark-to-market rental reversion opportunities within the portfolio. It needs to have the escalations that we speak about that contribute to distributions. It has to have derisked development that we then can actively sort of manage and deploy capital for in a prudent manner. And I think most importantly, we should be able to finance an acquisition like this and make it accretive for unitholders, so that it just then is one of the main growth levers and how the REIT should operate going forward. We love every acquisition to look and feel like ETV. Unfortunately, that isn't really the case for -- because there is sort of a lot of consolidation and it is a fragmented market. But we are obviously on the lookout for opportunities. We're fortunate to have the partner network. We're fortunate to have the ROFO opportunity as well. But we are monitoring third-party acquisition opportunities as well. We won't comment beyond that on any specifics, but I think with the financing power that we have, with the -- with our track record of having purchased accretive growth through the pandemic and having shown that we have a resilient business, I think we are very confident in our ability to deploy capital towards an accretive acquisition. Mike, Vikaash, I don't know if you have anything to add to that.

No, I think that sums it up. We're looking for grade A top-quality assets with the type of tenants that we currently cater to in the top 6 metros. Large scale, able to create that complete business ecosystem offering, and we believe that is the type of product that will be at the top of the demand pyramid over the coming years.

Great, thanks for that, Mike. The next question is probably directed at Aravind. What's your financing strategy going forward? And has Embassy REIT benefited from declining interest rates?

Sure. Thanks, Ritwik. So let me take the second question first around the declining interest rate. Last year, what we saw was they were -- the lenders continued their preference for high-quality borrowers like us. In addition, the reduction in interest rate over the entire last 12-month period has immensely benefited us as Embassy REIT. If I can just sum up what we did in FY '21, we raised about INR 5,200 crores at an average 6.9%. We also refinanced approximately INR 3,300 crores at an interest savings of 3.4%. So now if I were to come to the first part of the question, what is our financing strategy going forward? I think there are 2 parts to it. First of all, our balance sheet is extremely strong. We are lowly levered at 22%. So what that means is we will use leverage selectively over the medium term for 2 purposes. One is the on-campus development, which Vikaash spoke about in detail, the 5.7 million square feet, this will be fully funded by debt. Second is the inorganic growth. If I were to expand the inorganic growth a bit, the financing for that inorganic growth will be a combination of debt as well as equity. But of course, the nature, the size of the asset, the timing of acquisition, as well as the stock price, will decide the mix of debt as well as equity. Just to kind of summarize and wind up this question, what I want to highlight is the recent regulatory changes which allows FPIs as well as insurers to participate in the REIT debt. I think deepens the pool of capital for us as well as we expect to lower the cost. I think it's overall a very positive story for us. Over to you, Ritwik.

Great. Thanks for that, Aravind. I think just -- let's keep it on you for a moment as well. Can you elaborate a bit on the distribution framework for which you've sought a special majority vote? And are there any changes to the distribution strategy?

Sure. In terms of the distribution framework, as we did mention, these are clarificatory changes to the existing framework. What we wanted to do was make it very clear and remove any ambiguity, which is there in the computation of the net distributable cash flow. If I were to just summarize what it means, just to take an example, on a hypothetical basis, if you were to apply the new distribution framework for our FY '21 numbers, there would have been no change to the net distributable cash flow. So that kind of sums up that these are just clarificatory changes. Moving to the second part on distribution strategy. I think, first off, there is no change in our distribution strategy, but a couple of points to highlight. The rate regulation requires us to distribute a minimum of 90% every 6 months. What we have done over the last 8 quarters or 2 years is that we have distributed close to 100% on a quarterly basis. I think the focus, which we have kind of looked at over the last 1 year, is to enhance the post-tax yield for unitholders. So with that objective, we did complete dual-level structuring of monetary collapse into a single level. You would have seen that in Q4, the tax rate distributions increased to 78%, and we expect to retain similar percentages, if not more, for the year ahead. I think that kind of summarizes what we wanted to say on this question. Back to you, Ritwik.

Great. Thanks for that, Aravind. I think there was a unitholder who had actually asked that question in the chat box that we -- I think we've been able to cover that off. But let me go to another question. What's your view on the recent regulatory change that reduced the re-trading lot size to one unit? Let me take that. We think that this is, amongst all the regulatory changes, amongst the most positive, the most positive recent development since we've listed, to bring REIT equity lot sizes down to those of listed companies is just a massive endorsement from our regulators, and we must commend them for being proactive or understanding and seeing the success of the structure in India. It's not easy having to sort of watch a structure perform over the course of the last couple of years, particularly with the market volatility. But I think fundamentally, what this does is increase the liquidity, and I think really benefits unitholders like yourselves because it provides for better price discovery, efficient markets. And I think both from -- we've gotten the feedback repeatedly from institutional holders, as well as retail holders, that there really needs to be sort of a more liquid market for REIT units. So I think what that also does is it allows us to get access new pools of capital, be it from newer institutional investors or -- and broaden the retail holder base. As Mike mentioned, we've obviously seen an expansion as people get more and more comfortable with the structure. And it also lets us potentially get into benchmark indices internationally and domestically, which, again, then is another sort of virtuous cycle of getting more liquidity and increasing the shareholder base. So all in all, you should be aware that this is not just for Embassy REIT. This is for the entire REIT sector as well as the infrastructure trust sector that the regulations came out. And we think it's a very positive step, and we're looking forward to seeing it implemented very soon. Those effectively are the questions that we received sort of prior to this meeting. But if you can just quickly move over to questions that we did receive in the chat box during this meeting. There is a question from [ Ashwini Kumar Bajaj ]. How do you see the vacancy number panning out by the end of this fiscal year with work from home becoming more of a norm than exception? Do you see this impacting future business prospects? Also with the requirement of providing for more square foot per person, effectively sort of more distancing, in view of social distancing, do you see any challenges in rent increases? Mike, could I ask you to maybe lead off with how we see vacancy and maybe some comments on work from home, please?

Yes. So I think I've commented it when I presented about work from home, this view that has definitely come through from business leaders that the office for creating a business culture as a place for young people to build their career, for mentoring and learning. All these factors, I think, now are a given from business leaders. And I speak to business leaders of businesses that operate in parts on a regular basis. That's coming through loud and clear. Dedensification is also part of the conversation, and actually, that can also be interpreted as an increase and an improvement in the qualitative aspect of the space that people will be leasing. And again, we feel that we're at the top of the pyramid in that conversation that the type of complete business ecosystem that we offer to companies is exactly the type of high-quality complete ecosystem that companies are going to want in the future. And so again, we state we feel that we will increase our market share in the space for the very best companies who have a significant focus on areas around ESG, wellness for their staff working in the community, again, that we touched on. All of those factors aligned those types of occupiers with our type of product and this type of business. We are seeing a timing shift. And as I mentioned, a couple of quarters to go before perhaps we see some real momentum on the leasing side. But the headcount growth of these companies, for some of these companies, it's quite phenomenal. We know companies that have grown their headcount, and this is over 100,000 people companies, growing by 20% last year and growing 20% in this coming year. That's not uncommon. And again, that also aligns with -- if you're building a culture of a company that employs tens or hundreds of thousands of people, businesses acknowledge that you need to do that physically together. So all these factors align very nicely. Next couple of quarters will be slow on the leasing, although as we said we did 1.2 million square feet last year. And so we think by early next calendar year, we'll start to see the output from a number of RFPs that we're seeing today. And these deals take a number of months or quarters to fructify, but they are coming.

Great. Thanks for that, Mike. There was a question by -- from [ Mr. Rishab Shar Dalal ] that says, please explain in detail the rationale behind the change in the formula for the distribution and the impact on future distributions as well as a subsequent question on acquisition-related costs. I think Aravind has already covered off that question. So if there are any sort of further clarifications, that do reach out to us. But I think we will stop there on the questions and take that, Mike's response, as being the answer to the last question. So thank you all. I trust we've responded appropriately to all the questions that were out there. And in case we haven't been able to answer a question, or if you would like to follow up and clarify anything, our Investor Relations team will be in touch with you, and we will respond to you separately at the earliest in your registered e-mail IDs. If you require any more clarifications, you're welcome to write in and check out our website at [email protected]. Let me now hand it over to Ms. Deepika Srivastava, our Company Secretary and Compliance Officer, to take over the compliance matters and resolutions.

Thank you, Ritwik. Ladies and gentlemen, since the physical presence of 900 holders has been dispensed with, the appointment of proxies is not permitted. 169 resolutions and corporate authorization by 169 corporate entities in respect of 70 crores, 93 lakhs, 85,065 REIT units, representing 74.84 percentage of the Embassy REIT's total voting power were received by the manager. The inspection documents mentioned in the notice of the annual meeting shall remain open and accessible to unitholders for inspection during the continuance of this meeting by mentioning the name, demat account number, e-mail ID and mobile number to [email protected]. The unitholders can request for the extract of the same as well. The notice dated June 11, 2021, convening this third annual meeting, along with REIT's audited standalone financial statements and the audited consolidated financial statements of Embassy REIT and for the financial year ended March 31, 2021, together with the reports [indiscernible] and the reports on the performance of Embassy REIT have been provided to you in advance of this meeting. With your and Chairman's permission, I shall take them as read. The auditor's report did not have any qualifications. With the concurrence of the unitholders and the Chairman, I shall take them as read. In compliance with the provisions of SEBI regulations [indiscernible] has extended remote e-voting facility through NSDL to its unitholders to transact the business as set out in the notice of the annual meeting. The said facility was available from Monday, July 5, 2021, from 9 a.m. to Wednesday July 7, '21 until 5 p.m. Ms. Rupal Jhaveri, Practicing Company Secretary, has been appointed as a scrutinizer to scrutinize the remote voting facility as well as the e-voting facility at this AGM in a fair and transparent manner. Unitholders who have not cast their votes by availing remote e-voting facility and who are present in the virtual meeting will have an opportunity to cast their votes through electronic voting system. Unitholders may please note that there will be no voting by show of hands, so anyone who has not yet cast their vote can do so through electronic voting system in the manner described in the notice of the annual meeting. The resolutions would be declared after considering the e-voting during the annual meeting and the remote e-voting already done. The results will be submitted to the stock exchange within 2 trading days of the conclusion of this meeting and will be placed on the website of the SEBI and Embassy's website. The recorded transcript of the meeting shall also be made available on the website of Embassy REIT. With your permission, I will now take up the resolutions which require unitholders' approval. Item #1 of the notice to be passed with simple majority relating to consideration, approval and adoption of the audited stand-alone financial statements and audited consolidated financial statements of Embassy REIT as at and for the financial year ended March 31, 2021, together with the report of the auditors thereon for the financial year ended March 31, 2021, and the report on performance of Embassy REIT. Item #2 of the notice to be passed with simple majority relating to the consideration, approval and adoption of the valuation report issued by iVAS Partners represented by Manish Gupta, independent valuer for the valuation of the portfolio as at March 31, 2021. Item #3 of the notice to be passed with a special majority relating to consideration and approval of amendments to distribution policy. The next of the resolutions, along with the notes, is provided in the notice circulated to all the unitholders. I now request Mr. Jitendra Virwani, the Chairman of today's annual meeting, for his concluding remarks. Over to you, sir.

Thank you, Deepika. With this third annual meeting comes to conclusion, I want to thank all the unitholders for their presence and involvement, my [indiscernible] to the Board of Directors the management team and all the unitholders present here, and to those who could not join us but have been part of our growth journey. We remain fully committed to the business and to deliver to our unitholders. I now authorize Deepika Srivastava, Company Secretary, to conduct the voting procedure and conclude the meeting. Those who are present in this virtual meeting and have not yet cast their words can do so by now, availing the remote e-voting facility. The e-voting facility shall be open for the next 15 minutes to enable the unitholders to cast their votes. The [ necessary quorum ] was present throughout the meeting. The results of the annual meeting will be announced by the [indiscernible] on or before July 12, 2021. Thank you, everyone. Have a nice day.