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

Good morning, ladies and gentlemen. We welcome you to the Sixth Annual Meeting of the unitholders of Embassy REIT. I'm Shwetha Reddy, Head of Marketing and Communications at Embassy REIT and your host for today's meeting. We're hosting today's meeting in a hybrid format, so besides the unitholders present with us here at the venue, we also have participants joining us online through a video conferencing facility in accordance with the SEBI guidelines. [Operator Instructions]. First, a few instructions for our online participants. The videoconferencing facility enabling virtual participation in the sixth annual meeting opened 30 minutes prior to the scheduled time and will be available for 15 minutes after the scheduled period ends. Unitholders can use this facility to join today's meeting. We're also hosting this meeting live on our website at www.embassyofficeparks.com. We encourage all online participants to refer to the instructions provided in the notice convening the Annual Meeting. Please note that after the sixth annual meeting proceedings, the NSDL portal will remain open for 15 minutes to enable the unitholders to cast their e-votes. We will also host a Q&A session towards the end of the meeting and any unitholders who wish to express their views or ask any query may do so then. The unitholders present in the room may preregister their questions at the registration desk outside the room. Also, the unitholders joining us virtually may ask their queries by clicking on the Q&A tab on their respective video conference screens. [Operator Instructions] Now let me take the opportunity to introduce you to your Board of Directors, who are attending this meeting today. Joining us from this conference room, we have with us Mr. Jitu Virwani. He's a Non-Executive Director and Chairman on the Board of the Manager of REIT. He's also Chairman and Managing Director of the Embassy Group of companies. He has over 30 years of experience in real estate and property development sector. Mr. Aditya Virwani. He's a Non-Executive Director on our Board. He's also the Chief Operating Officer of the Embassy Group and is on the Board of several Embassy Group companies. Dr. Punita Kumar Sinha, she's an Independent Director on our Board and Chairperson of the Stakeholders' Relationship Committee and the Corporate Social Responsibility Committee. She is the founder of Pacific Paradigm Advisors, LLC. Previously, she was a Senior Managing Director of Blackstone and Managing Director at Oppenheimer and CIO of the India Fund, Inc. and the Asia Tigers Fund, Inc. Also joining us online, we have with us Mr. Vivek Mehra. He's an independent director on our Board and Chairperson of the Audit Committee and the Risk Management Committee. He was with PricewaterhouseCoopers for 19 years and retired as a Partner in 2016. Dr. Anoop Kumar Mittal, he is an independent director on our Board. He served as the Chairman come-Managing Director of NBCC India Limited. Mr. Arvind Kathpalia. He's a Non-Executive Director on our Board with more than 40 years of experience in financial services, his most recent position was as the Group President and Chief Risk Officer of Kotak Mahindra Bank Limited. The management team of Embassy REIT also joins us for this meeting. We have with us Mr. Aravind Maiya, Chief Executive Officer; Mr. Abhishek Agrawal, Chief Financial Officer; Mr. Ritwik Bhattacharjee, Chief Investment Officer; Ms. Vinitha Menon, Head Company Secretary and Compliance Officer. The following key persons are also attending the meeting. Mr. Adarsh Ranka and Mr. Nikunj Shah, Partners, both present here, representing S R Batliboi and Associates LLP, statutory auditors of Embassy REIT. Ms. Rupal Jhaveri practicing Company Secretary attending virtually, the scrutinizer for this annual meeting. Mr. Nitul Gala, Mr. Sagar Shetty and Mr. Hardik Shah, all attending virtually, representatives of Axis Trustee Services Limited, trustee to Embassy REIT. We will now play a short corporate video highlighting Embassy REIT's journey since listing in April 2019. Can we have the video, please? [Presentation]

Thank you. With this, I now hand over the meeting proceedings to the Chairman for today's meeting, Mr. Jitu Virwani.

Dear unitholders, my colleagues, my fellow directors. Good morning to all of you. It gives me a immense pleasure to welcome all of you to the Sixth Annual Meeting of the unitholders of the Embassy REIT. All reasonable efforts have been made by the manager of the REIT to enable the unitholders to participate and vote on the items that are being considered for the meeting. On behalf of the Board of Directors, of the Embassy REIT. I thank you all for taking the time out to join us today. Since we have the requisite quorum present to conduct the proceedings of this meet, I call the meeting to order. Before we start the main proceedings of the meeting, I would request my colleagues joining us online to introduce themselves, along with the details of the location from which they are attending the meeting. Vivek Mehra?

Good morning unitholders I'm Vivek Mehra, an Independent Director on the Board and Chairperson of the Audit Committee and Risk Management Committee, and I'm attending this Annual General Meeting from my hotel room in Thimphu, Bhutan.

Dr. Anoop Kumar Mittal.

Good morning, unitholders. I am Anoop Kumar Mittal and Independent Director on the Board I'm attending the Annual General Meeting from Norway, hotel. Thank you very much.

Mr. Arvind Kathpalia?

Good morning, unitholders. I am Arvind Kathpalia, a non-independent, Non-Executive Director of the Board. I am attending the annual meeting from my residence in Malabar Hill in Mumbai. Thank you.

Dr. Ranjan Pai has expressed his inability to attend the meeting due to unavoidable precommitments, so he won't be present. The purpose of this meeting is to give you our unitholders an update on the key developments of the Embassy REIT and to seek approval on the matters stated in the annual meeting notice. This year marks Embassy REIT's fifth anniversary since its inception in April 2019, since the listing. Five years ago, we embarked on this journey as India's Pioneer REIT. And today, we stand proud of our accomplishments and the transformative impact we've had on the Indian commercial real estate landscape. I now hand over it to Aravind Maiya to present our business highlights for the year forward and outlook on our strategy ahead. And once again, thank you for the faith in us.

Good morning, unitholders. Wish you a warm welcome to our sixth annual meeting to all people from Bangalore [Foreign Language]. Now before I start off with how the year has gone by, which has been phenomenal. On 1st April 24, we celebrated our fifth anniversary as a REIT. So we thought it's apt, we start with some highlights about how the first 5 years went by. While there are quite a few achievements which are put out in this slide, probably, I'll call out my top 5 out of these, starting with the fact that we increased our completed area from almost 25 million to 37 million square feet. Okay, they are also happy about this. We leased close to 20 million square feet in these 5 years. And more importantly, we took the rents up from INR 63 per square feet to almost INR 87. So all this leasing came at a much higher rent. We raised a lot of money, both equity and debt, but probably the fifth and the most important is the fact that we increased our unitholder base from around 4,000 to as of now around 110,000. And despite more than a majority of these 5 years spent under the shadow of COVID, we have returned almost 11.3% per annum to our unitholders in these last 5 years. With that, let me just move to how the last year went by FY '24. I would just say that it was a phenomenal year for all of us. We started the year with a guidance of around 6 million square feet of lease up, which itself was a record. But by the end of the year, we did almost 8 million square feet. Now just putting this in perspective, all India leasing last year was around 60 million square feet across all the properties. So just we as Embassy REIT did 8 million square feet, which is around 12% of all India, all thanks to the fantastic leasing team, which we have. I mean, they've been phenomenal over the last 1 year. And some of this leasing included large pre-commitments with some amazing tenants, multinationals. We have close to 6 million under development to be delivered over the next 4 years. But because of these pre-commitments, around 4.7 million of deliveries over the next 2 years are already preleased close to 85%, which means it's confirmed growth for all our unitholders. And where is this leasing coming from? It's all coming from, as we call global capability centers. While I'll speak a bit more about this in the subsequent slide, all I would like to highlight over here is the GCCs love what we have created as infrastructure, as a space. They want to be in our parks. So it really works out for us. And because of all this, we added close to 31 new occupiers in the last 12 months and close to 90 new occupiers in the last 5 years. We also completed around 2.2 million square feet of buildings in the last 12 months across our properties in Bangalore and Noida. And while we call hospitality or hotels as an ancillary business, but to be very frank, it's an integral part of what we call as total business ecosystems for the simple reason, having these amenities in our parks helps us win lease deals. But besides that, on a stand-alone basis, last year, our occupancy was 56%. We increased our room rates by close to 14% and the EBITDA almost doubled to around INR 184 crores from INR 90-odd crores last year. So all of this added a lot of money to our unitholders. What does all this mean in terms of our last year numbers? We did revenues of close to INR 3,700 crores. Net operating income of around INR 3,000 crores. Both of these grew by around 8% each last year. We met our distribution and NOI guidance for the fifth consecutive year, last year. And we distributed close to INR 2,020 crores to all our unitholders. There is another thing, which I think we have a phenomenal treasury team, which has managed our balance sheet very, very well, probably the best in the industry. We are 29% levered, 7.8% debt cost, probably the cheapest in the industry. Great set of investors, I mean, spread across mutual funds, pension funds, insurance, banks, of course, and well-staggered maturities. And last but not the least, when you look at our unitholder base, of course, it saw a significant shift during the year last year. But as we speak now, I think arguably, we are one of the largest publicly held real estate company in India, 92% free float, a combination of foreign institutional investors, domestic investors, but of course, more importantly, 16% retail, all of which adds up to close to 110,000 investors as of today. Last but not the least, one update post balance sheet, we completed our acquisition of Embassy Splendid TechZone asset in Chennai. It's a 5 million square feet park located in a strategic location on PT Road, very close to the airport. Why did we do this? Probably 3 important reasons. 1, Chennai as a market is doing phenomenally well. It probably did -- it was the third largest office absorption market last year 9 million square feet. Second, the asset itself is doing fantastically well much better than the market is 95% leased, rents above market rate. And last but not the least, we bought this asset at a 9.2% discount to the average of 2 valuers, which means that this asset is accretive to our unitholders. Having spoken about the year which has gone by, I think we as a management team are super excited about what's in store for us in the years to come. But at a big picture macro level, I think all of us are super excited about what's happening in India for various reasons, for different reasons. But as office owners, why are we excited about India? It's largely because of what I spoke previously, the growth of global capability centers in India, more and more multinationals across different continents are coming to India. Why are they coming? Probably 3 reasons. 1 is availability of talent at scale. Arguably, no other country can provide the talent which our country is providing today and at a reasonable cost. Second is the world-class infrastructure, which is getting developed. And when I say that, from both perspectives. 1, what we are creating is office landlords, one of the best office spaces across the world. And of course, what's happening in terms of infra development in the country. And last but not the least is stable government policies, all of which is leading to growth of GCCs in the country. When we talk about GCCs, they're no longer back offices. They are transformation hubs or innovation hubs as they call themselves. They are literally like the second headquarters to a lot of multinationals across the globe. And the second reason why we are super excited is the fact that close to 75% of the properties we own are located in Bangalore, almost all the development we are doing is in Bangalore, and Bangalore has been and we believe will continue to be the best office market in India. When you look at the micro market, the significant micro markets in Bangalore, we literally present in all micro markets, be it the North, the central business district or the outer ring road. Probably only micro market we are not there as Embassy REIT is in Whitefield, but I'm sure we will be there in the years to come. Just stepping on to how do we grow in the next few years? One of the key growth factors for us is the active development pipeline, which I've been speaking about 6 million square feet in the next 4 years, around 4.7 million square feet to be delivered in the next 2 years, largely preleased, a 20% plus yield on cost, which means all of this will add to growth in distributions in the next few years. And of course, we have the embedded growth, which has been there for the last 5 years as well, which is the 15% escalation in rent, which is already contracted every 3 years as well as the mark-to-market potential as and when the leases come up for ultimate expiry. Now when we put all this together, and we put up the growth stack plan. 1 is of course, we are today at 85% occupancy, and we believe we will take this up to pre-COVID levels of 95% in the years come. We have the 6.1 million square feet of development pipeline at good yield on cost. We have the contracted rents. We have the mark-to-market potential of close 16% in the next 4 years. And last but not the least, we continue to have ROFO pipeline from our sponsor, and we'll continue to do accretive acquisitions in the years ahead, which kind of leads us to FY '25 guidance what we have given, and we believe this is just the beginning of the long-term growth cycle. We have given an NOI and a distribution guidance of 10% and 7% growth, respectively, for FY '25. Just to end my presentation, I would like to thank every single unitholder, who has been a part of this journey for the last 5 years, and I really do hope that all of you will be with us in the long-term growth journey, which we are seeing for ourselves. Thank you very much.

Thank you, Arvind. We will now conduct the Q&A session. We will first collate all the questions from our unitholders present here as well as virtually. And I will then invite the management to answer them together. Please note that Embassy REIT may limit the number of unitholders asking questions depending on the availability of time. We've already started receiving a few questions from our unitholders through the live chat. [Operator Instructions] I would now invite our unitholders present in the room to come to the podium to ask their queries. First, I'll call out the names of the unitholders, who have preregistered their questions at the registration desk. Mr. Atin Shankar Rastogi. Can I request you, sir, to come to the podium to ask your question?

My first question is that it has been reflected in certain documents that there is some land that has been acquired of around 1 acres and 9 guntas, survey #9/4. And however, it has not been reflected in the current financial statement. So what is the reason of the same? And at what price was the land acquired? And what is the extra potential or additional sellable or the leasable area built up, which is envisaged in the project?

Thank you, sir. We'll answer all the questions. So please go ahead with your second question.

Second question is with respect to the concept of the leasable area because whatever I have seen in the valuation reports, the leasable areas are mentioned. So why not the FAR, which is a legally valid concept. And KIADB, does this -- they lease the lands or the permit based on FAR, not on leasable area. So what is the efficiency on which the leasable area or the FAR is being calculated? And is the leasable area different from state to state or project to project? And if there is some discretion in this, so who is exercising that discretion?

Thank you, sir. We will answer all the questions at the end, sir. So you can take your seat. The second question is from unitholder RCV Securities LLP. Can I please request you to come up to the podium to ask your question. Is there anybody from RCB Securities? Thank you.

So my first question is with respect to the parcel 6, Q3 Financial '23 earning material released by the REIT, which says that the planned CapEx was 2 billion, yield of 24% of the cost. But the annual report of financial '23/'24, it says that the block will be completed in December 2026. But in the material, it was December 2025. So my questions are like what are the reasons for the delay and what impact will be the delay on the yield, whether all approvals are there and what is the current status of the construction? And my second question is on the ROFO asset that is Embassy Techvillage Back Land and Splendid Techzone. What is the process of selecting ROFO asset? And when are we starting the construction? And will this ROFO asset post-merger of the Indiabulls, will it be on the REIT? These are my 2 questions.

Thank you, sir. The next question is from Mr. Rikkin Jhunjhunwala. Sir, can I please request you to come to the podium.

I only have one question. So there is a related party transaction between VTPL and Magcharles. VTPL has purchased some power. So I wanted to check if we do any TP study and how do we ensure that the transactions are on arm's length basis?

The next question is from Mr. Abhishek Anand. Can I please request you, sir, to come up to the podium.

Good morning, everyone. Concerning the documents, it was noted that there was a related party transaction between MPPL and EPDPL. So with regards to the M3 Block B transaction based on the core development agreement that was held. There was a consideration of 7,367 million, of which 6,533 million was already paid and basis of which -- because the question is the rate of interest that has been changed to EPDPL, what would be the rate of interest. And since the average cost of capital is approximately about 13% that is being bagged by the MPPL, sorry. And so we'd like to know what would be the rate of interest that has been charged to EPDPL? And with regards to that, the building that has not been completed with regards to the M3 Block B because it has already been pre-leased to a bank called ANZ Bank based on the documents, what would be the impact on the delay? What will be the financial impact of the delay? That is my question.

The next question is from Mr. Aditya K. Can I request you to please come up to the podium?

I have 2 questions. This year, you have projected the distribution per unit has a 7% increase. I don't know whether it's just a projection because I have stayed invested for the past 2.5 years. I have never seen the DPU go up even by 1%. You always announced the DPU as INR 5.20 per unit. And in 1 or 2 quarters, it was INR 5.40, that's all. So I have never seen for the past 2.5 years, the DPU go up at all. So -- and so whatever you have announced, it is just a projection. So when is it real -- I have never seen it. Second point is, you talk a lot about ESG and even for your tenants, you just mentioned that you are like a partner. I have never seen you make any outreach to retail investors over the last 3 years under the ESG principles?

Is there anyone else who wants to ask a question from the audience. Can you please raise your hands? Yes, can we just do one by one, sir? [Operator Instructions].

Mr. Chairman, Members of the Board and other dignities on the dais, shareholders, ladies and gentlemen, I am R. Murlidhar and my folio number is 1203517. First of all, I would like to thank the Chairman for honoring our request to conduct this meeting at the hour of 11 in the morning, which is very convenient and relatively replaces very nearby to all the corners, I thank you. Secondly, I do not want to talk anything about the annual report because the annual report everybody will come and talk something like that, and you will respond to it. My area is only the company should make a lot of profits and the company should grow very well. And we should get lot of dividends. And of course, our share should quote highest price in the market. With this, I wish the company a great progress and good business. Thank you very much.

Thank you. Yes sir, please?

Hello, Chairman, sir. I am Manjunath, a shareholder of your company since long. So my folio is 11218169. So congratulation at the outset for making an illustrative informative with the pie chart and colourful, I mean, pictures and all that annual report coming out on 431 pages, I think sooner you will overscore the parliament members 542 or something like that. I mean, it is lengthier, which is not an use, I mean, to be qualitative and quantitative also, I think you're doing both. So at the sixth meeting, I mean, I congratulate you and the profits have also moved up. I mean in 1 year, not necessarily the turnover. So turnover has not moved up that much, but still the profits have gone up. So that's how the efficiency of the -- I mean, the capital used. So -- but still my regret is, so whatever you are having around 85%, I think, of the total business. I mean, the income is coming from the office park. So I apprehend whether this trend will continue because of what I was telling you on the last year also, hospitality to hospital is not a very big distance only -ity is only the difference. I think I was telling that Chairman is laughing. So actually he was not interested in doing this. But you would look at the people in the Bangalore 1.3 crores, 1.4 crores, whatever is there and government I mean, initiative in the cashless segment and the Policy Bazar, all these initiatives -- I mean the government is looking at how to bring down the expenditure, how to bring down the take quality time to be used efficiently. So I mean, because of that is a very cash cow, I mean, for all the segments like maybe the cream you're looking at about 10% of the people, whether they can spare their money and do it. So because of the hospital is -- I mean going to be a very -- because you are a part of the people who are working in the software companies. So because of that, you need to have a good city needs because at the outset now we are only having 2 big brands: 1 is Manipal another is Fortis. Other than all these brands, I mean, simply, you must have seen overbilling, services are very poor. I think we have got a lot of experience in corona and all that. So Embassy has got a good brand name and service name. So this brand name is at the end of time like companies like Tata, or whatever is that brand is used, not the products, not even the like business cubicals also, business verticals also. So what business they are doing is Immaterial. Tata's, Birla's [Foreign Language] I mean, Ambani Brand. Virwani brand also [Foreign Language] you should do it. So the brand is a concept. We must -- I mean, even Blackstone, I think madam was maybe afraid to tell. The brand is the criteria. So hereinafter, we should develop as a brand. So once the brand comes -- government will come to you. I mean, Mirchandani of the Info Edge was telling. See if you are too good with the brand, people will come to you. So it is a brand that is important. So because of that, my concern is from hospitality to hospital. And I mean, dealing with the government as an incubation driver. I think government is selling about 25,000 acres as a joint venture or something like in Karnataka. I mean due to our other problems, that is a different thing. You can set up city and take your 50% of the contribution whatever the lease out land or something like that. So Karnataka is always a first in the -- I mean setup from software to develop to anything is Karnataka is first. So you and Prestige and all should go with this sort of initiative to see that all these lands are taken and then develop the city. So because if you are to see after the city comes, then it is always a problem. I mean setting up all the basic infrastructure is always a problem. So take up the venture that's a different thing. Government doesn' t do anything. Government employees doesn't do anything. But we analysts, as I think of all the future growth there would be a city embedded city. So like that it will happen. Congratulations.

Sir, please you can ask your question.

A very good morning to the dignitaries on the dais and off the dais. Sir, my name is S. Ashok Chakravarthy, 1833296. Sir, I'm once again congratulating the management for whatever the performance, just now revealed on the Board and everything on the balance sheet and congratulate you sir. Once again I thank the management for conducting this hybrid or what do you call it, physical come video meeting, virtual waiting. I thank very much for the hybrid meeting, sir. And one more thing, what I thank also is as I informed my earlier speaker. You have given an opportunity to visit another Embassy Hotel also earlier, we have visited and had a meeting and I could get opportunity to visit that hospital -- Embassy sir. Now you've given another opportunity to visit another this Four Seasons Hotel, also sir, and I am thankful sir. I'm also interested to know the developments and progress as far as the acquisition or whatever you call it of IB real estate building sir. There are some different reports are coming. Just I also wish to know any progress. And also, I also wish to know how it is going to benefit the our company by acquiring the IB real estate, assets and other thing, sir. Just I wish to -- I'm very happy to inform this audience and also to the management, business line has given an article on the first page of this what you call it the business line, and it has really covered about our Embassy REIT also with certain remarks. And I hope it will -- if I can -- if the management can -- what do you call it, update whatever the remarks made by the -- what do you call it, this business line article, sir. I also wish to have just some clarification about any reducing stake by Blackstone. I heard some reports, whether it is true or not I want a confirmation. But I will not be happy if at all Blackstone reduces it. I wanted Blackstone to increase their stake in our company for a brand name or goodwill or whatever you call it, sir. And thank you, all the people once again.

Anyone else from the audience would like to ask the question? Sure.

My name is Vijay Nikam and my folio number is 1204720001504636. First of all, congratulations to the management team for a good set of numbers I have 1 question and 1 request. For retail unitholders like us, we consider this instrument as sitting between equity and bond. So we had incremental benefits also which bond doesn't give and not like equity which is volatile. So for that incremental thing, the distribution is which we look for, which will increment every year, which is certainly not happening. I know the COVID crisis happened and interest rate increased. So there are headwinds to this sector. But we are awaiting that DPU increments every year. So when that will happen, I think projections are there, but I'm certainly looking for that. And another just request is can we have a set tool for the unitholders somewhere in the year, maybe colliding with AGM also some time in the year whenever the arrangements can be made.

Any other questions from anyone in the audience?

Abhishek Anand, 1208160003816413. I just missed out just 1 question. With regards to the Sterling Wilson Private Limited versus Embassy Energy Private Limited, that was basically disclosed in the annual report. So EEPL had basically engaged ISPL as [ one-off ] for the construction and development of 100-megawatt solar brand. And ISPL basically outsourced it to Sterling Wilson. And Sterling Wilson issued a demand notice to EEPL that alleging that the unpaid amounts of about INR 100 crores are due to it directly from EEPL. So the case was basically dismissed by NCLT as well as NCLAT. But recently, the Sterling Wilson had basically filed the appeal with Supreme Court as well, which has been admitted and they have taken the cognisance of the matter. So the question is basically if EEPL has to basically pay the INR 100 crores, why is it not being disclosed in the financial as a contingent liability as such. And whether the INR 100 crores is actually being paid to ISPL since that is the main contractor for EEPL.

Sure.

This is Lokesh Malik, retail unitholder. My DPID client ID is IN30302889189257. My question is related to related party transactions and regulations. So the SME regulations have come and they don't allow for related party transactions they have put in the safeguard. However, the REIT regulations, when they were formulated did allow for related party transactions because many of the REITs, which came in were developer REITs. Having said so, and the REIT has benefited from related party transaction by taking on the assets of the developer. Having said that, it's been a one-way traffic, meaning the REIT doing a lot of CapEx and acquiring a lot of assets. But can the REIT potentially benefit in the future, the other way round, meaning that, let's say, Embassy as a sponsor also has a co-working space. So some of the lease -- could this also, WeWork helping Embassy REIT with some of the leads with the growth we have seen in co-working space. Could the Embassy REIT in the leasing be held through a related party transaction with someone like WeWork. And my related question is also, was this -- we have seen one case in Embassy One is sort of leading to WeWork. But -- is it largely because these were SEC spaces which are vacant, which is not enabling this? And could the conversion of SEC spaces to non-SEC accelerate some of the leasing to the co-working players, which are witnessing huge disproportionate growth in lease? So this is my question.

While our team collects all the questions we've received, both from here and virtually, we'll be playing a short video showcasing our office parks across India, and we'll come back to you shortly. Thank you. Can we have the video, please? [Presentation]

We will now answer all the questions received from our unitholders. The first question is on growth drivers, and we've received this question from Mr. Abhishek J, Mr. Ghani, Mr. Bhappi Dave, Mr. Aditya K, and Mr. Vijay Nikam. The question is, what is the expected FY '25 payout? What will be the growth triggers in the first half and second half of the year? When do we annual distribution to exceed FY '20 number?

Thank you, unitholders. Let me take that question. I think from FY '25 point of view, I'll cover a few questions together. We've given a guidance for both NOI and distributions. NOI expected to grow by 10%, distribution to grow by around 7%. Of course, the factors for growth largely will come from increase in occupancy, which is what we've given in the assumptions to our guidance growth as well as some growth in hospitality. There will be some marginal negative impact due to rising interest cost as well. All of that has been beaten while we've been giving guidance. And also I would like to very categorically say that for the last 5 years, we've always met our guidance. But we also acknowledge the fact that the distributions have not grown in the last 5 years. I mean, there are various reasons for it. We don't want to go into it, but we are more positive about what's in store for us in the years to come. And all of this guidance which we have given factors in some of these fundamental assumptions around how office market is doing, which is doing much, much better than what it was in the past few years. So that's broadly our answer on this question.

The next question is from unitholder Mr. Lokesh Malik. The question is, you have INR 2,000 crores of NCDs coming for maturity in October 2024, which was earlier financed at 6.25% in 2021 and will now have to be refinanced at 8%. Will this increase in interest rate impact your FY '25 DPU guidance?

Please request Abhishek to take this.

Yes, Mr. Lokesh. So you're correct, we will be -- we expect to refinance it at 8% or above 8%. But all of this is already factored in the guidance that we have provided for this year.

The next question is also from Mr. Lokesh Malik. The question is, you have a pending CapEx of INR 3,800 crores for your ongoing developments, which will increase to over INR 5,000 crores post the recent Chennai asset acquisition. The 3 questions based on this are, how much of this CapEx is linked to pre-lease commitments where spends can't be deferred. If a future fund raise doesn't happen, what is the impact on LTV, debt cost and DPU for FY '25 and FY '26. Also, does the current FY '25 DPU guidance get impacted due to the additional debt taken for the Chennai asset?

Can I please request Ritwik to take this?

Mr. Malik, to answer your question on the CapEx. It isn't necessarily just linked to sort of pre-lease commitments. We, obviously, build and we plan based on demand drivers, particularly in our parks in Bangalore, where most of the guidance -- most of our deliveries are coming online in the next 2 years for 4.7 million square feet that is 85% pre-leased, simply based on showing you the type of demand that we see for our parks. We -- all our CapEx is disclosed in our supplemental deck, we plan to continue with our entire capital plan and it's all secured financing that we have for it. On the LTV side, the LTV post the Chennai deal is 30.7%. If we don't do an equity fund raise, and I'm not going to comment on whether or not we do one, it will increase marginally. We had unit hold approval up to 35%. And as we've always mentioned, we're very cognizant of rising rates and making sure our balance sheet is very stable. So LTV is a big focus for us and making sure it's stable. Alongside that, I think the DPU, we've said that the Chennai transaction, even when you did it through debt was accretive to the tune of around 0.2%. That's for FY '25. We'll stay away from giving you any guidance, however, for FY '26, and we'll do so at the appropriate time.

The next question is from RCV Securities. The question is, what are the reasons for the delay in the delivery of ETV Block-6 and impact of the delay on the expected yield of 24%? Are all approvals in place? And what is the current status of construction?

Sure. Let me take that. I think from a ETV Block-6, of course, each of the projects have its own nuances, but there was a few site level issues because of which the project got delayed. But having said that, overall, the project is at early stages of construction and would like to categorically say that the yields which have been disclosed for the project, they kind of stay good for it.

The next question also from unitholders RCV Securities; and Mr. Ashok Chakravarti. What is the process of selecting ROFO assets? We've heard that Embassy Group is starting to construct a new project, just opposite Embassy TechVillage. Does REIT have a ROFO for this project? Also will REIT have a ROFO or buy from Indiabulls commercial assets post the merger of Indiabulls and Embassy? And the other part of the question is also, has Blackstone fully exited?

Okay. Why don't I start, and then I'll hand it over to Ritwik. I think in terms of -- while there are a lot of questions coming on related party and as kind of mentioned by one of the unitholders in the question itself, the whole principle of REITs have this concept of a sponsor and there is a REIT and the REITs world over grow through acquisitions and having this whole ROFO with the sponsor is a great advantage for the REIT because that kind of gives a great pipeline for each of the REITs to grow, right? Otherwise, I mean, we've been now in this REIT business, if I can say, for the last 5 years, Ritwik can speak a bit more about it. We've evaluated close to 50 million square feet of so-called opportunities, which were presented to us as a management team from various third parties, and I can categorically say that a lot of these are nowhere close to the kind of assets, which we have built or the group has built over a period of time. A lot of these are just land purchases, which we can't even do as a REIT. So we genuinely believe as a management team that having this ROFO construct is advantageous to all unitholders. Having said that, we, as a management team, are extremely conscious of the fact that each of the RPTs have to be done arm's length. And if you see each of the acquisitions we have done have always been at a discount to the average of 2 valuers. So we are conscious of it, and we're also conscious of the fact that the acquisitions have to be accretive to unitholders. These are some of the benchmarks and the guidelines, which we are always governed by, and we'll stick to it. So that's a big picture I wanted to give. But with that, I'll hand it over to Ritwik.

Yes. I completely agree with Aravind on this. ROFOs have provided a major catalyst for growth for the REIT. And I think the process by which ROFO assets are selected really depends on the levels of construction, the size of the asset. And most importantly and from a very common sense perspective, how does it add value to you as unitholders? How does it -- whether it's from a square footage perspective, is it in the right market? How is it going to contribute to distribution? You must remember that in India, the REIT is a new concept, the whole idea of distributing particularly dividends, and it's highly regulated. So we always want to make sure that the asset base is chosen in a way that provide -- continues to provide that. And it's a very exhaustive process from -- both from selecting the assets as well as making sure that every transaction is done on an arm's length basis. And obviously, most importantly, it comes to you as unitholders approval, right? Whether we are financing it, whether we're buying it to equity or debt, you should always sort of know that you have a very active voice in that. Just specifically regarding the questions, I think with the new project, that's not an identified ROFO asset. Also, the REIT has nothing to do with any ROFO, or there is nothing in place with Indiabulls. So just to be very clear on that. And Blackstone has fully exited. They exited in December 2023. There have been terrific partners to the REIT and they played an instrumental role in the success of the sector. But the best part of Blackstone exiting is that our unitholder base is now 92%. It has world-class foreign investors mutual funds, FPIs, domestic mutual funds are hold around 25% of our register and we also have a new Nominee Director, Mr. Arvind Kathpalia, who's joined. So the register is wide. The governance is strong, and the ROFO assets provide us with a fair amount of growth.

The next question is from unitholder Mr. Atin Shankar Rastogi. The question is, based on the of the minutes of the 62nd meeting of the Karnataka State High-level Clearance Committee, VTPL has informed that it has additionally purchased 1 acre 9 guntas of land survey #9/4, and committed an additional investment of INR 100 crores to develop this land. Why is this land parcel not reflected in VTPL's or Embassy REIT's current financial statements, Also, what is the purchase price of this land and details of the seller from whom this land was acquired? Further, what is the extra potential area and visaged at ETV by integrating the said land parcel?

Let me take it. I think 2 answers to this question. 1, this parcel of land was always part of the acquisition, which we, as a REIT, did when VTPL was acquired. So there's nothing new in it. And it has always been disclosed in the financials. And second part of the question is, whatever is the leasable area, which we have disclosed as Embassy REIT, the total potential factors in this piece of land.

The next question is also for Mr. Atin Shankar Rastogi. The question is, how does the REIT define and compute leasable area? What is the efficiency assumption used? Further, does the leasable area differ from project to project or state to state?

Okay. Let me take that again. I guess the simple answer to this is -- this is a well-accepted market practice. I mean people will understand as a homebuyer is always a concept of carpet area and super built-up area and there are acceptable methodologies of arriving at the super built-up area versus a carpet area that's similar in a commercial property, where you have a leasable area, which is equal into, let's say, a super built-up area in a residential property. And it factors in some of the common areas, be it lobbies or the count passages, the common area amenities, all of these are kind of in-built in arriving at the leasable area.

The next question is from unitholder Abhishek Anand. The question is, in relation to the M3 Block B transaction and Embassy Manyata, what is the rate of interest that has been charged to EPDPL? The average cost of capital reported for REIT under construction assets is approximately 13%. So are we charging the same ROI to EPDPL? Second part of the question, also what is the impact of any delay by EPDPL on REIT's obligations under the ANZ pre-lease and whether EPDPL will be compensating the REIT for any financial impact.

Thank you. Abhishek, can I please request you?

Yes. So Mr. Anand, when we did this transaction, it was benchmarked by an independent party. The rate was at arm's length. And to tell you, we have made a spread on this transaction. On second part of the question relating to compensation. This is a forward purchase transaction. And all the liabilities up to the date of completion will be borne by EPDPL.

The next question is also from Mr. Abhishek Anand. The question is in relation to the case of Sterling Wilson Private Limited versus EEPL in the event of reversal of the NCLAT order, EEPL might have to pay INR 100 crores. So should that not be disclosed as a contingent liability? Also, have we already paid this value of INR 100 crores to the parent contractor that is ISPL and capitalized it in the books? If yes, why didn't we submit relevant papers to the IBC and the Supreme Court?

Abhishek, can you take this?

So Mr. Anand, what has happened is, yes, we have paid this INR 100 crores to the parent contractor. And just to tell you, both NCLT and NCLAT have dismissed this case in our favor. But since it is with Supreme Court, we have disclosed it as a contingent liability in the financials. You can refer Note #45 on Page 330.

The next question is from unitholder Mr. Rikkin Jhunjhunwala. Question is, why did VTPL buy power from Mac Charles worth INR 10 crores and not from Embassy Energy? Does this mean we've already utilized total production from Embassy Energy? Have we conducted any third-party study to ensure arm's length transaction with all related parties?

Yes. I think first, as I mentioned, every single reltaed party -- we do a detailed benchmarking goes to necessary approvals, be it Audit committee or board or where relevant unitholder approvals. But just big picture, yes, all the power, which is being generated by Embassy Energy, the 100-megawatt solar, is already consumed by 3 parks, which are there in Bangalore, Manyata, GolfLinks and TechVillage. And this is over and above that.

The next question is from unitholders, Mr. Aditya K and Mr. Vijay Nikam. Question is, under the ESG principle, we've not seen the REIT reach out to retail investors. Also, can we arrange asset tours for unitholders?

Sure. I think there is a question which has heard Ritwik so I'll ask him to answer because of all the India tours, which he is done over the last 1 year.

Yes. No, it's a fair question. So we do have a very active retail outreach program. Last year, we did 13 roadshows across Tier 2 cities, and we obviously have now over 1 lakh investors, and thank you very much for all your support. But I take your point. I think that, if we try and obviously balance trying to educate the market on the business on what a REIT is. It is a new product. And if we've been remiss in not talking about ESG, particularly as much as we should. I think we certainly will take that feedback on board and have that conversation with all of you going forward as well. And in terms of asset tours, absolutely, we'll consider that going forward as well. So -- but our retail program tends to be top-notch.

Next question is from unitholder Mr. Manjunath. The question is, around 85% of turnover from offices, why don't we expand into the hospital asset class?

Okay. There are so many different answers to this question. But let me put it this way, I think we are an office-focused REIT. We understand office very well. Group also understands office very well. That's one part of it. Second part of it is, of course, we are bound by a lot of regulations around what we can and what we can't. Like, for example, we just can't buy a vacant land and construct a hospital because it's not allowed under the regulation. And last part of it is it has to, of course, commercially make sense. We note your point, sir, but I think fundamentally, what we are comfortable with as a REIT is to be a commercial office REIT and some of the other ancillary aspects, which is hotel, which is integrated into our office parks or a solar park, which, again, supplies power to our office parks. That's our core and probably that's where we will stick to and focus on.

The next question is from Mr. Lokesh Malik. Can we, in the future, see Embassy REIT benefiting in leasing from a related party like WeWork, particularly in markets like Noida, Pune and now Chennai? Does the conversion to non-SEC help with this in future for leasing to co-working companies, including WeWork?

Sure. I think Flex as a -- Flex [indiscernible] another co-working operators is growing space. And when you look at it for India market per se, over the last 1 year, Flex has taken up almost 15% of the annual absorption approximately. Flex is a key tenant even for us, not at the same scale, it's around approximately 5% of our overall portfolio. We have close to 10 Flex operators, which includes WeWork. WeWork actually is on our top 10 tenant base even as of today. So we believe that there are dual advantages of having a flex operator in a park: 1, of course, they take our space directly and they provide office rents. But the other benefit of having a Flex operator is that in a Flex operator, there might be a lot of start-ups. In one space, there could be 5 to 10 different companies starting up there. But as they grow, let's say, the WeWork has a space in Manyata. And when these end tenant grows, they logically come and grow with us as a park. So there are these dual advantages of having co-working as a tenant to us, and we completely believe in that.

I think that's all the questions we've received unless there are any more questions, sorry.

Yes, you want to take that?

Yes. So just -- I think the gentleman had put out -- referred to an article in the Hindu Business Line, where he'd spoken about office REITs on shaky ground becoming underperforming assets, written by a journalist, a couple of weeks ago on June 9. That's a matter of opinion, right? And this -- we totally understand that there are asset classes, equity is doing very well, stocks are doing very well. But REITs, we just fundamentally disagree with that the notion that it's underperforming. We've leased -- Aravind pointed out in the presentation how well the business has done. It's a new product in India. We still have a lack unitholders. We have 4,000 at the IPO. We have the world's best investors, institutional investors investing in us. I think we don't look at the business every quarter. We don't worry about what's happening sort of on a month-on-month basis. We leased 2 tenants -- there's building behind us on this picture. JPMorgan will be there for the -- for decades. They hire people who work in their parks from across India, the kind of talent. So we always think about the business from a long-term perspective. The unit -- somebody was talking about, we're not unit seeing distribution growth. Yes, we've suffered from COVID. We've suffered from a lot of people pulling back on hiring. But over time, it will grow. We don't think it's an underperforming asset class in the slide. And I think that if you stick with us over the long term, you will continue to reap the benefits that you currently are. So that's our response to this article.

That will be the last question.

Shwetha, Jitu wants say few words.

So I thought with all these questions as Chairman of the REIT and Chairman of Embassy Group, I'd just like to let all the shareholders know that whatever we do here will be the interest of the unitholders first and the parent Embassy company coming second. And also, I know there were some questions on ROFOs. Unfortunately or fortunately, we were -- when we listed the REIT, there are only 2 assets put on ROFO. So Embassy actually is free to sell the REIT to assets to anybody else. But we've chosen more to sell our assets to the REIT, not because it helps the Embassy Group, but actually, it's accretive to the REIT to get good quality assets. In fact, I must say that with Aravind and his team, we have a constant battle, where actually we get paid much lower than what is available in the market for us. We probably would sell it in the market at a much higher price. But in the long run, we are committed to the REIT and the only way all of you who trusted Embassy and invested in the Embassy REIT, can avail all the good quality assets which we build. And as you saw from the presentation, and I don't know how many of the presentations of commercial space you've seen. I mean the quality of the building, the quality of tenants are unbeatable in the country. And I think all I can say is that as a group, we will do whatever it is accretive to the REIT shareholders first because it's a company, which depends on fixed income. So that's why I mean, the hospital is not really suitable for us because hospitals probably are fluctuating incomes, and that cannot be controlled by multinational. And hence, stable office assets. And like Aravind mentioned, the hotels is actually only an amenity to our office parks to take our office parks rent up. So that's how we have a small percentage of hotels. Otherwise, it's completely focused on office space. So please, please be assured that any related party transactions, for example, like WeWork. When we actually took the franchise of WeWork, we looked at it that it's a part of our traditional business. And yes, we also truly looked at it that one day WeWork will be our largest tenant because the world is changing towards the way office space is being built. And I think the REIT has benefited from the association with WeWork in lots of ways. And usually, WeWork also has benefited, but everything is done as arm's length transaction. So let's be assured. Yes, there will be more Embassy buildings because you invested in Embassy REIT. I'm sure Prestige won't sell in the Embassy REIT and Salarpuria won't sell in the Embassy REIT. Well, we are looking at stand-alone assets of unknown developers, but honestly, like Aravind said, that the quality isn't great. And we don't want to sit on this dais and be criticized by you on the quality of buildings after seeing such beautiful buildings you've been seeing for the last 5 years.

With that, we'll finish with all the questions. Thank you all. I trust that we've responded to all your questions. In case we haven't been able to answer any questions due to time considerations, you're welcome to get in touch with the Investor Relations department of Embassy REIT at [email protected]. I'd now pass it over to Ms. Vinitha Menon, our Compliance Officer and Company Secretary to take over compliance matters and resolutions. Thank you.

Good afternoon, unitholders. Pursuant to the SEBI Master Circular dated May 15, 2024, REIT's are allowed to hold a general meeting through video conferencing or other audio visual means without the physical presence of unitholders at a common venue. In order to enable the unitholders to avail the benefit of physical participation, we are conducting this annual meeting through physical presence at this venue and through audio/video conferencing mode in compliance with the SEBI Master Circular dated May 15, 2024. In compliance with the provisions of SEBI REIT regulations, we have extended remote e-voting facility through NSDL to the unitholders to transact the business set out in the notice of the meeting. This set facility was made available from Saturday, June 22, 2024 from 9:00 a.m. to Wednesday, June 26, 2024, till 5:00 p.m. relevant documents for inspection, as mentioned in the notice of the annual meeting, shall remain open and accessible to the unitholders for inspection during the course of this meeting. The unitholders can also request for an extract of the same by sending a request mentioning the name, DMAT account number and mobile number to [email protected]. The notice dated June 3, 2024, convening the sixth annual meeting has made available 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 the same as read. Ms. Rupal D. Jhaveri, Practicing Company Secretary, has been appointed as a scrutinizer for scrutinizing the remote e-voting facility as well as the e-voting during the meeting in a fair and transparent manner. Unitholders who have not cast their votes by availing a remote e-voting facility and who are present in this meeting physically or virtually, will have an opportunity to cast their votes through an electronic voting system in the manner described in the notice. Unitholders present virtually and who have not yet cast their vote can do so through the electronic voting system in the manner described in the notice. Unitholders present physically here can use the e-voting desk set up outside the hall. The results would be declared after considering the e-voting during the annual meeting and the e-voting already completed. The results would be submitted with the stock exchanges within 2 working days of the conclusion of this meeting, and the relevant resolutions will be deemed to be passed on the date of this meeting, subject to receipt of requisite number of votes in favor of the relevant resolutions. The results declared, along with the scrutinizer's report would be placed on the website of Embassy REIT and NSDL. The recorded transcript of this meeting shall also be made available on our website. 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 standalone financial statements and audited consolidated financial statements of Embassy REIT for the year ended March 31, 2024, together with the report of auditor thereon and the annual report on the 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 Ms. L. Anuradha, MRI CS, independent valuer for the valuation of Embassy REIT's portfolio as of March 31, 2024. Item #3 of the notice to be passed with simple majority relating to the consideration and approval of the reappointment of and fees payable to S R Batliboi & Associates LLP as the statutory auditors of Embassy REIT for a second term of 5 years for the financial years 2024, '25 to 2028, '29. The text of the resolutions, the notes and the brief profile of the statutory auditor is provided in the notice circulated to the unitholders. I now request Mr. Jitu Virwani, Chairman of today's Annual Meeting for his concluding remarks.

With this the sixth annual meeting of the Embassy REIT comes to the conclusion. I want to thank all the unitholders for their presence and involvement. My sincere thanks to the Board of Directors, the management team and all the unitholders present here today in the room and virtually. And also to all those who couldn't join us, but have been a part of our growth journey. We remain fully committed to the business and to deliver to our unitholders. I now authorize Vinitha Menon to conduct the voting procedure and conclude the meeting. Unitholders, who are present in this meeting and who have not yet cast their votes can now do so by availing the e-voting facility. The e-voting facility shall remain open for the next 15 minutes. The 15 minutes timer starts now. The requisite quorum was present throughout the meeting. The result of the annual meeting will be announced by the Embassy REIT on or before July 1, [ 2021 ] (sic) [ 2024 ] Thank you so much for being here. [Voting]

I would like to thank all unitholders for joining today's meeting. This concludes today's Sixth Annual Meeting of Embassy REIT.