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

Good morning, everyone. A very warm welcome to all for Embassy REIT's Third Quarter FY 2025 Earnings Conference Call. [Operator Instructions] As a reminder, this conference call is being recorded. I would now like to introduce your host for today's conference, Ms. Sakshi Garg, Head of Investor Relations for Embassy REIT. Ma'am, you may begin.

Thank you, Anj. Welcome all to the third quarter FY 2025 earnings conference call for Embassy REIT. Embassy REIT released its financial results for the quarter and 9 months ended December 31, 2024, yesterday. As is our standard practice, we have placed our financial statements, earnings presentation discussing the performance and a supplemental financial and operating data book in the Investors section of our website at www.embassyofficeparks.com. As always, we would like to inform you that management may make certain comments on this call that one could deem forward-looking statements. Please be advised that the REIT's actual results may differ from these statements. Embassy REIT does not guarantee these statements or results, and is not obliged to update them at any time. Specifically, any financial guidance and pro forma information that we provide on this call are management estimates based on certain assumptions and have not been subjected to any audit review or examination procedures. You are cautioned not to place undue reliance on such information, and there can be no assurance that we'll be able to achieve the same. Joining me today are Ritwik Bhattacharjee, our CEO; Abhishek Agrawal, CFO; and Amit Shetty, our COO. We'll start off with brief remarks on the business and financial performance and then open the floor the questions. Over to you, Ritwik.

Thank you, Sakshi. Good morning, everyone, and thank you for joining us this morning. Our business remains in fantastic shape, in large part, due to the robust leasing environment in India that's driven by GCC and, in particular, in Bangalore. We delivered a high set of quarterly revenues, NOI and total distributions, and we are on track to meet our leasing guidance and financials [ in detail ]. I've rejoined Embassy REIT as the CEO to ensure that the REIT continues to deliver value to all our tenants, 100,000-plus unitholders and all our debt holders. We're really, really grateful for all your support. I also thank Aravind for his immense contribution to the REIT over the years, and to the exemplary team at the REIT for their hard work that's always reflected in the way we run our business. So let's run through the operating details. We leased a total of 1.1 million square feet at 11% rental spreads. This includes approximately 700,000 square feet of new leasing and 400,000 of renewals. We leased approximately 70% of this area to GCCs, primarily from the technology, financial services and engineering and manufacturing sectors. We leased approximately 16% to multiple co-working operators, which is a segment that continues to benefit from enterprise demand for flex spaces. We closed the quarter with a portfolio occupancy of 87% by area and 90% by value. I do want to highlight that excluding quarter, on the demand in -- that's in Pune, where demand remains muted, we've already reached occupancy levels of 89% by area and 91% by value. With a strong pipeline of approximately 2 million square feet, we remain on track to achieve our annual leasing guidance of 6.5 million square feet and a year-end occupancy guidance of 88% by area and 92% by value. On SEZ, we converted 1.1 million square feet of SEZ area across Bangalore, Noida and Pune in Q3. Our total de-notified and demarcated area now stands at 6.4 million square feet since we started the process, of which 74% is already leased, around 400,000 square feet are under conversion, and we're confident completing this in Q4. On the development side, we handed over a 600,000 square foot office start to global banking major in Embassy TechVillage in Bangalore. We will deliver the remaining 3 towers that totaled 1.4 million square feet by the end of this financial year. Our development pipeline now totals 7.4 million square feet. This will cost us approximately INR 3,800 crores and result in incremental stabilized NOI of approximately INR 800 crores, which implies a 19% yield on cost. Recent demand in Bangalore remains robust. The calendar year 2024 clocked the highest set of gross absorption of 74 million square feet and net absorption of around 45 million square feet. GCC is driving the strength, coupled with robust demand from flex operators. We see further momentum through CY 2025. And with our pipeline, strong relationships with leading GCCs and the leasing community, we remain ideally positioned to benefit from these leasing tailwinds across our portfolio. I will now hand it over to Abhishek to present our financial updates.

Thank you, Ritwik, and good morning, everyone. Let me take you through the financial highlights for Q3. We grew both our revenue from operations and net operating income by 9% year-on-year to a record INR 1,022 crores and a record INR 829 crores, respectively. The increase was mainly driven by new lease-up at high-releasing spreads, contracted rent escalations and new buildings delivered and acquired during the period. Our hotel segment NOI grew by 16% year-on-year due to an occupancy uptick of around 400 basis points to 59% as well as an area growth of 13%. We declared distributions of INR 559 crores or INR 5.9 per unit for the quarter, representing a 13% increase year-on-year. This increase was driven by an uptick in our NOI as well as positive working capital changes, which was partially offset by an increase in our interest costs. During the quarter, we successfully raised INR 1,000 crores of coupon bearing bonds at 7.73% to repay certain existing higher-cost debt and saved around 70 basis points in annual interest. Post this refinance, our net debt book totals over INR 19,000 crores, implying a 32% leverage ratio and a 7.93% average in-place interest rate. 51% of our total debt book is at floating rates, positioning us well to take advantage of any rate cuts in the future. Lastly, on our forward financial outlook. We remain on track to achieve our financial -- FY '25 guidance. We continue to expect our NOI to be in the range of INR 3,215 to INR 3,345 crores and our distributions to be in the range of INR 22.4 to INR 23.1 per unit. At midpoint, this guidance implies 10% year-on-year growth in NOI and 7% growth in DPU. While we will provide detailed guidance for FY '26 during the next quarterly call, I want to highlight that we are confident of delivering an even stronger performance during the next year. This is in line with our earlier commentary regarding Embassy REIT being on an exponential multiyear growth cycle. We look forward to sharing more with you at the end of this financial year. With this, let's move to Q&A, please. Thank you.

[Operator Instructions] The first question comes from the line of Puneet from HSBC.

Yes, and congratulations on your decent uptick in DPU. My first question is, while NOI growth looks strong, we are seeing some bit of declines coming on the other side. Even the PLFs have been lower, while you talked about tariffs being lower last time, but PLFs continue to be lower. Can you comment a bit on what's happening there?

Yes. So Puneet, this is Abhishek. So on the solar, as we had -- during our guidance in the first quarter, we had mentioned that this year, the total revenue will be lower from solar because the tariffs had gone down. What we also saw, that because this is a seasonal business during the quarter 3, there was unseasonal rains also, and because of which, the production was lower, the generation of the units was also lower, which actually doubled up the decrease, but that will become flattened going forward.

So it's a sharply lower 20% down to 14.4% of the -- in PLF terms. Just wondering what -- so it's just rains? Or...

It is just because of unseasonal rains and also the tariffs, yes. Both of these taken together.

Yes, it's a bit of a double whammy, and it's an unfortunate thing, but we can't get around it right now, right? I mean it's just the way it is. Hopefully, there is sort of an uptick as we head into next year.

Yes. Yes. Okay. Second is on the working capital side, some bit of -- [ decent ] support came from the working capital as well. If you can talk a bit about what are the elements there post the deposits? I mean how much of deposits would have contributed? Some color would be good.

Yes. So, Puneet, there are a couple of reasons because of which working capital went up. One is what we had done is during this current year, we paid the property tax between Q1 and Q2. But during the last year, we had paid property tax in Q3 also. So that was one big mover. Second is, as you rightly said, security deposit, we received a security deposit for all the leasing that we had done in Q1 of this year and Q4 of last year. So those 2 are the big components, which -- because of which, the working capital actually increased.

How much was that deposit, roughly, if you can quantify?

You can say deposit, the total increase is around -- from Q3 this year to Q3 last year, around INR 60 crores, and the impact of property tax is almost the [ balance ], yes.

Okay, understood. And thirdly, if you can also talk about your Chennai Splendid, which is also going to commission by June '25. What is the status of leasing there, if you can...

Yes, let me take that. I think Chennai, for us, is always sort of a strategic kind of growth market we wanted to enter. It obviously took a long time to have this deal come to fruition. The pipeline, what -- is pretty robust. I think we're definitely looking at sort of close to sort of 3 or 4 major players, so GCC driven, who are looking at the building. So I think the onus is really right now on building out sort of a pre-lease in the area of possibly 500,000 square feet, right? So one of those should probably -- we were hoping that we could probably get some of that in Q3. Some of the discussions have obviously slipped into Q4. So hopefully, by the end of this financial year, we'll have a positive update on that. But yes, look, there is demand. There is -- the blocks are online -- coming online. We're not going to stop on the development front. I think there's just too much happening in the Indian leasing market for us to sort of slow down on development, so I think Chennai is no exception to that. And I think those -- one of those conversations will definitely pay off. It's financial services, it's telco. There's some coworking. A bunch of people are pretty interested in it.

So half of it would be leased out before it's ready? That's how much...

We are in the midst that.

Okay. And there was also an interesting comment of 388,000 being renewed at higher-than-market rates. Can you comment upon how high versus the market and specifically call out what those assets are?

Give us one second. Let me just get that. Yes.

Yes. And also just, Abhishek, on the lower other income, some thoughts there would be useful. That's from my side, yes.

Puneet, I'd take the other income point. So what actually happened is during the previous quarters, we had received around income taxes of [indiscernible].

Sorry, your voice is fading, Abhishek.

Yes, sure. Is it better now?

Yes. Better, yes.

So on the other income side, what has happened is, one, during the previous quarter, we had received certain income tax refunds, which were unaccounted in the books. So it came in as an other income. Also, there were certain scrap sale income. And the third component, which was a big component, was the interest which we were receiving from M3. You'll recall that in Manyata, we had 1 M3 project, so we are receiving interest on that. Now that the project is delivered, the interest is gone.

Yes. And on the renewals, let me just say that look at the 388,000, yes, and at 8% higher effectively across 6 deals, I'd say the biggest one that we saw was a Swiss reinsurer in GolfLinks that -- this was sort of -- has been a big part of the portfolio. We also had Google up in FIFC, which went out and sort of renewed 150,000 square feet. Beyond that, you've got a couple of others, you've got effectively IBM and GolfLinks as well. So I don't want to go down completely name by name, but if you just get a sense of some of the big guys, including a VC firm up in Express Towers. There's, clearly, sort of people who are looking to sort of keep sort of the marquee spaces and continue to sort of be -- have us as landlords.

Yes. And basically willing to pay higher sales than what is available in the market? That's what...

Yes. Yes. Look, I think -- I mean, it's the usual story, right? I mean, at this point in time, there is a specialty of like high-quality kind of spaces. So where you want to go? And if you've been here, we've been part of -- this is sort of the strategic part of the relationship building, right? You don't -- you try and sort of keep your marquee tenants. You make sure you give them what they want. And at some point, they will sort of keep paying the rents that are higher than the market. You have to understand, I mean these are not expensive sort of propositions for the company -- the caliber of the companies we're talking about, right? So...

And Ritwik, probably just to add, Puneet, the entire absorption in the country today stood at about 49 million square feet on net absorption. And the net supply that came into the market was about 45 million. Thereby, we've seen that rental rates are getting pushed outside in key micro markets. And some of these marquee assets that we control, we're seeing a great demand and thereby, almost nil vacancy. And hence, some of these renewals are getting renewed at higher-than-market price.

[Operator Instructions] The next question comes from the line of [ Satinder Singh ] from Eon Infotech Limited.

Welcome back, Ritwik. My first question is regarding...

Thank you.

The new leasing and the prerelease. And so this quarter has been relatively softer compared to the quarters before. So anything to read in this? Or should one see this just as an one-off and 4Q should be, again, filing?

Yes. Okay. So, [ Satinder ], nice to hear from you, and thank you for the wishes. I just want it very clear to the market, right, this is not a soft quarter for us. We had conversations that just have slipped into Q4. And we feel that none of the trends that we're seeing is that this is still a GCC market, as evidenced in the leasing that we've done. It's effectively a very much a non-SEZ market, which is most of the leasing that we've done. And overall, there's just been a tremendous amount of sort of momentum that's just going to be pushed into Q4. We have -- we -- from a quarter ago, we upped our leasing guidance from 5.4% to 6.5%, and we're pretty confident we're going to get that. So no, there's nothing to read into this at all. I think the one big delta that kind of has played a little bit of a role in the numbers looking the way they are is that last year, at this time, we did 3 major preleases that, clearly, sort of gave us a pretty big boost to the leasing number. But I think the prelease pipeline for us continues to be extremely solid, extremely robust. So look, it's difficult managing a business and reporting it every quarter, particularly when you're looking at long-dated leases, just a lot of things need to kind of get done. Sometimes it's just the numbers come out the way they are, but it doesn't belie the momentum that we have in the business or anything else that impairs the way we run it or just the outlook. Look, I mean, the way, I think, about sort of this year, it's going to be a great year for Indian leasing again, right? The office market is doing extremely well, and we will continue to sort of see that come into our portfolio as well. At some point, this is why we're doing the development. This is why eventually we'll be on lookout for growth. So no, there's nothing to read into it at all. And I think everybody should take comfort from the fact that we are actually very stable and doing very well.

And that's very good to hear. About the SEZ denotification, so any outlook on that where we stand and what we see, the road ahead for the quarter?

[ Satinder ], if you see, we've denotified about 7.4 million square feet, and we're on track to denotify the 0.4 million square feet, right? And we've leased a significant part of whatever we've denotified and -- at very high spreads. So the process becomes simpler. We know the process, having denotified about 7-odd million square feet. And as and when we see that there is space that gets churned out, we'll denotify. The market is robust. We're very confident about our leasing engine. So in all in all, it's a very positive story for us because we're getting the upside as well.

Yes. So anything more in pipeline for denotification?

Can you say that again, [ Satinder ]? We couldn't hear.

Any more pipeline that we plan to offer to the government for denotification?

Yes, about 0.4 million square feet is in the works for denotification.

Okay. Okay. And on data centers, are we looking at that as an opportunity in one of our parts? Or any view around that given that GCC to be the flavor of the time with robust teams that probably ties in well with what we do?

Data centers, no. Certainly, they're not on the agenda right now. We have looked at sort of the feasibility of them, but I think our assets are kind of located where I think they'd be -- the economics of running one or building one for us right now just don't make sense. I think we'll stick to our bread and butter of office. And over time, we always continue to evaluate shifts in the market and the cost of actually building and operating different asset classes. But I think it's not on our radar right now and something we won't focus on.

Okay. That's clear. Okay. And on Quadron, kind of your views on how do we handle that asset, given that we are about 39%. And also, there's a renewal coming up in this quarter, okay, so any view on that, okay? Are we likely to renew it? And about the property plans on this asset broadly?

Yes, we've -- going back, we said that we will be really transparent to the market on Quadron, and we've obviously got an IT services tenant there that, for all intents and purposes, will probably be on exit. Look, transparently, I think that's an asset that we've been looking to effectively monetize in some way, shape or form if there was sort of something to do there. It's clearly been sort of a kind of market where we've taken -- we continue to evaluate alternatives. There are 2 options, right? One is either you sell it for a price that's agreeable to us or do you wait for the market to come back. But [ weirdly ] enough, I think there is actually demand that we're seeing that's beginning to sort of come up in Pune, in Hinjewadi, which has clearly sort of lagged sort of the other eastern side of the market. But at this point in time, I'm not sort of shy to admit that it's been a bit of a challenge in Quadron, but we continue to evaluate alternatives there.

Okay. Okay. On the hotel debt ETV, I was just looking at the supplementary data sheet and the GAV movement over this quarter has not happened. So is there work going on? What are our plans around the hotel, given that our other hotels are doing very well and they're [ reaccelerating ] to our proposition very strongly, okay, so just a view on that.

Sorry, so it's a little hard to hear you on that question. Can I suggest to come back in the queue and we'll answer that? You completely cut out there.

Yes, that's fine. That's fine.

We take the next question from the line of Pritesh Sheth from Axis Capital.

Firstly, on other aspects in Pune and Noida, what's the leasing outlook there like? Those are seeing, some kind of leasing every quarter, so by when can we reach 90% plus kind of -- or close to the investment and of occupancy in those assets? And second question is on the hotels. While we are making some very healthy EBITDA margins, but occupancy is still probably lagging the market a bit. So what's the strategy to drive further occupancy there? Those are the 2 questions.

So let me take the first question. See, from a Noida market perspective, one of our assets is almost at 100% occupancy, right? We are working very closely on the Oxygen, like we mentioned in our earlier earnings disclosure as well. We've got a very robust pipeline on the asset as well with some 3 large transactions that we are talking, and hope to get that materialize soon. Coming back to Pune, like we've always maintained at Quadron, there's been a little bit of an issue for us. However, again, with the uptick in the leasing momentum in the country, we're seeing some conversations that we've actually started picking up. But it is, for us, continues to pick the demand, and we're very comfortable on the other 2 assets, that's Qubix and ETZ.

Yes. And look, on the hotels, I think there are a couple of things to consider, right? One is when you say it's lagging the market, these are not -- these are not weekend hotels. At the end of the day, when we think about it, these are business hotels, which is sort of the quality of F&B does sort of drive a fair amount of nonbusiness traffic in, particularly if you look at sort of what the Hiltons have done. So I think the base case of the Hiltons' occupancy and where we would like to actually see that we're sort of obviously touching sort of the 70 to 70-plus mark, which is historically the run rate that we've gone at. The one that, I think, has required a little bit of surgery, if you will, is the Four Seasons because I think there has obviously been a little bit of pressure on that. But even there, we're actually seeing a fair turnaround. I mean if you look at the recent results, it's at 50%. And we continue to be very focused on driving this higher. So the plan is, we've got a new and a very efficient management team in place. And I think we're constantly looking at ways to sort of increase occupancy. This is obviously a very buoyant hotel market, and we're well aware of sort of some of the tailwinds in that across leisure, across business. And I think we've seen that. I think the business has gone up. We've done 22% EBITDA growth year-on-year as well. So we are seeing that. I think we just have to be persistent and keep plugging away to drive both occupancy as well as sort of all the ancillary revenue that comes from everything, from conferences and F&B and so on and so forth.

The next question comes from the line of Abhinav Sinha from Jefferies India.

Let me congrats on your elevation to new role and good quarter to start with.

Thank you.

On the occupancy front, for the company, see, we have seen some exits, which were untimely in the past, but how are the trends now? And how do you see this unfolding in FY '26, '27?

Let me start, and Amit, maybe you can kind of kick in. I think look, we saw 700,000 of sort of exits this quarter. This majority, sort of SEZ-related, and there was legacy tech in TechVillage, and we obviously had IT services as well for the quarter. There's not sort of that much that we're looking at for Q4. But there's always the risk of some unplanned that comes up. We've obviously -- we budget and we make sure that -- which is why we spend so much time thinking about sort of early sort of renewals as much as possible. And obviously, these are conversations that take place sort of very, very earlier on with our entire leasing team. I think the outlook for 2025, calendar FY 2026, I think it's definitely fairly good. We don't really have that many sort of expiries coming up. And I think it's all sort of in markets where we have a likelihood or a fair amount of likelihood of renewals. That's clearly sort of the IT services or the market that probably is just the biggest risk. So the rest of it, we don't see much expiries or exits coming out from the GCC side or -- and sort of the big companies for that matter. But Amit, if you want to give color on that, that'll be helpful.

Thanks, Ritwik. just to start, for the 9 months ending and the last guidance that we've given as well, if you see about 3.6 million square feet was the total expiries that we spoke about, which got moved to about 3.9%, of which about 300,000 was early renewal and 0.1 was the unplanned exit, right? So -- and we've been very confident about our business. We've actually scrubbed our entire portfolio. So we know, through our conversations with all our occupiers, their plans. And overall, from an ITes perspective, our portfolio now stands about 9%. And with this, these are all stabilized portfolio again. IBM has been a rather recent renewal in that 9%. Some of the other guys have been rather recent renewals in that portfolio. So forward looking, we don't see any side wins or any surprises for us. So having said that, we are in a very comfortable position with 89% -- sorry, 88% occupancy by the end of the year. I think we are very comfortable with the entire portfolio.

Yes. So there's 1.4 million coming up sort of in FY '26. We'd probably look -- there will be some likely exits out of that. But we feel good about sort of managing the rest of it and backfilling what leaves.

Great. Ritwik, I have 2 more questions. Let me just list them out in the interest of time. So one is, how do you see the outlook for gearing? And in line with that, if you are thinking about some equity raise later down. So that's one. Secondly, in line with your initial comments on the properties, seeing now some above market sort of rentals and I see the occupancy and marquee buildings, it does appear that the CBD, quasi-CBD part is doing extremely well. So does it, like, spread to the non-CBD parts? Or do you look forward to maybe adding some CBD assets as you go ahead?

Yes. Okay. Let me just start sort of on the debt side. We have 32% leveraged right now. And frankly, I've said this for literally 6 years at this point in time. We're always sort of pushing a boulder up here when it comes to our leverage, and we consider ourselves the best credit in Indian real estate, right? I mean if you look at the other slide in our deck that basically talks about our interest costs, we effectively used to raise capital at, call it, 300 basis points to the [ GSEC ], that's half to around 1.5%, and we raised like INR 17,000 crores of that and have -- just the register we have is just immense. But having said that, it's always a bit of a battle, right? I mean our gearing is -- in this interest rate environment where you're constantly raising money at 8%, we always have to be on the lookout to: a, refi because it's short-term-ish paper. We'll be doing leases of 10 to 15 years and you're financing paper, call it, 3 to 5 years, and you consider that sort of a victory. It's a tough, tough business. So yes, we keep an eye out on that. That team does an exemplary job of making sure that we have access to the best refi terms possible. And I think if you look at the 7.73% cost that we did on the INR 1,000, it's always -- it's just an example of how we keep constantly rolling over paper at the best cost, right? That being said, look, I mean, at the right time, if we can raise some equity, I'm not saying we're doing it right now or any of that, so please don't read into that, but yes, having an equity cushion at some point will obviously help, but that's also dependent on market timings and sort of just the use of proceeds, right? We did -- we do have an enabling resolution right now, and we'll take a call at the appropriate time. So that's one. On the second one, I think we were -- CBD versus non-CBD, I think, is more of a question you could sort of ask relative to Mumbai or some of the big sort of commercial office stand-alone centers. I think it doesn't necessarily work institutionally for business a stock dominant sort of grade As, micro market sort of quality that -- markets that we see. So I think we tend to kind of just think about micro markets, right, particularly in cities like Bangalore or whether it's Chennai or any of these cities. I mean we're struggling, for instance, in Hinjewadi a little bit. But if you look at sort of the northern corridor in Bangalore, and you look at Manyata's micro market and it's absolutely booming. So I think what we always look for is ensuring that we're always sort of in the right market, I think -- and we consider those to be sort of mini little CBDs, right? And within that, we're always making sure that the supply is [ non-tracking ] supply, which is why we spend so much time boosting our assets, redeveloping, refurbishing and just constantly making sure that the supply comes on. And look, if there's opportunity for us in these micro -- other micro markets to ultimately grow and potentially acquire assets, we'll certainly look at it.

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

Ritwik, congratulations on your elevation. Just one question from my side. So when it comes to GCCs, right? What's the sense of getting in discussions with them considering the U.S. policymaking currently and the philosophy there? Are you seeing any sense of, like, say, delay in the decision making or holding up signing off leases? Or in terms of, like, the outlook going ahead also? Like, any color there would be helpful.

I just want to give you a little bit of a perspective from a country perspective and then kind of bring it down to the GCC. Last year, we saw net of -- sorry, gross absorption of about 74 million square feet, of which about 60-odd percent was driven by GCC demand. India happens to be the second largest hub for AI talent, and also one of the largest pools for data scientists and analytics. The IT talent has always been a record, and Bangalore kind of is pivotal in this talent pool. Having said that, overall, the country is seeing robust leasing, again, led by GCC. We don't see any softening or rather the demand's always been positive. Rather earlier this year, we saw 3 RFPs that have come out into the market, all led by GCCs. So from us, it's been a very positive story, and we foresee, in our conversations with the experts in the industry, that this trend is going to continue for the next 3 to 5 years.

Yes, let me just add to that. I think let me just step back and look at sort of the bigger picture, right? There is across -- I mean, I look at your business, Kunal, for example, right? I mean, you work in financial services. The amount of stuff that -- we talk to asset managers. We talk to brokers. Our largest tenant is pretty much the world's largest bank, like, capitalization, right? And I think that's the -- they continue to expand. I mean everybody, if you look at -- we're building out a complex in Manyata that's already sort of pre-leased to a large Australian bank, and there's just -- people's appetite just continues to be quite insatiable for sort of space. And there's -- of course, there will be sort of movement around the quarter. And there's no -- at the margin, there might be sort of slight -- mild decision-making delays or whatever, but that's more operational than it actually is on sort of broad-based teams and India is kind of slowing down. We don't -- we certainly don't see it on the leasing side. Sure, there can be decisions made on the kind of work you do and what that means in terms of AI and all that. But no, the broad sort of tailwinds are very much intact.

Sure, sure. I mean I understand you've done great this year in entirety, but I'm just trying to understand, like, if there is any change in the [ numerator ] pre-election and post-election. That's all -- that's what I was saying.

No, no, we haven't seen that or maybe it's just too early to call.

We haven't seen it.

The next question comes from the line of Dhiraj Dave from Samvad Financial Service.

Can you hear me?

Yes.

My voice is clear?

Yes, go ahead, please.

My one question would be basically, when do we expect to cross 6.9 meters, which we declared in March 2020? That has been the highest distribution. So when we shall -- should we look forward to next year kind of guidance given the kind of growth you see in GCC? Well, I know but kind of thought around when we will achieve the peak quarterly distribution, which we achieved 5 years back.

Yes. Look, that's an interesting question. I think, at this point in time, we'll stay away from sort of commenting on that. I think for the last 5 years, we've really sort of toiled to ensure that net of -- through a pandemic, net of sort of high interest rates and everything, we've done a fantastic job giving you the distributions. And now we're entering the secular kind of growth cycle that we think is certainly going to be beneficial from a DPU perspective, regardless of sort of where interest costs are, simply on the fact that it's top line and revenue driven. So I'll stay away from giving -- I don't know. I can't secure and sort of tell you when that can happen based on the fact that this happened in March 2020. But suffice to say that at the 13% year-on-year, distribution is any guidance -- any sort of sign, we feel very good about the next couple of years, actually, in terms of sort of the entire leasing outlook and the developments that are coming online. So it's definitely a growth cycle for us, but I'll stay away from commenting on exact sort of numbers at this point.

You have not answered, but you have answered my question.

I know that.

Yes, you answered it in the sense. Yes, that's fine. It was sufficient. I appreciate your constraint also. My second question is this time, we see that the distribution component, the tax-free component, the tax-efficient component is almost 90%. So going forward, any kind of -- this next, say, 2, 3 years, what should be the kind of -- should we assume this Q3 component being a -- of a taxable and tax-free interest and noninterest component? Or do you see major [ change ] kind of in the next 2 years, if you can give some direction on that.

This is Abhishek. So this is Abhishek. I think it's very difficult to say about the next couple of years because it depends on what is the profit each of these SPV is making and that determines what will be the dividend and how we are funding it and how the debt is available, whether at the rate level or at the SE level. But what we can say is you look at the number of this 9 months, and that will be the -- I think that will be the indication of number where we will land it for the full year -- this current year. For the next couple of years, we can say whenever we are giving the guidance, that time we can discuss.

And I appreciate actually what you said in the difficult time, what kind of delivery you have done. I'm an investor and for almost, like, 4, 5 years, and I appreciate the team's effort to serve the investors.

Thank you, that means a lot.

The next question comes from the line of Vishal Parekh from Kotak Alternate Asset Managers Limited.

Welcome back, Ritwik.

Thank you, Vishal.

Let me check on the ETV hotels in terms of the construction spend. So the last 2 years, we've spent less than about, I think, INR 100 crores. So 12 months FY '24 and 9 months this year, our spend has been less than INR 100 crores. And then we are projecting a balance cost of about INR 700 crores plus, and with our estimated completion of March '26. I just want to understand, are there -- how are you all funding it? And do you think spending INR 700 crores is possible? Or is it like in a hotel, there will be a lot of spend even after the completion date?

Yes. So Vishal, this is Abhishek. So one is the way we are funding it is through debt because all the construction that we are funding, we have funded through debt. Second is on the construction spend, actually, yes, what you said is right. What will happen in a hotel is that we keep on constructing, but we have certain portions which we will spend, even after the construction is complete, which is largely the retention and the unpaid amount. So yes, we will be able to do that.

All right. And just on the debt piece, in a debt schedule, I don't see any sanction which has balance limits of -- I mean, to the tune of INR 700 crores. So is it like we keep -- I mean we keep taking short-term debt and be funding the costs as and when they come? Or do we take a sanction for the project overall?

Vishal, so we -- what we have done is we have estimated what will be our spend quarter-on-quarter. Based on that, we go ahead to the banks or raise bonds depending on what is the requirement that we have. So we take sanctions based on that. Not necessarily take a sanction for the full project because each and every project will span over a period of 2, 3 years, some 4 years sometimes. So we take based on the necessity that we have for the next 1 year.

All right. And can we take that the March '26 date for completion? So quarter 1 of FY '28, '27, sorry, would be the first year for operations on Spring? Or is there like sort of a delay from commercially operating the hotel per se?

Vishal, what will happen is there are 2 hotels there. One is the gathering and one is the 5 star. So we are expecting both of them the way you said. But then if there is any change, we'll come back to the market.

Thank you. Ladies and gentlemen, that was the last question. On behalf of Embassy REIT, that concludes this conference. Thank you for...

Thanks, everyone. Thanks, everyone.

Thank you for joining us, and you may now disconnect your lines.