Mindspace Business Parks REIT (MINDSPACE) Earnings Call Transcript & Summary

Good afternoon, ladies and gentlemen. And welcome to the Mindspace Business Parks REIT's Fourth Quarter and Full Year FY 2021 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Ashay Shah, Assistant General Manager Finance. Thank you, and over to you, Mr. Shah.

Thank you, and good afternoon, everyone. Welcome to the Fourth Quarter and Full Year 2021 Earnings Call for Mindspace Business Parks REIT. At this point, we would like to highlight that the management may make certain statements on this call that may constitute forward-looking statements. Please be advised that our actual results may differ materially from these statements. Mindspace REIT does not guarantee these statements or results and is not obliged to update them at any time. We would like to reiterate that the acquisition of Asset SPVs by Mindspace REIT was effected on July 30, 2020. Consequently, consolidation of financials of these asset SPVs with Mindspace REIT has been done effective 1st August 2020. Condensed consolidated full year 2021 numbers, therefore, reflect 8 months financial performance of the Asset SPVs. However, for the purpose of comparison, in the earnings presentation, we have provided leasing numbers, pro forma revenue from operations and net operating income for full year 2021. I would now like to welcome Vinod Rohira, CEO; and Preeti Chheda, our CFO. Vinod will share the business update and his views on the macro environment and commercial real estate. Preeti will further share an update on the financial performance. We will then open the call to Q&A. I now hand over the call to Vinod.

Thank you, Ashay. Good afternoon, everyone, and thank you for joining Mindspace REIT's earnings call. When we did our last earnings call, the country had started opening up post several months of disruption. Social life and businesses were beginning to get back to normalcy. While the nation was gearing up to an aggressive vaccination program, we all faced ourselves with the second wave of COVID-19. Health and safety of our near and dear ones has taken top priority. Lockdowns and other restrictions on movement of people and goods has further disrupted the momentum and delay the return to normalcy. Currently, situation necessitates making all efforts to get the entire workforce vaccinated with the help of the center and state governments. Even in the given environment with the help of cutting-edge technology, India has been on the forefront of delivering services, which have enabled growth, pick up and rise in employment for such services. We saw tenants gearing up to return to the workspace. However, with the second wave, we now expect the return to be delayed at least by a few quarters. Commercial real estate saw demand softening through financial year '21. This is expected to extend further at least for 2 to 3 quarters. Growth in demand for technology services has helped earnings of these companies. Also hiring by these companies have risen during the pandemic, and we expect this trajectory to continue in the long term. NASSCOM research suggests the technology services industry is estimated worth INR 194 billion in financial year '21 and has set net hiring -- and seen net hirings remain robust even during the pandemic. The tech hiring outlook is expected to remain positive in 2021, coupled with growth in global deck expense. Global multinationals are increasingly looking at India as an innovation and knowledge center. Most GCCs and GICs are looking at increased workforce that is required to deliver the need for services. As the world is moving towards a digital economy, Indian IT sector is poised for a robust decade. This is expected to lead to a renewed demand for Grade-A office spaces once the normalcy returns. Globally, the severity of COVID-19 has currently moderated and many economies have started to get back to the path to growth. Unemployment levels are tapering. Various policy measures taken by the governments of these economies have helped businesses recuperate. We expect this path to recovery to provide opportunities for India to grow and cater to this global pent-up demand. We see a growing need to return back to offices as soon as the situation improves. Offices continue to be preferred places to work, providing an inclusive environment for employees to ideate, collaborate and optimize output. India social fabric and the residential infrastructure is under pressure and posed challenges to the long-term sustainability of the work from home as a model. While we cope with these challenges, we have delivered financial performance in line with our projections. Our operating performance remained stable, with collections continuing to be over 99% through the pandemic. We achieved a healthy gross leasing of 1.5 million square feet during this quarter. Our distributions stood at INR 2,852 million and INR 5,687 million during quarter 4 financial year '21 and H2 financial '21, respectively, in line with our projected distributions. We continue to invest in enhancements of our parks and maintenance of high standards of health and safety, so as to keep our parks ready for our tenants when they return to the workplace. On the demand side, while CapEx commitment decisions by tenants have slowed, new supply has also contracted significantly due to uncertainty of demand and limited availability of capital. We expect this to help us gain a healthy share of demand when normalcy returns. While the demand side has seen moderation, rentals in our micro markets continue to remain stable. We continue to see consolidation by tenants in most of the micro markets that we are present in. We are focused on retaining existing footprints of occupancy and working towards bringing back employees to the workspace once the situation improves. We have evidenced healthy rise in demand for flexi office spaces. Additionally, with the increased Internet usage, growing demand for data storage and anticipated data localization norms, leading to a surge in demand for data centers. The government's focus on digital India and the ongoing COVID-19 pandemic have further catalyzed the process of digitization. Mumbai stands to benefit due to its geographical and infrastructure advantage. This offers Mindspace REIT the opportunity to diversify its rental portfolio by providing data center spaces to domestic and international operators at its parks. Reduced interest rates and low gearing of our portfolio provides us with the room to consider asset enhancements and other growth opportunities at our parks, which are long-term value accretive to our unit holders. I would now like to take you through the specific operational update for the fourth quarter and the full financial year 2021. We achieved a gross leasing of 1.5 million square feet for the quarter ended 31st March 2021. Of this, 0.76 million square feet was on account of re-leasing and 0.78 million square feet was new area leasing. Average rent realized on this 1.5 million square feet of leasing was INR 73 per square foot per month with a re-leasing spread of 16.1%. Leasing for the year stood at 3.5 million square feet of which 2.2 million square feet was on account of re-leasing and 1.3 million square feet was leasing of new area. Average rent realized on the 3.5 million square feet of leasing was INR 69 per square foot per month with a re-leasing spread of 19.1%. We signed up 8 new tenants during the quarter and 16 new tenants for financial year '21. Key tenants added during the year include, Princeton Digital, ADP, BP, Mindcrest, Smartworks, AGC, Telstra, amongst others. We diversified our portfolio mix by entering into an agreement with Princeton Digital Group, one of Asia's leading data center operators to lease approximately 0.63 million square feet of state-of-the-art build-to-suit facility at Mindspace Airoli West, Mumbai on a long-term basis. This is our first data center, and we are building expertise to provide specialized services for data center operators. We shall pursue similar value-accretive opportunities to enhance the value of our portfolio. We shall deliver the first building within the next 24 months, subject to receive to require approvals and permissions. While the addition of data center development, our portfolio size has increased from 29.5 million square feet to 30.2 million square feet, as at March 31, 2021, our portfolio had 23.9 million square feet of completed area, which constituted 92.3% of our portfolio value. 2.1 million square feet is currently under construction, and we have another 4.3 million square feet available in the portfolio for future development. The portfolio is leased to more than 160 marquee clients with an average in-place rent of INR 55.9 per square foot and a weighted average lease expiry of 6 years. Our collections continue to remain robust at more than 99% of the gross contractual rentals during the quarter. Our committed occupancy of the portfolio stands at 84.2%. On same-store basis, our committed occupancy is 86.8%. Increase in the present vacancy is mainly due to expiries and terminations towards the end of this quarter. We are actively pursuing discussions with tenants for lease up of these spaces. A building aggregating leasable area of 0.36 million square feet occupied by a single-tenant at Mindspace, Madhapur, Hyderabad now stands vacant, providing us with an opportunity to evaluate the possibility of redevelopment of this portion to a significantly larger building. This shall help us to offer future consolidation opportunity to existing tenants in the park with continuity and growth. We are currently assessing this opportunity and shall form up our decision after complete evaluation and essential permissions. We continue to progress with the development of our 2 under construction projects: one beginning at Gera Commerzone Kharadi, Pune; and one building at Mindspace Airoli West, Navi Mumbai to be completed in a phased manner. We have substantially completed the first phase of our enhancements of our 2 large parks in the portfolio: Mindspace, Madhapur, Hyderabad; and Mindspace Airoli East, Navi Mumbai. We continue to invest in further energizing our parks, providing our tenants with a renewed experience when they return to the workspace. It's our constant focus to integrate a sustainable social, environmental and governance factors into all of our developments and operations. The key sustainability initiatives include a constant drive to achieve energy efficiency, improve air quality management, focus on renewable energy, water conservation and recycling measures, et cetera. During the quarter, our Pune project, Gera Commerzone Kharadi, won the Commercial Project of the Year awarded by Realty+ Conclave & Excellence. We received ISO 45001 certification for our Mindspace Airoli East, Mindspace Airoli West, Mindspace Malad and Mindspace Madhapur and Commerzone Yerwada parks. During this year, we became the first real estate entity for India to join the EV100 initiative with a target to achieve 100% electric mobility at our parks by 2030. Given the need of the hour, we are closely working with various NGOs and government organizations to provide the required support in these trying times. We are looking with various -- working with various government organizations for specific projects related to oxygen concentrators, setting up temporary hospital infrastructure for the immediate need of patients and all such related relief measures. Our strong belief in the power of education to change lives has helped us bring various literacy interventions to children of underprivileged communities. During the year, we partnered with Room to Read, a literacy initiated and supported DEEDS Trust reaching out to over 2,500 students. At this point, I will now hand over to Preeti to walk you through our financial highlights of the quarter and full year.

Thank you, Vinod. Good afternoon, everyone. We are happy to announce our first full year financial results post listing. I would like to reiterate that consolidation of financials of the Asset SPVs with Mindspace REIT has been done effective 1st August 2020. Condensed consolidated full year FY 2021 numbers, therefore, reflect 8 months financial performance of the Asset SPVs. On the financial side, we delivered net operating income in line with our projections. Our revenue from operations for FY 2021 stood at INR 16.3 billion. Revenue from operations for Q4 FY 2021 at INR 4.3 billion was approximately 2.5% higher than Q3 FY 2021, mainly on account of rent commencements for certain new areas, contracted escalations kicking in and re-leasing spread being achieved. Our NOI for the portfolio for FY 2021 is in line with our projections at INR 13.7 billion, a 12% increase over FY 2020. Our Q4 FY 2021 NOI has been at INR 3.6 billion. We continue to maintain NOI margin at 80% plus. Gross value of our portfolio as valued by the independent valuer stood at INR 246 billion as at March 31, 2021, a 2.5% increase over the value as at September 30, 2020. Our net asset value per unit has increased to INR 345 per unit as at March 31, 2021 from INR 338 per unit as at September 30, 2020. We announced our second distribution of approximately INR 2.9 billion, which is INR 4.81 per unit for the quarter ended March 31, 2021. The distribution comprises approximately 92%, which is INR 4.44 per unit of dividend and approximately 7.7%, which is INR 0.37 per unit of interest. With this, the total distribution for H2 FY '21 is approximately INR 5.7 billion, which is INR 9.59 per unit, which translates to an annualized distribution yield of 7% on the issue price in line with our projection. As Vinod mentioned, during the quarter, one of the Asset SPVs entered into an agreement to lease approximately 0.63 million square feet at Mindspace Airoli West Mumbai to a data center tenant. To affect this, the Asset SPVs has amended the memorandum of understanding, which was entered into with K Raheja Corp Private Limited for the proposed transfer of leasehold land at measuring approximately 16.4 acres to KRCPL. Consequently, the area proposed to be transferred to KRCPL under the MOU stands reduced to approximately 5.7 acres. The Asset SPVs proposes to utilize approximately 7.4 acres of the retail land for the purpose of development of data center and the balance land, excluding amenity space, which is contiguous to the existing development, shall be used for future office development or such other purpose, as may be deemed appropriate for the overall development of Mindspace Airoli West park. The proposed development of data center is estimated to lease to an incremental valuation of INR 1.24 billion, which is INR 2.1 per unit as at March 31, 2021. As regards funding, we achieved substantial reduction of approximately 2% in our funding cost versus our projected cost of debt for FY 2021. Our current average cost of debt for the portfolio is approximately 7.1% as at March 31, 2021. During the quarter, we issued market-linked ventures of INR 3.75 billion, at a coupon of 6.65% and nonconvertible debentures of INR 750 million at a quarterly coupon of approximately 6.69%. Approximately 30% of our current outstanding debt is INR 6 crores. We shall pursue further opportunities to convert part of a variable cost debt to fixed cost to reduce the overall cost of borrowing. As stated previously, our strategy would be to deploy a combination of short to medium-term and long-term debt with different maturities and also a combination of fixed and variable debt. With the net debt at INR 34 billion, our leverage stands at 14% of the market value of the portfolio. In addition, we have undrawn committed facilities of INR 6.4 billion. This gives us enough headroom for growth in the portfolio. I've guided during the last earnings call some of the early termination of leases at our parks is expected to impact the projected revenues of the current financial year, which is FY 2022. However, a large portion of this impact is expected to be offset by savings in interest costs and other cost-optimization measures. Management shall closely monitor business developments and their possible impact on the financial performance of the portfolio. With this, I thank you all for your patient hearing. And I now hand over to Vinod to conclude this briefing. Over to you, Vinod.

Thank you, Preeti. While we await moderation of the second wave, we continue to be engaged with our tenants, and health and safety is our top priority. With the growth in revenues and employment in the technology services, we are well poised to see this translate into demand for Grade-A office spaces once normalcy returns. We continue to invest in enhancement of our assets and putting in place robust health and safety measures to keep them future ready. Our business has demonstrated high degree of resilience during this disruption, and we remain confident of the long-term fundamentals of Grade-A commercial real estate in India. We shall focus on partnering with the government and other institutions to provide infrastructure, enabling fast-track vaccination programs.

[Operator Instructions] The first question is from the line of Manish Agrawal from JM Financial.

My first question is pertaining to Hyderabad. You mentioned 0.36 million square feet, one building got vacated. And -- so you plan to redevelop it. So what would be the total redevelopment potential going forward? And what sort of client is this? If you could throw some color on that?

Manish, so this was the building that was coming in for its natural expiry. It was occupied by Accenture. And since they didn't get their global mandates cleared for renewal of anything that was expiring in the last 6 months, they had to surrender the building. We are looking at it as an opportunity because on that piece of independent plot where it currently houses 2 wings of 1.6-odd lakh square feet each, cumulatively about 3.6 lakh square feet. We are exploring possibility of demolishing and rebuilding it and seeing a large potential development opportunity in this block. Because mind you, it's in the large layout. The master plan is already with us. All the infrastructure is already in place. This becomes a very attractive opportunity going forward. So we are exploring it, and we'll get back soon.

Sure. Secondly, on the Madhapur NOI and revenue number. So as per projections, the revenue number is slightly lower by around 3%, 4%, but NOI is slightly higher. So what exactly is happening? Is there some cost initiatives which have been taken? And is it sustainable going forward?

Yes. So a lot of cost initiatives have taken place as well as we continue to see that giving us the similar benefits going forward.

Yes. And Manish, just to add to what Vinod mentioned, also because of the low physical occupancy at the park, our maintenance expenditure has been lower. So that also has helped contributing to the NOI.

Okay. So going forward, I think FY '22, it might stay low, but from later onwards, it might revert to older level. Is that the correct assumption?

And then occupancies will also go up. The leasing numbers will fill up for all of those spaces as well and automatically it will give you the alternative revenue.

Sure. Thirdly, in terms of expiry. So you have indicated broadly what area which is getting expired. So what sort of renewals or re-leasing do we expect out of the total expiry which is expected to happen in FY '22?

So essentially, if I was to just look at my first 2 quarters, approximately 1 million square feet comes for its natural termination. From that 1 million, we have very high visibility of re-lease of almost 800,000 square feet.

Okay. Okay. And lastly, on the data center front, so now the transaction between the promoter group and the Mindspace REIT will not happen as per the initial plan. The future land can be used for additional data centers. And what would be the rentals which you are charging to this? So how did you arrive at this INR 2 per unit? Just to understand the broad math.

Yes. So Manish, we have retail approximately 11 acres out of the 16.5 acres. Out of that 11 acres, approximately 7 acres is being used for data center. The balance 5 acres, we are retaining for future development. We will explore what needs to be done as we go along. Coming back to the 7 acres where we are developing a data center, basically the valuation of the data center has been done like any other commercial buildings on a discounted cash flow basis. And that's the incremental value of INR 1.24 billion, which is coming out of the data center. And it's, of course, a long-term lease. And therefore, the value of the INR 2 that we are talking about, that's INR 1.24 billion incremental value-based on DCF, which is coming from this data center.

Okay. And rental would be how much per square feet basis?

INR 72 per square feet.

The next question is from the line of Karan Kanna from AMBIT Capital.

Sir, my first question is on Mindspace Madhapur. In the previous call, you had mentioned that additional supplies aren't expected until CY '23. But despite that, we have seen increase in vacancies for the asset from 88% in March '21 versus 95% in December '20. So what would your thoughts be on this increasing vacancies as well as [indiscernible] where there isn't any upcoming supply until CY '23?

So we saw close to 1 million square feet getting vacated on 31st of March this year. That was on account of 2 clients: one was Accenture and one was IBM. IBM actually moved from building A into a new asset that we built in the park. And that building of 360,000, we're in -- on advanced negotiations already with another client to lease out. And the other building, which was vacated by Accenture on expiry, we're exploring for redevelopment. So that's the 1 million almost which came -- became vacant on 31st of March.

Okay. Sure. And second, on The Square, Nagar Road in Pune, while you've achieved hires in impaired centers across most of your fresh lease-ups, at Square, Nagar Road, we've seen that your increase rentals have declined from 61 -- have declined to INR 61.3 per square feet from INR 64.5 per square feet, as the committed occupancy has increased from 79.8% to 100%. So in that context, can you help us with your thoughts here? And also, if any other micro market is also witnessing downward rental revision?

We missed the second part of your question, if you don't mind, repeating that.

Yes. Since at Square, Nagar Road, I believe your occupancies have increased from 80% to 100%, while your increased rentals have declined to INR 61.3 from INR 64.5. So in that context, can you help us with your thoughts in terms of are there any other micro markets which are also witnessing any downward rental revision?

Yes. So Karan, before I hand over to the Vinod to answer the second part, on the first part in terms of when you talk about in-place rental, it's only on the existing leases. One tenant had located that we have already signed up an LOI with other tenant. So your in-place rent factors only the rent which is earning rent. So that's why the higher rents which has come up after signing the LOI, that it's not part of the increased rent. On the market, I'll request Vinod to comment.

So besides of this, in any case, if I was to continue to what Preeti said, that space that got vacated by a tenant were occupied by another tenant and the LOIs are signed for them to occupy in the next 3, 4 months. Your second part of the question was around -- markets in any case has paused for the moment. But we see Pune well poised, especially in the eastern quadrant of Pune, you will see demand spike back. There are large RFPs that had started doing the rounds and they paused. We believe those RFPs will be refreshed maybe in a quarter from today starting because you need stability to come back into those markets from a COVID point of view. But otherwise, we had already started seeing RFPs.

Sure. And lastly, in terms of the new arrangements or the new lease arrangement that you have been signing, anything -- any new terms or clauses that are being inserted or minimum rent free period, et cetera, that's been inserted compared to how these arrangements were structured before COVID?

No, it's similar to whatever we've been signing in the past.

The next question is from the line of Amit Agarwal from Nirmal Bang.

My question pertains to a chart on Page 18, which talked about re-leasing spread, but I do understand the problem currently, the pressure on the rentals and probably in occupancy because of COVID. But I'm surprised when I see this chart on re-leasing spread, where it's reducing from FY '18 38% roughly to about 19% in FY '21. So can I -- do I need to read into it and what are your thoughts on this decline is re-leasing spread?

We couldn't hear you, Amit, very clearly.

Yes. Amit, your line is not clear. Could you please repeat your question fast?

Am I clear now? Am I clear?

Yes, it's better.

Yes, much better, Amit.

Okay. My question is on the -- on Page 18 of the presentation, you have this re-leasing spread, FY '18 re-leasing spread was 38% and FY '21 re-leasing spread is 19%. So while I understand that '20 probably towards the end and '21 got impacted because of COVID, but I'm a bit surprised of the decline in re-leasing spread. So is there anything to read into it? And if not, what is the reason for the decline in re-leasing spreads?

So -- okay, let me answer that. So also, what happens is as we go along and as leases come up for renewal, there are certain leases which as the escalations keep kicking in, the in-place rents also have been higher. And it also depends -- it's also factored of what leases are coming up for renewal. So it is not necessary that it's the oldest one. Sometimes, some of the parks, like for example, if it's a park which is in 2 -- where the rentals have been much higher, so to that extent, the average re-leasing spread has been low. So it all depends on which asset has actually come up for renewal. So I don't think you need to really read anything on the declining trend. It is more to do with which area is actually coming up for re-leasing in each of these years. And some of the re-leasings which have -- we have done some of the renewals, et cetera, wherein we have already gotten those [ NPL. ] So that's the reason going forward, also, you've seen some of these re-leasing spread normalizing, which otherwise have been higher in the initial year. Because these -- those were the older leases, which we find way back in 2009 and 2010, where the rentals were like really low. The ones which we have been doing thereafter, obviously, are higher rental as compared to the ones which we did earlier.

Sure. Sure. And you have -- last question. You have a lot of CapEx coming up in the next couple of years with the new construction, which is happening. Now with 99% payout, am I to understand that there is going to be increase in debt, which automatically would also mean that NDCF [indiscernible] reduced -- you reduced debt element a lot from NDCF, so that will also come down. Can I -- am I correct in reading that?

No. So all the CapEx, which we shall be incurring in the years to come will be funded out of debt. So to that extent, that doesn't impact your NDCF. NDCF will not be impacted because of this debt.

But I thought in NDCF, you do minus out debt payments and interest payments on debt before you calculate the net distributable cash flow. Am I correct on that?

So what happens is most of the debt by -- even if there is amortizing debt, it generally keeps refinancing the debt. So a lot of our debt, therefore, in a way, becomes non-amortizing, so there's not too much of repayments which actually happen out of that. So therefore, you would not actually see that impacting your NDCF.

[Operator Instructions] The next question is from the line of Shashank Savla from Somerset Capital Management.

My question was on the re-leasing amount which you get. So how different is it to the market rents? Like are you able to get the market rents during re-leasing? And a linked question to that was, are the face rents holding? And in terms of the incentives, is there any change or increase in the incentives you have to provide?

So we are getting the market rents that are in place. We are not seeing any challenge with rentals. We are getting the escalations that we require or we ask for. But our focus always has primarily been quality of tenant and making sure we hand hold and make sure tenants continue and grow with us. So that's paramount for us, and we are able to get our business at the projected rentals that we are expected.

Right. But in terms the incentives, like even if the face rents are holding, is there any change in incentives?

Not really. I mean, you might give them a couple of months more as rent free for them to do their fit-outs in a tight environment like this, but nothing beyond on that.

Right. And the NAV has increased. I was just trying to understand the reason why the NAV has increased? Is it because of completion of some projects? Or because in this environment, you would still expect -- if I'm not mistaken, the NAV includes what future rents you will get on your existing or projects to be completed. So what exactly drives the change in the NAV?

Yes. So there are 2 reasons. So one, of course, the NAV has seen a rise also because of data centers, we did mention that to that [indiscernible] come from data center. And also time value of money also play. And as each of these assets near completion, so there are some of the assets which have got completed some of the building. So that again increases the value of the asset. So because otherwise, it was valued as an under construction project. And once it's completed, gets valued has full completed project. So to that extent, the value increase can be attributable to road buildings also. But of course, some of these positive impacts have also been offset by the longer time which the valuer has assumed to lease some of the leases which are coming up for renewal. So that negative impact also has been factored in. And that's why you've seen a marginal increase of 2.5% on the September value.

Right. Right. And then I'm looking at this Mumbai market sort of region in your presentation Page 48, which mentions Thane Belapur, which basically includes the Airoli East and West where the vacancy is like about 23%. I just wanted your thoughts like, is this actually the vacancy which is a competition for you? Or within that Grade-A market, what is the actual level of vacancy in the area you are competing in?

So essentially, 2 factors to look at. One is we've brought in forwarded our own supply to bring in more offerings in that micro market because we believe that micro market has a very strong long-term trajectory for growth. Having said that, a significant component of that was SEZ. And with the SEZ policy reject taking place right now from the center, we are hopeful that the changes that will be brought about in the SEZ policy to allow far more amount of flexibility in the occupancy of all types of technology companies, that is what we are waiting for, which will give us the boost in demand. So that's where we are. It may take slightly longer than what we had envisaged, but this is really what our strategy is on new Bombay in that location.

Right. And final question, more on strategy. You don't have any presence in Bangalore as such, which is one of the larger office markets in India. So what are your plans -- any future plans for that region?

So we keep getting asked those questions. And yes, while we missed out on that opportunity, we were fortunate to be in 4 of the 6 primary markets, which are relevant for commercial real estate in India, and we were able to expand our footprint in those markets. Having said that, we are keenly looking to expand our presence in Bangalore, and we will keep looking at value-accretive opportunities for Bangalore. And we want to do developments there, as and when we find assets that are accretive for our development in our REIT.

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

My first question was on data centers. I think if I heard right, the rentals that you're mentioning is about INR 72 a square feet. It seems to be a pretty good rate for Airoli West. So is it fair to conclude that the opportunity in data center is generally more accretive versus offices? Or if there are any puts-and-takes we should consider? That's one. The second question was, could you sort of talk to what are you seeing on the supply projection for broadly Hyderabad? And also, specifically the micro markets that are relevant to you for the coming 1 or 2 years? [ My question relates to Hyderabad, specifically. ]

Sure. So Kunal, thanks for that question. Yes, certainly, data centers are more accretive, but they are very specialized products, where a lot of confidence needs to be demonstrated by the service provider, someone like ourselves. Because the participant occupier is making huge amounts of CapEx contributions and commitments to an asset like that. So they are heavily loaded investments. They are making parallel to our investments. And for that, they need to be super confident about who's going to build and how they're going to bring in all -- tie in all the infrastructure approvals, et cetera. So if you're able to get that piece right, you will get premium to market. To your second question with regard to different micro markets and the supply dynamics there, we continue to see compression of supply in each of those micro markets where we are present in. And we don't see that trajectory changing in a hurry, especially so because the second wave, there's further dilution of wanting to put in speculative CapEx to build commercial real estate. So we are seeing cleaning out of Grade-A supply. We're actually seeing an opportunity, especially in our markets with Pune and Hyderabad, where we believe you can bring in high-quality asset introduction into the marketplace, and you will get the lion's share of demand when demand comes back. Because clients are going to be vary of choosing the right Grade-A opportunities. And that's where you see your presence being really strong. And we believe both these markets will continue to have an opportunity for bringing in speculative supply.

The next question is from the line of Mohit Agrawal from IIFL.

Hope everyone is safe at Mindspace. My first question is that in the media, we see a lot of U.S. companies now talking about resuming work in June, July. I wanted to understand, does that change anything significantly for us. While in India, there's still some time for normalcy to return. But are you already seeing the Indian units talking about return to work, which did not happen when India opened up earlier. So that's the first part. The second part is also, are you seeing more RFPs being floated now that the companies in the U.S. are planning to return back to work?

Yes, Mohit. First 2 months of the year, January and February, we saw all of that exactly like you're mentioning whether it is the need to get back to the office footprint, the need for new RFPs, new consolidation had just about started to begin. And then unfortunately, we were hit by this hard second wave of COVID, which has kind of paused all of that. I don't see those RFPs going away. I think those RFPs will come back. It's a matter of time when we see stability from a point of view of health care measures, health and safety protocols, vaccination drives, et cetera. When that catches momentum, which we believe will take a quarter, thereafter, I think those RFPs will resume. And definitely, we are seeing clients' whispers getting louder that they want to get back to the workspace because with the need for collaboration and cutting-edge technology introduction in the digital world, we are finding it more and more difficult to manage data security and collaboration from the homes. And if you see the hiring numbers have been extremely robust in the last quarter, and we will continue -- you will see continued strong hiring take place in this quarter and next quarter for technology companies. Eventually, they have to have a footprint to work from.

Yes. Sure. And the second question is, on this -- the redevelopment opportunity that we have in Hyderabad, this question was asked earlier, but can you give a sense of how big this opportunity could be in terms of some sense on the numbers. So let's say, earlier, you were having -- you have 1 million square feet of stuff that you can redevelop. How much that turn out to be? Just wanted to understand the potential opportunity that we have.

Sure. So it's like this. If I was to just give you the broad macro geography map of Hyderabad in that micro market, on an average, all the newer developments are between 5 and 6x density. Our park has some phases, which is onetime density and the other phases are about 3x density. On an average, we have 2x density in our park. So when we look at our development opportunities like this, we can actually triple the size of the building.

And this is the entire Madhapur development at 2x?

So this is -- yes, yes. So 2x is our entire master plan gross. So we have opportunities. We want to explore this and make a success of this. Once we are clear about this, then we can look at those opportunities going forward.

Sure. And the last one from me. So on the data centers, how does the pipeline look in FY '22. This deal that we have just done, is it more like a one-off deal that we have done? Or do you think that this can grow into a sizable vertical going forward?

These are opportunities I think we will keep exploring. We want to test the first one out correctly, and it allows for room for more such opportunities in the future.

So you will finish this one and then probably you look into...

No. No. It's just like how this opportunity came. We will constantly be looking at opportunities like this because you must remember, the first whole phase of our park is really low density. And most of those occupiers are single occupiers with full, full buildings being occupied by them, which is a huge opportunity because they won't exit at one time.

[Operator Instructions] The next question is from the line of Amit Agarwal from Nirmal Bang.

A quick housekeeping question. In the valuation report, given by the valuer, I was going through the assumptions. I couldn't find the assumptions for the under construction property and the cost of construction per square feet or anything of that side. So any idea what could that be? Have you taken the cost of construction in the valuation of under construction property?

So Amit, if you look at the report, the independent valuer would have considered the cost to be incurred for the property because that's what will impact their future cash flows. So you may not find the per square foot number, but you'll find the cost to complete, which they would have factored in?

Sure. I'll look for that and probably get back to you...

Sure. If you're finding it difficult, then Ashay can help you get that.

The next question is from the line of Chandrasekhar Sridhar from Fidelity International.

I had a couple of questions. One is...

Mr. Sridhar, sorry to interrupt you. The audio is not loud. Sir, please increase the volume of your device.

Yes, can you hear me now?

Yes, sir. Thank you.

Yes. Okay. So I had a couple of questions. One is just on this 2.27 of expiries coming up in this year. How much -- how confident you on -- is there a certain number which you are fairly confident that you'll definitely be able to get re-leased? And what's the quantum of area where you're a little unsure of your ability with re-lease? That's question number one. And second is that on how much of the area do you have escalations due in FY '22? And what is the quantum of the escalation?

So to address your -- the first part of your question, we are looking at 2 quarters at a time, Chandra. For the first 2 quarters, 1 million comes in for termination. From that 1 million, we are confident -- reasonably confident of at least 800,000 square feet where we have strong visibility of renewal. Are you able to hear me?

Yes. Yes, absolutely.

Okay. Fine. The second part of your question with reference to what part of escalations, et cetera, 9 million square feet comes in for escalations normal for this year. On an average, cumulatively, the total value of the escalated amount is INR 22 crores for the year.

Okay. So it's not a meaning amount?

Exactly.

Okay. Okay. Understood. And the rest -- so some -- what you're saying is 1 million is in H1 and 1.27 million is in H2. And you get visibility on basically the first on H1 as of now. You're not sure so much of H2 as of now?

So 1 million is just the terminations that are due for this year -- of these 2 quarters. 600-odd thousand is for the next 2 quarters. However, 500-odd thousand square feet are early terminations, which we have visibility over that these clients are going to vacate. So these were not part of the normal termination, which is why cumulatively we're telling you 2.2.

Correct. Correct. So if I had to sort of...

So those 5.5, Chandra, will take some time to re-lease because we didn't have visibility around those.

The next question is from the line of [ Ritwik from One-Up Financial Consultants. ]

Sir, I have a couple of questions. What would be the time line for the under construction projects to get completed, the 2.1 million square feet?

So the 1.1-odd million will be ready by the end of this financial year, more or less. And the other 700-odd thousand square feet of Pune will be ready calendar year -- second quarter calendar '23. So first quarter of financial year '23.

Okay. Okay. Sure. And out of this 1.1 million square feet, what amount would be pre leased?

So we are looking at a 250-odd thousand square feet so far of visibility of leasing of that building. And we were looking at some more, which have got paused right now for the moment, but we're confident we'll get that demand back in place once things get better.

Okay. Okay. Sure. Okay. So overall, we see our current portfolio -- current operational portfolio, there are about 24 million square feet, and out of which, we are about 84% occupied. And you mentioned that 360,000 square feet in Hyderabad has been vacated. So that will definitely not come back this year. And another 2.25 million square feet has to be re-leased, right?

Yes.

Yes. And so ballpark, would it be fair to assume that we could see some occupancy going down further from current levels also before improving in the second half?

So we have a lag of about 1 million-plus from the previous years, which will follow through for the next financial year, certainly. But the minute you see the trajectory return because we've upgraded and had Grade-A assets to offer and it's 1 million odd in each of those micro markets, we are actually very happy to have that offering available when demand comes back. In that sense, certainly, but with the scale of 30 million, you will see some churn take place, which is normal business. Even if you go 5 years backwards, we used to have that churn. Of course, it might take slightly longer to lease that churn now than it used to but it's part and parcel of the business, if you ask me.

Sure. Sure. Fair enough. And sir, just one last question. On the planned projects, do we assume that post the second wave and post some normalization of our existing portfolio that we will go and venture out for the planned projects, the 4.4 million square feet that you have?

So certainly, this is all driven by demand/supply dynamics. So we are constantly reviewing the demand/supply dynamics in each micro market. And obviously, we prefer doing opportunistic development where some of it will be speculated to be ahead of its curve in terms of supply. So we will take our calls driven by how market demand kind of pans out.

Okay. Okay. But next 1 year or at least we will not start off on any of the them, right?

Currently, we'll be starting work on the data center building for sure. The other 2 blocks are under construction, and we will assess demand in the next 2 to 3 quarters and then take the steps from there.

Thank you. Ladies and gentlemen, as there are no further questions. On behalf of Mindspace Business Park REIT, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.