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

Good afternoon ladies and gentlemen, and welcome to the Mindspace Business Parks REIT's Earnings Conference Call for Financial Results for the Quarter and 6-Months ended September 30, 2021. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Kedar Kulkarni. Thank you and over to you, Mr. Kulkarni.

Thank you, and good afternoon everyone. Welcome to the Second Quarter Financial Year 2022 Earnings Call for Mindspace Business Parks REIT. At this point, we would like to highlight that the management may make certain statements 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 effective on July 30, 2020. Consequently, consolidation of financials of these Asset SPVs with Mindspace REIT has been done effective August 1, 2020. Condensed consolidated first half and full year 2021 numbers therefore reflect 2 months and 8 months financial performance of these Asset SPVs. However, for the purpose of comparison, in the earnings presentation and for the purpose of this call, we have provided pro forma revenue from operations and net operating income for Q2 and H1 FY '21. 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 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. Over to you, Vinod.

Thank you, Kedar. Good afternoon to all participants. Hope you enjoyed the festive season. Thank you for joining Mindspace REITs earnings call. As envisaged during the last quarter earnings, the sectoral tailwinds have further grown stronger during this quarter. The restrictions enforced during the second wave have been relaxed across states. Further, India is now at the forefront of its vaccination drive having already administered over 1.1 billion doses. With a monthly production capacity of over 300 million doses, the entire eligible population of our country will hopefully be fully vaccinated in the next few quarters. Post vaccinations, we are witnessing a substantial shift in the mindset from work from home towards work from office. This is in line with the trend observed globally. Recent reports indicate over 95% of the workforce is back in office in China, while in the U.S. and the EU, almost 40% of the employees are back in offices, resulting in resumption in demand for office spaces. Even in India, the return to office plans have gathered momentum, and we are seeing clients gear up for increased physical occupancy in the coming quarters. We are seeing encouraging signs across our parks as physical occupancy currently stands at circa 13%. As global markets move towards return to office, the same will follow suit in India. The economic indicators and the robust tax collections in India are indicating a strong economic recovery. Technology companies in India have reported further improvement in business fundamentals in their latest quarterly results, and their hiring numbers have been revised upwards as compared to the numbers announced during the past quarters. NASSCOM report suggests that GCC head count is expected to increase by 11% to 12%, CAGR to touch 2 million by 2025. At present, only 15% of the Forbes Global 2000 companies and 26% of the Fortune 500 companies have set up GCCs in India. This underscores the immense potential of GCC's expansion in India, considering the talent pool the country offers. All these positive trends augur well for the demand for Grade A office spaces in the coming quarters. As we had highlighted in the past quarters, the new Grade A supply in most micro markets will not be able to keep pace with the uptake in demand. On ground, we continue to see increased activity for evaluation and assessment of new and existing consolidation needs of large technology companies. We are excited to see strong tenant engagement for space take-up across our markets. Micro markets of Hyderabad are expected to witness recovery in demand as pre-commitments and additional space take-up from GCCs are expected to keep the absorption momentum high from 2022 onwards. In the Mumbai region, Thane-Belapur Road micromarket is expected to witness 3-dimensional demand driven by fintech, support activities of MNCs, and data centers. Many new RFPs have started floating across micro markets, and we will continue to see this activity take greater momentum in the coming quarters. We expect the SEZ policies to be suitably reformed to accommodate the changing demand dynamics of technology footprint in India, allowing for inclusive participation of domestic businesses within the modified SEZ framework. Our proactive efforts of utilizing the downtime to upgrade our offerings and implementation of health and safety protocols across all our parks have enabled tenants to scale up their return to office plans. This has not only helped us retain existing tenants within our parks but ensure that they choose us as their preferred partners for their expansion plans. 92% of leasing during the quarter was with our existing tenants, which is a testament to this. The leasing momentum that we have witnessed across our parks in this quarter is in tandem with the growth of technology companies, and we expect them to continue their footprint expansion in the coming quarters. We have achieved a gross leasing of 2.1 million square feet within the portfolio in the first half of this financial year, of which 0.9 million square feet was in quarter 2 financial year '22. We have achieved a re-leasing spread of 21.6% in this quarter. We would like to highlight some of our key transactions. Our BKC asset is now fully leased with the addition of a marquee BFSI tenant. On the ROFO side, in addition to the pre-leasing of circa 1.8 million square feet during the last quarter at Commerzone Madhapur in Hyderabad, this quarter saw pre-leasing activity at our other ROFO asset, Mindspace Juinagar, located in the Mumbai region, where we successfully concluded another build-to-suit lease deal of 0.5 million square feet with an IT tenant. Our net operating income for the quarter stood at INR 3.6 billion, up by 6.7% year-on-year basis. Our collections have remained strong at over 99% throughout the pandemic, as we continue to focus on having high-quality tenants in our portfolio. Our distributions stood at INR 2.7 billion or INR 4.6 per unit. Our net asset value has increased to INR 357.8 per unit, representing an increase of 3.6% over March 2021. Reduced interest rates and low gearing of our portfolio provides us with the room to pursue asset enhancements and other growth opportunities at our parks, which are long-term value accretive to our unitholders. I would now like to take you through the specific operational updates for the second quarter. We achieved a gross leasing of 0.9 million square feet for the quarter ended September 30, 2021. Of this, 0.6 million square feet was on account of re-leasing and 0.3 million square feet was for new area leasing. In the first half of this financial year, we have achieved leasing of 2.1 million square feet across our REIT portfolio. We are happy to announce that our BKC asset is now fully leased. Committed occupancy is at circa 85% for the September quarter. Average rent realized on this 0.9 million square feet of leasing was INR 88 per square foot per month. We achieved a re-leasing spread of 21.6% on the 0.6 million square feet area re-leased. The in-place rent in our portfolio has grown from INR 57.1 per square foot in the previous quarter to INR 58 per square foot. 92% of the leasing during the quarter was to existing tenants while balance was to new tenants. Our ROFO asset at Mindspace Juinagar in Mumbai has witnessed pre-leasing of 0.5 million square feet. Of the total leasable area, our portfolio had 23.9 million square feet of completed area, constituting circa 91% of our portfolio value. 1.8 million square feet is currently under construction, and we have another 5.6 million square feet available in the portfolio for future development. Our portfolio is leased to more than 170-plus marquee clients with an average in-place rent of INR 58 per square foot and a weighted average lease expiry of 6.7 years. Our REIT was awarded the prestigious National Builder Winner, and our project Gera Commerzone Kharadi has won Noteworthy Project Award at the Construction World Architects and Builder Awards 2021. Mindspace Madhapur Sundew-SEZ also won various awards including Highest Exports, Highest Number of Women Employees and Regional Growth Drivers at Annual Exports Awards organized by Export Promotion Council for EOUs and SEZs at Vishakapatnam SEZ authority. As of September 30, 2021, we facilitated over 95,000 vaccinations at our parks, which included family members of the laborers and employees who are working for us as well as our tenants. As part of our CSR initiatives, we have constructed an additional floor at a hospital at Kondapur Hyderabad, resulting in addition of 120 new beds and handed it over to the government. At Mindspace REIT, our endeavor to emerge as a responsible organization motivates us to implement sustainable business practices across our operations. 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. On the financial performance, we closed the second quarter of the financial year 2022 with a revenue from operations of INR 4.2 billion. Our net operating income for Q2 FY '22 stood at INR 3.6 billion, which is a 6.7% increase over NOI for Q2 FY '21. Cost optimization measures helped achieve this NOI. We continue to maintain NOI margins at 80%-plus. We announced the distribution of approximately INR 2.7 billion, that is INR 4.6 per unit for the quarter ended September 30, 2021. This distribution comprises approximately 93%, which is INR 4.28 per unit of dividend, which is not subject to tax in the hands of unitholders and approximately 7%, which is INR 0.32 per unit of interest. This translates to an annualized distribution yield of 6.7% on the issue price. With this, the total distribution for H1 FY '22 is approximately INR 5.5 billion, which is INR 9.2 per unit, which translates to an annualized yield of 6.7% on the issue price. On the funding side, our leverage on the portfolio on a consolidated basis stood at 14.9%. Our net debt as on September 30, 2021, was INR 38.5 billion. We continue to have undrawn committed lines of INR 4.6 billion from various financial institutions. Given our low leverage levels and the strength of our balance sheet, we have considerable headroom available in the portfolio to raise further debt for our portfolio expansion and inorganic growth opportunities. During the quarter, we raised INR 4 billion through issuance of listed nonconvertible debentures at an attractive coupon of 6.1% per annum. With this, our average cost of debt stood at 6.9% as of September 30, 2021. We have achieved a substantial reduction of approximately 235 basis points in our average cost of borrowing over the last 18 months. We continue to pursue opportunities to further reduce our borrowing costs. Also during the quarter, we had certain regulatory amendments like reduction in trading lot size, FPIs being permitted to invest in debt securities of REITs, which are very encouraging and would bring in wider investor participation in REITs, leading to enhanced depth and liquidity for the instruments. Post the reduction in trading lot size, we have seen the number of unitholders in our portfolio grow over 30%. We expect the move to allow FPI to invest in debt securities of REITs to help provide long-term capital and open up avenues of fundraise for REITs. The gross value of our portfolio, as valued by the independent valuer stood at INR 257 billion as at September 30, 2021, a 4.4% increase over the value as at March 31, 2021. Our net asset value per unit has increased to INR 357.8 per unit as of September 30, 2021 from INR 345.2 per unit as at March 31, 2021. With this, I now hand over the call to Vinod for his concluding remarks. Over to you, Vinod.

Thank you, Preeti. As anticipated in our previous quarterly earnings call, we are beginning to see strong leasing inquiries across our portfolio. We remain increasingly confident of the commercial market outlook driven by record tech hiring and growth. Aggressive administration of the vaccinations across the country and [ higher ] economic activity is expected to lead towards a robust demand cycle in the coming quarters as companies accelerate their transition from work from home to work from office. I thank you all for the patient hearing. I request the operator to now open the floor for questions and answers.

[Operator Instructions] The first question is from the line of Adhidev Chattopadhyay from ICICI Securities.

The first question is for 0.9 million square feet of expiries in the second half of this year. So do we now see the vacancies bottoming out? And would you like to share in terms of by when do you see the -- our occupancies moving back to sort of a pre-COVID level? I know it's little early days, but if you could share any insights on what is your own internal estimate for that?

The activities have certainly become really strong. We see demand coming back, and we are seeing stickiness of tenants to want to retain and continue to re-lease and continue to occupy. And you will see physical occupancy start rising, starting first quarter next year. And we continue to see that trend, because most tenants are discussing, coming back to office in an eager fashion. So you will see occupancies rise, and you will see vacancies reduce in the coming quarters.

Okay. So this 0.9 million square feet, do you expect that? I mean, this would remain flat or it may go up [ in terms of ] occupancy in the second half of this year? Or do you anticipate some further overall portfolio vacancy going up marginally during this [ period ]?

So if you see the 2.4 million, which we had looked at at the beginning of the year, including early expiries and vacancies, out of that, about 800,000 to 900,000 had vacated. Additionally, we have already re-leased 800,000, and we have high visibility of another 400,000. So when you combine all of these together, predominantly, most of that vacancy picture is clear.

Okay. So if my understanding is correct, out of this 0.9 million square feet, 0.4 million square feet you have visibility, other 0.5 million square feet is touch-and-go depending on when discussions are concluded, right? Is that understanding correct?

Yes. So 0.4 million square feet we've already initiated discussions moving forward. Additionally, once discussions engage, we'll get there.

Then just finally, for all these new leases, which you're signing or maybe the renewal of this, obviously, are only for the new leases especially for the Square and the other assets where you have done the leasing, what is sort of rent fit-out period of the rent free period, which will be there for the tenants? And when do we see these rents starting to accrue to the REITs?

So this particular asset, BKC rent starts April 1st.

Okay. And any forward leases also would be of similar nature?

Similar nature. Depends on size. If it's a large size tenant, they require larger period of time to fit out, smaller sizes require reasonably the same time as we have envisaged.

Okay. So around 4 months to 6 months across the board, is a fair assumption?

That's right.

The next question is from the line of Manish Agrawal from JM Financial.

My first question would be pertaining to Gera Commerzone Phase 2 asset. So by when is it expected to be ready? And when will the rental commencement start? And how is the pipeline shaping up for this asset, particularly?

So I can't give you any forward-looking statements, Manish, but we want to bring this asset really quickly into the market, which is under construction, 700,000-odd square feet, which is under construction targeted to complete by June of next year. We are seeing a good amount of RFPs in that micro market. So we are quite confident of leasing that asset.

Second question, you have indicated that there has been an exit withdrawal of 0.2 million square feet. So some tenants seems to have canceled their exit plan. So what exactly happened over there? This was across which asset?

I'm very happy you raised that question. Actually, yes, it's a very strong indicator of the market dynamics. It was our tenant in New Bombay in one of our Mindspaces who had submitted the notice for exit. But within that 6-month period, they realized business is coming back, need of space and physical occupancy is important. They pulled back the notice just before completion of that tenure. And we are very happy to accommodate, they're one of our marquee tenants.

Third question will be pertaining to Square Nagar Road. So the run rate over the past 3, 4 quarters seems to have dipped, although the asset is occupying 100%, currently occupied at 100%. So what exactly is happening over there?

So we had mentioned earlier that we were adding 60,000-odd square feet of additional construction area by retrofitting some part, which was otherwise earlier leased to PVR Cinemas. And that retrofit has got already part pre-leased. So that's the activity that you're seeing. The rest of it is already pre-leased.

Okay. And the rentals haven't started?

For this particular, it's under construction. So once it completes, then the rent starts. It was pre-leased for something that we were to reconstruct. That work is going on.

And last question on the BKC rental. So what would be the rental per square feet starting April 1?

So essentially, I can give you a broad heads up on the gross revenue for the year, is about INR 42 crores-odd, annualized.

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

My first question, Vinod you were talking about strong upcoming demand. So it would be great if you can just give us some color around what profile of tenants are you finding particularly active in the marketplace for the next set of leasing? And is there also a category which so far does not seem to be indicating any new activity from their perspective?

I think there's activity across of technology spectrum companies, BFSI, fintech, all of those companies are active. The [ fan ] companies are also very active. Each micro market has a demand -- different demand trajectory, but all micro markets are picking up in terms of inquiries. And I think this will convert to a strong demand for real estate in the coming quarters.

And then the second question was your own sense about the supply prospects, sure these have come down last 18 months. Do you get a sense that these are projects that just got deferred because of the uncertainty? Or have they moved out of the supply pipeline on a more permanent basis? Let's say the landlord no longer plans to construct an office asset on these?

It's a combination of both. So in some micro markets where there was no overhang of under construction supply, there the new supply would have come from a combination of alternatives where they were trying to convert a resi into commercial, for example, et cetera, because resi has done equally and is continuing to do well. The attention has shifted back to doing residential whoever was planning residential earlier. So that's kind of pushing out prospective probable commercial supply, which would have come to those micro markets. And as you know, product choices are very different now. Customers are looking at products very closely and very sensitively for True Grade A, that kind of further diminishes supply. In certain micro markets where the work had paused, you're still not seeing activity on the ground pick up, but no new supply is really coming.

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

So my first question is, if we look at your NOI numbers, they have been flat for last 4 quarters. So despite declining occupancy, the escalations have ensured that the NOI numbers are flat. How do you see this going forward? And when do we start to see a sharp pickup? Will it follow a 6-month lag from the start of the leasing pickup? And connected to that is what is also our guidance for the second half, if you can share some light around that?

So Mohit, in terms of NOI, I've mentioned even earlier because of deferment of some of the rent start dates, you've seen a marginal rise in the NOI. But going forward, in the next few quarters, as the rents starts coming in for this spaces which we've leased in the last 2, 3 quarters, we should start seeing the uptick in the rent and the NOI consequently.

And that should be in this fiscal or?

It will be over the next 2, 3 quarters, have everything coming in this fiscal. It depends on when the rent starts for the respective leases.

And any guidance you want to give on distribution for '22?

So distribution, as I'd said Mohit, last time obviously, versus our projections, which had come into [ FOD ] because of these staggered rent starts, obviously, we would not be able to achieve all of that. But as I said, a substantial part of that will be offset by the interest savings that we've achieved in this financial year. So in terms of -- I won't be able to give you a precise guidance, I would say a large part of that, we should be able to recoup, but they'll of course leave some residual impact.

And my second question is on -- we've talked about on the Airoli West portfolio, we've talked about the process of de-notification of SEZ. And you have mentioned earlier about some policy changes from the government, which had to come. So any updates around that?

I think it's progressing very, very well. We are very hopeful that the direction for amending and helping out with allowing for rupee billing and domestic businesses similar to the STPI footprint will be allowed to coexist in the SEZ. We are quite confident that's coming through. We are hoping for that to come in the next couple of months.

Okay. So that, combined with the fact that now leasing will also pick up, do you expect this asset to be -- like any expectation in terms of when this asset could be leased out like in a couple of quarters or so?

So we are seeing the undercurrent for demand is getting stronger, and we are quite confident of being able to lease this asset.

The next question is from the line of Vivek Ramakrishnan from DSP Mutual Fund.

I'm just following up on the previous question on Airoli West. Is the de-notification important for the occupancy levels to go up significantly? And I'll just ask you all the questions in one go. In the newer properties in Porur and the one in Hyderabad, what would drive the -- in Porur we can already see that the committed occupancy has gone up. What will be the next big driver for these 2 properties?

So de-notification certainly will help because it allows for beyond of just the SEZ occupiers to be able to lease and occupy these premises. So it certainly helps in filling the vacancies up quicker. With respect to Porur, yes, it's a new asset, and we are seeing now Chennai demand beginning to pick up. So as that demand trajectory starts to grow, you will see occupancy pick up for that Porur asset as well.

Sir, if I can ask for a clarification in Airoli West, is the de-notification very important for the numbers from the committed occupancy, which is currently close to 68.6% to jump significantly or you can do it even before the de-notification happens?

So there are 2 parts to the product offering there. One part which we already de-notified which is under construction, we're already seeing demand trajectory move up for that non-SEZ building, and we are very confident of leasing that out quicker than what we had anticipated. Having said that, additionally, that allows for more room to bring in more de-notified assets within that portfolio to offer for additional leasing. While some of those assets we have already applied for de-notification and that will come in as pipeline to bring in more supply, it will certainly help if we can offer non-SEZ occupiers additional space. So yes, so it will help in the reducing of vacancies.

The next question is from the line of Shashank Salva from Somerset Capital Management.

The first question is related to Airoli. So if I look at the net operating income that's reduced by around INR 40 million this quarter from INR 390 million to INR 350 million. Is there any particular reason or what's driving that decrease? So Airoli West, the NOI has decreased from INR 390 million to INR 350 million.

Yes, let me take that. So what happens is in Airoli West we have certain buildings, which have got completed. And the [ earlier ] property tax assessment takes a while to complete. Now since it's almost getting complete, we have a better visibility in terms of what that tax would be. So that's one provision of tax which has come in this quarter, that's why you see that dip.

So is that a one-off or is it like ongoing one?

One-off.

The second is on the NDCF, so if I look at the NDCF at the SPV level and the distribution to the REIT, there is a shortfall of around like INR 200 million from that. So is that from previous amounts held back at the SPV, which were not distributed to the REIT?

Yes. So we had certain amounts which were lying in the escrow account, because we have certain commitments for the debt covenants. Since that amount has now got freed up, we have distributed that amount. So this difference is because of that.

So I'm just trying to understand going forward, would the NDCF at the SPV level be similar to the distribution to the REIT? Or is there some adjustments or which you make to smooth out these cash flow?

No, there's nothing of that happens. This is only a one-off case wherein we had some of these balances lying in the escrow accounts such as restricted cash. But otherwise, broadly, whatever is the NDCF at the SPV, more than 90% of that we distribute. We're not going to have this [ all year ].

And I'm also trying to understand how the CapEx spend and the debt, which is raised, impact the overall NDCF. So is there a case that if you borrow more, would you be able to pay out that as distribution?

So generally, for us, whatever CapEx we incur, we incur that out of debt. So generally, CapEx doesn't affect our NDCF because that money comes in from debt. So generally, that's the way most of the cash -- most of the distributions, which you're seeing at the SPV levels and consequently at the REIT, they are largely coming out of your net operating cash flow. So technically, your CapEx is essentially funded by debt.

And more generally, I wanted to understand the trends in terms of face rents and incentives. So are you seeing any improvement in the terms of incentives you have to provide for new leasing?

Predominantly, the landscape hasn't changed, except for the fact that they slightly take longer now to do their fit-outs and are wary of making sure that they can complete their offerings and interiors with all of the challenges they are facing with either equipment imports or labor not being available. So there is a little extra time they ask for fit-out. Otherwise, it's business as usual.

And finally, on Chennai, which has around like 17% committed occupancy. So where do you see it like in a few quarters or how much time would it take for you to reach your like 80%, 85% occupancy, which is across your rest of the assets?

We should be comfortably leased out in that asset on or before the end of next financial year.

[Operator Instructions] The next question is from the line of Satinder Singh Bedi from Eon Investments.

Congratulations on a very stable set of numbers and also for the very attractive fund raise, 6.1% fixed, I think it's probably better than best-in-class. Congratulations for that. I've got 2 small questions. One is Vinod, if you could clarify. Again I only read today. So given the 20% plus differential in occupancy between Airoli West and East, so can you help us understand better in terms of what percentage of Airoli East for example is SPV and non-SPV and how does it stack up on Airoli West because it has come out earlier in the discussion that probably the de-notification is one big [ kicker ] that could probably narrow this gap because finally the micro market is the same?

So essentially, Airoli East was an SEZ that was built much before Gigaplex. It had started much before Gigaplex. So which is why that entire park currently is whatever is built is an SEZ. Gigaplex was built a little later. We started the project a little later. And in that, we had some additional speculative SEZ supply, which, unfortunately, because of having passed through an 18-month COVID pandemic across, the SEZ demand had slowed down in that zone because everyone was working from home at that point in time. Now obviously, the SEZ is seeing a sunset, government realizes that the SEZs have created huge employment opportunities, and they want to give a lot of booster to the SEZ to become an attractive place for further employment and technology footprint to grow. So which is why, flexibilities around de-notifying and allowing for domestic rupee billing, et cetera, to be participated in the SEZ. We have more opportunity in Gigaplex because most of Airoli East is pre-leased. So Gigaplex automatically had some speculative space, which we had built for SEZ demand, which now will get used for non-SEZ demand.

Okay. So what we are saying is East is otherwise fully SEZ, West is almost fully SEZ, but okay, by changing it to -- part of it to non-SEZ we'll be able to fill it up.

Yes. But at the same time, when you get the legislative change that will happen, will allow us flexibility in all our SEZs, not just Airoli East or West. Anywhere we have SEZs, we'll be able to bring in rupee billing and domestic businesses to participate, which allows for more demand to come to the SEZ portion of our development. So we'll be universally fortunate, probably giving benefit to all parks.

One question for Preeti. Preeti, going back to the NDCF buildup, okay. So you explained the small difference in the NDCF at SPV level and SPV to REIT. And we also discussed the CapEx and the debt drawdown. Now the debt drawdown is about INR 1,284 million, the CapEx, including the interest is INR 1,081 million that leaves a difference of about INR 206 million. And then there's a working capital change of INR 170 million. So is part of this contributing to the distribution finally and can you help us understand this piece?

So as far as the CapEx goes, as per the accounting reporting requirements, some of the fit-out, which is generally CapEx for us get classified under working capital. So if you add that, then broadly, most of the CapEx is funded by the debt which we have raised. Now in terms of the overall NDCF, all your working capital changes also are part of your operating cash flows because keeping the fit-out costs aside, all the other things are largely your creditors, debtor movements and so on and so forth. So working capital is also part of your operating cash flows, and therefore, they do contribute to your NDCF.

Okay. So this INR 206 million difference between the drawdown and the CapEx, Is that INR 206 million contributing to the NDCF payout?

Yes, it does, because that has got drawn to fund the fit-out cost which is sitting in working capital. So essentially, most of our debt gets drawn for the purpose of CapEx. So here the difference which you see has gone to fund some of the working capital in our cost. Working capital, the number which you see has certain positives and negatives. So the fit-out costs, which I'm talking about is one of the constituents of the working capital changes. So if you take that in CapEx, then broadly, your net debt is taken to fund our CapEx plus fit-out for the tenants.

The next question is from the line of Sameer Baisiwala from Morgan Stanley.

Just on the previous question, Preeti, your working capital is a positive INR 17 crores. And to this, we should subtract minus INR 20 crores because of fit-out. So what is causing this plus INR 37 crore of working capital on the gross?

Yes, Sameer. So Sameer, I have always been telling this working capital changes are positive, negative quarter-on-quarter. This time, there have been certain provisions which are made cash flows have not happened. So those get added back because those have been reduced from your [ past ]. Plus, there have been certain positive cash flows on the working capital side on the creditors. That also has helped get this working capital to positive.

Okay. But in real life like which creditor has contributed positively?

So what happens is, any kind of increase in creditors or reduction in debtors, all of these add to your CapEx, because that's how this whole cash flows get reported. So any increase in your CapEx essentially gets added to that. And of course, there are provisions also which get added back, because these are deducted from your revenue from operations.

And the second question related to this is, you got 1.7 million square feet of new completions coming up next year. And plus, your vacancies will go down. So all of this new leasing will probably give us a lot of deposits. So how do you think about that? I mean, will that be so positive working cap, will this all be used for DPU?

Yes. So generally, everything which forms part of your working capital movements, all of that becomes a part of NDCF. And we've always had that Sameer, because in some quarters we've had positive, negatives on security deposits also.

Fair enough. I just wanted to understand if you're going to continue with that.

Yes.

And the second question is, how are you thinking about new construction starts for brownfield expansion beyond this 1.7 million square feet, which is just about nearing completion?

I think we are already firming up on our plans to start construction in each of our parks. We have an additional 1 million to build in Pune, and we have the redevelopment opportunity in Hyderabad, which is 1.3 million-odd. We are on track to bring those as envisaged into the market. Already groundwork in terms of the design, detailing approvals, all of that is in process. We should break ground really soon.

So 2.3 million square feet is what you will start in 2022 and delivery by 2024?

That's right.

And any thoughts on Airoli West?

So we are seeing demand trajectory move up. Airoli West, we want to continue to position additionally for similar build-to-suit opportunities to what we did in the past. We believe there is more scope to do those going forward in the future.

And my final question is on your Hyderabad ROFO asset. I know you mentioned that you would rather want to acquire closer to OC and fit-out getting completed. But given the current low interest rate environment and who knows what happens in one year, do you not want to lock it earlier than later?

So we are working in that direction, and we want to bring it in soon at the right and most appropriate time. We will take it up in the next couple of quarters.

And if you can confirm whether that would be yield accretive for the current shareholders?

So Sameer, at this stage, all I would say we will do whatever is in the best interest of the unitholders, right, whether it be yield or NAV or whatever other parameter. I'm sure we will be discussing with the Board as Vinod said in the next few quarters. And at an appropriate time, we will have this asset in.

[Operator Instructions] The next question is from the line of Sri Karthik from Investec.

Could you speak a bit about your data warehousing plans in any of the properties?

You mean data centers.

Yes.

So data centers currently for India is primarily the build-to-suit space. And in that, we have fortunately footprint in the Navi-Mumbai region and the Hyderabad region where we can offer opportunities, explore opportunities for build-to-suit. We are continuing to do that, and we will see some demand continue to be there for those micro markets, for data centers.

I just wanted to double check one of the indicative guidance you've given. For Porur, you expected the overall occupancy to reach full occupancy levels by the end of next fiscal, right? End of FY23? Is that...

That's right.

[Operator Instructions] The next question is from the line of Rahul Marathe from ICICI Prudential Pension Funds.

Just a small bookkeeping question. So currently, our net debt to market value is 14.9%. So where do -- would like to cap it? Like, what was the maximum level where we would not exceed this?

So technically, as per the REIT regulations, we can go up to 49% LTV, but our comfort would be somewhere around 25%, 30%. So up to 25%, 30%, I think we would be comfortable. If it goes beyond that, and if we have some real lucrative opportunities then we wouldn't mind going and doing further equity raise at that point in time.

[Operator Instructions] Ladies and gentlemen, that was the last question for today. On behalf of Mindspace Business Parks REIT, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.

Thank you very much.

Thank you.