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

Good afternoon, ladies and gentlemen. I'm Bharat Sanghavi, Compliance Officer of K. Raheja Corp Investment Managers Private Limited, Manager to Mindspace REIT extend a warm welcome to all unitholders for the Fourth Annual Meeting of Mindspace REIT held through electronic means in accordance with the SEBI REIT regulations,.read with relevant circulars issued by SEBI from time to time. The facility to join the meeting through electronic means has been made available to the unitholders, the unitholders who have joined this meeting are kept on mute by moderator, to avoid any disturbance during the meeting. Before we proceed further, I would like to introduce the Board members who have joined this meeting. Mr. Deepak Ghaisas, Independent Director and Chairperson of the Board, Stakeholder Relationship Committee and the Investment Committee and a member of the Audit Committee. Mr. Ghaisas also will preside over this meeting in his capacity as a chair person. Mr. Bobby Parikh, Independent Director and Chairperson of Audit Committee; and NRC and member of Risk Management Committee; Mr. Ravi Raheja, Nonindependent Non-executive Director and member of a Stakeholder Relationship Committee. Mr. Vinod Rohira, nonindependent, non-executive director and member of Risk Management Committee. Ms. Manisha Girotra and Mr. Manish Kejriwal; and Mr. Neel C. Raheja, other directors of the company has requested a leave of absence due to the prior commitments. With us, we also have Mr. Ramesh Nair, Chief Executive Officer; and Ms. Preeti Chheda, Chief Financial Officer of the Manager. The representatives of the trustee, auditors, SEC auditors and the scrutineers have also joined this meeting. This meeting will commence with the Chairperson addressing the unitholders of Mindspace REIT, and it will be followed by a presentation by Mr. Ramesh Nair on the operational and financial performance of Mindspace REIT for the financial year '23/'24. During this meeting, if a unitholder faces any technical issue, he or she may contact the helpline number mentioned in the notice, which is 1800-309-4001. I repeat the helpline number for resolving any technical issues is 1800-309-4001. Mindspace Business Parks REIT have engaged KFin Technologies Limited for hosting this meeting through e-means and also for providing remote e-voting and e-voting facility at this meeting. Aabid and Company, practicing CAs have been appointed as a scrutinizer to scrutinize the remote e-voting and e-voting during the meeting to ensure that the same is carried out in a fair and transparent manner. The notice of this meeting and annual report for the financial year '23-'24, along with the login credentials have already been circulated to the eligible unitholders. The notice and the annual report are also available on the website of Mindspace REIT, BSE Limited and National Stock Exchange of India Limited. The cutoff date fixed for identifying the unitholders who shall be eligible to vote through remote e-voting and for participation and voting at this meeting was June 14, 2024. Further, the facility of remote e-voting in respect of the business to be transacted at this meeting began at 9 a.m. on June 17, and ended at 5:00 p.m. on June 20 and has now been deactivated. As all the resolutions mentioned in the notice of the annual meeting have already been circulated to put to the vote, there will not be no proposing or seconding of the resolution by any of the unitholders. Similarly, the facility for appointment of a proxy e-voting by a show of friends by unitholders is also not available for this meeting. The facility to express view or ask questions during this meeting was provided to unitholders for registering themselves from 9 a.m. on June 17 to 5:00 p.m. up to June 19, 2024. Once the question and answer session commences, the moderator will announce the names of the unitholders who have registered as a speaker's unitholders one by one. Unitholders who are not registered their names through speaker registration can raise their queries through a chat box during the meeting. With this, I hand over the proceedings of the meeting to Mr. Deepak Ghaisas, Chairperson of this meeting.

Thank you, Bharat. Since quorum is present, I call this meeting to order. I approve and apprise the commencement of the e-voting during the meeting, which shall remain open until 15 minutes after the conclusion of proceedings of this meeting. I would request moderator to confirm the opening of voting.

So voting is active sir?

Great. A very warm welcome to everyone to the Fourth Annual General Meeting of Mindspace Business Parks REIT. At the onset on behalf of the Mindspace REIT Board of Directors, I would like to thank you all for your continued trust, encouragement and support to the Mindspace REIT and its management. Financial year '24 has represented a substantial return to normalcy within the office sector. After extensive deliberations on evolving workplace strategies, there is a noticeable trend emerging in India where offices are reclaiming their status as a preferred work of environments. The shift underscores the increasing confidence among the businesses, and employees of the benefits of our office space for fostering the collaboration, enhancing productivity and nurturing a cohesive corporate culture. As a result, organizations are actively encouraging their employees to return to the office. The shift is clearly demonstrated by the significant increase in physical occupancy at our parks, raising from under 55% at the end of March '23, to 70% as of March '24. The upward trend reaffirms the resurgence of offices as central hub for work and highlights a positive momentum in the office sectors recovery. In financial year '24, our business delivered a strong performance. Our revenue from operations for financial year '24 excluding one-off, grew by 13.7% year-on-year to INR 2,351 crores. Our NOI for financial year '24 grew by 11.9% year-on-year to INR 1,896 crores, excluding one-offs. As a result, for this strong performance, we have delivered distribution of INR 1,136 crores of almost like 19.2 per unit for the full year of financial year 2024. During the financial year '23, '24, we achieved a gross leasing of 3.6 million square feet. We ended the year with a committed occupancy of 90.6% excluding our Pocharam asset, for which Board has given approval for a potential divestment. We added over 50 new tenants in portfolio since listing, taking the total to over 220 tenants across sectors like information technology, banking and financial services, telecom and media, engineering and manufacturing and healthcare amongst others. As per reports from international property consultants, calendar year '23 was the best year in terms of gross leasing and second best year in terms of net leasing for commercial real estate in India. In contrast to Western economies where the office demand remains below pre-COVID levels, the Indian office market has experienced a robust recovery. The abundant talent available, cost competitiveness, strong domestic growth and overall nationwide -- nations's growth have positioned India as office to the world where there has been a strong demand from global captive centers like GCCs and domestic companies across sectors. The new special economic zone demarcation rules notified by the government in December '23 have been welcomed by the industry. This provided a flip to this sector and will bring more tenants into the vacant spaces and boost economic activity. We continuously upgrade our parks to provide top-notch amenities and an exceptional client experience. This includes modernizing lobbies, setting up diverse high-quality food courts and enhancing facilities to create a welcoming and productive environment. Our goal is to meet the evolving needs and preferences of our tenants, ensuring their satisfaction and wellbeing. Organizations today aim to provide best-in-class work environment. Post pandemic, there is a shift towards high-quality grade asset managed by the institutional asset managers who maintain high safety and health standards. With wellness at work, as a philosophy, we have achieved gross leasing of all 3.5 million square feet to the third consecutive year across our parks. The committed occupancy in 6 out of 10 parks is above 96%, with Pune, Bandra -- Bandra-Kurla complex and Malad nearing 100% occupancy. A new special economic zone reforms are anticipated to boost occupancy levels in our Airoli park as well. Currently, we have 4.4 million square feet under construction to be completed over the next 3 years and 2.5 million square feet designed to -- for the future development. During the year, we made 2 strategic acquisitions to consolidate ownership in our existing parks, adding 300,000 square feet. I'm happy to inform that our REIT has grown from 29.5 million square feet at the time of listing to 33.2 million square feet at the end of financial year '24. We continue to explore other growth opportunities, both within and outside the portfolio. Our sponsors, new developments in key office markets may offer Mindspace REIT a further growth opportunities. Now let us look at the financial performance. For the year, financial year 2023, '24, our revenue from operations for this year grew by 13.7% Y-o-Y excluding one-off to INR 2,351 crores. Our net operating income stood at INR 1,896 crores, recording a growth of 11.9% Y-o-Y, excluding a cost one-off. Our in-place rentals have grown by 5.8% year-on-year to INR 69 per square feet. Per month, we have distributed INR 1,136 crore during the year. That is 19.2 per unit, which translates an annualized distribution yield of around 5.6% on the unit price as on 31 March '24. Due to our prudent debt management strategy, we have successfully maintained a low loan to value ratio of 21.1% as of March '24. Our AAA rated credit profile has enabled us to secure low borrowing costs of around 7.8% as of March '24. During the financial year, we raised aggregate of INR 1,490 crores through nontangible debentures and commercial papers. We aim to optimize our debt portfolio to navigate the current interest rate environment by maintaining a mix of fixed and variable cost borrowings spread across varied maturities. Our prudent approach to deploying capital bolstered by a strong balance sheet and an optional capital structure -- optimal capital structure doubled with ability to generate free cash flow provides us with ample room for growth. This position us well to create a sustainable long-term value for our unitholders. At Mindspace REIT, we are committed to sustainability, creating vibrant spaces that benefit the environment, communities and stakeholders. Our dedication to sustainability is reflected in our achievement with 99.9% of our completed portfolio achieves at least gold or platinum ratings from Indian Green Building Council and our leadership of Energy and Environment Design and 28.9% share of energy from renewable sources. It gives me immense pleasure to announce that we became the first Indian commercial real estate entity to be adjudged global listed sector leader in 2023. Global Real Estate Sustainability Benchmark that is the organization for office development benchmark. The REIT also ranked first in Asia and placed first out of 9 in India. In the listed company category for commercial business development, the REIT has secured a prestigious 5 star rating for the second consecutive year, affirming its leadership by achieving 100 out of 100 in the development benchmark. Moreover, Mindspace REIT impressively scored 91 out of 100 in the Standing Investments Benchmark, ranking 6 among real estate peers across Asia with the 5 star rating. Mindspace REIT has achieved a great place to work, certificate for the third consecutive year. We are actively promoting women to assume leadership positions throughout the organization, supported by initiative like SHEROES, which provides a platform for women to advance their careers with us. I am pleased to announce that 37% of our senior management team is comprised of women -- a figure that stands among the highest in our industry. Transparency is a key to our governance framework with a predominantly independent governing Board. We will publish our third ESG report in late June, detailing our ongoing initiatives and progress. When considering technology, real estate might not immediately come to mind. Contrary to this belief, we at Mindspace REIT are the foremost of adopting the technology for innovation and automation. For example, we use cutting-edge -- implosion technology to strategically demolish 2 aging buildings in Madhapur, Hyderabad, achieving in 8 seconds what could have been done or taken months otherwise. We continuously explore the technological advancements to streamline operations and enhance tenant experience. We are looking at upcoming artificial intelligence and getting ready to adopt such emerging solutions to improve our efficiency and the customer experience. Before I conclude, I want to express my appreciation for the Mindspace team, who demonstrated agility and achieved outstanding results. Financial year '24 marked a strong year for us, and we anticipate a continued and robust demand that will bolster the industry. Mindspace REIT is committed to leading the charge in defining the future of work, advanced sustainability initiatives, engage with communities and cultivate rewarding careers for our employees and deliver value for our stakeholders. As an organization, we are united in pursuit of our vision to set benchmarks and office real estate building sustainable ecosystems that prioritize well being making us the first choice for the stakeholders. On behalf of the Board, I would also like to thank all our valued stakeholders, including customers, vendors, bankers, unitholders for their consistent and resolute cooperation and trust. With a sustained trust in us and our able leadership, we shall strive to deliver value for our unitholders. I seek your support and look forward to continuing this journey of creating the value in the times to come. Stay well. Thank you very much. Now I would like to request Mr. Ramesh Nair to make a short presentation on the performance of Mindspace REIT for the financial year '23-'24.

Thank you, Deepak. Let's go to the next slide, please. So Snapshot, our total leasable area increased to 33.2 million square feet. Our in-place rent today is at INR 69 per square feet. Our same-store committed occupancy increased to 91.9%. Our committed occupancy moved to 90.6%. Our weighted average lease expiry is at 6.8 years. Mark-to-market potential was at 9.2%. The overall total portfolio value of us today stands at INR 29,900 crores. And the market value of completed -- of the completed area is at 91%. How does this translate to unitholders? Higher leasable area basically means that higher dividends for unitholders, which means higher rentals and diversification also provides a more stable and predictable income. In-place rents lead to higher revenues and cash flows. Higher occupancy rates means a greater proportion of the REIT's properties are generating rental income. Lower cost of debt means that the REITs spend less on interest payments, which leads more cash flow available for operations and investments and distribution. Re-leasing spread is a positive re-leasing spreads. When a new lease is done, we fetch higher rentals on that. And a higher portfolio market value helps benefiting unitholders because it positively influences the market perception of the fleet. Next slide, our distribution since listing, we have done a gross leasing of 15 million square feet. Our re-leasing spread has been 20.7% since listing. We have delivered new products, new developments of 2.3 million square feet. Our cost of debt at 7.8% is probably the lowest in the industry. Our loan to market value, which is 21.1%, again, probably the lowest in the industry. And since listing, our rentals have increased 7% CAGR over the years. Next slide, this is our financial year '24 performance. Our occupancy increased to 90.6%. Gross leasing our highest since listing 3.6 million square feet year-on-year. NOI growth was at 11.9%. Our distribution was at $11.4 billion. And we also applied for NPA conversion under new SEZ reform for $1.9 million square feet. This is a snapshot of a financial performance, which was supported very well by our organic cash flows. Our revenue from operations increased by 13.7%. Our net operating income increased by 11.9% to INR 1,895 crores. Distribution was at INR 1,136 crores, DPU was at 19.2 per unit. Loan-to-value, like I mentioned, stands at 21.1%. NAV is at 380 per unit, the cost of debt 7.8% and we are AAA REIT. Some of the key achievements on strategic initiatives as well as sustainability, we acquired 240,000 square feet in Porur from a landlord's share in Commerzone, Porur. We also acquired 42,000 square feet in Yerwada, Commerzone. On the redevelopment side, we started 3 million square feet of projects in Hyderabad. On the sustainability front, we rank not only best in India, but best in Asia, on various ratings, from GRESB rating for development. For listed companies, we ranked #1. For ready products, again, we ranked [indiscernible] some pictures of development of a mixed-use asset. In Mindspace, Airoli East, which is going to be a new building of 800,000 square feet, where we have also leased 300,000 square feet to [indiscernible] we have also received for selling our non-core asset at Mindspace Pocharam in Hyderabad. We also received on the safety front, 9 British Safety Council Sword of Honour, and we are rated [ 5 stars ] by the British Safety Council. This is some of our under construction projects and the progress. We have 1 million square feet coming by end of this year in Pune, Kharadi. We also very soon will have our 50,000 square feet Highstreet in Airoli East. Our data center close to 300,000 square feet will be ready by early next year. Now we also in Hyderabad, have a Building 1 and Building 8, which will be ready mid of '26 and mid of '27 and in Hyderabad, we also have state-of-the-art experience center, which would be ready towards middle of next year. This is some of how we have upgraded our older buildings, and this is how the newer buildings look Currently, we saw some of the lobby images. Some of the F&B and other social amenities, which we are providing in our parks. So where do we see growth happening. NOI growth can happen in 2 ways. One is the organic NOI group which will happen 1 from leasing up vacant area. 80% today, we have 2.4 million square feet of vacant area. 80% of this is SEZ like Deepak mentioned, the SEZ reforms will help make this into non-processing zones and will help in leasing, given that today, the market is 90% for non-SEZ areas. We also have, like Deepak mentioned, 4.4 million square feet under construction and future development, we have another 2.5 million square feet, which is again something, which we are actively planning and will soon be announcing development here. We are also selling the 600,000 square feet noncore asset in Pocharam. This has helped increase our occupancy by 2%. In a nutshell, what we believe is the market has been supportive. We -- the overall GCC demand in the market, the demand from domestic firms in the market, the SEZ reforms has again helped us. Navi Mumbai evolving as a data center hub has helped us. All the 4 key markets where the REIT has a presence, the locations have become very prime over the years, especially the Hyderabad market and the Madhapur market, which have become -- in Hyderabad, a few years back, people 10 years back, the location is we called the peripheral market today, international property consultants call at the CBD of Hyderabad, 80% of all demand happens in that market. Nearly all the deals which happened, 60% of the deals in that market is done by global capability centers. Hyderabad has very clearly emerged as the second best market in the country. And today, it's the only location Madhapur where IT location where the metro also ends. Our other big market, Navi Mumbai, today, all the infrastructure initiatives, many of you would have seen how the new airport is coming. Trans Harbour Link has already been inaugurated. All this is helping Navi Mumbai and in turn, helping us. We are definitely seeing rental growth in all the markets. There is a huge consolidation happening in the industry, which is also helping us. A couple of years back, the biggest challenge we had used to be office attendance of employees of our clients. That is again working in our favor. Two IPCs put attendance rates in India at 80% and 76%. Month back, KPMG came out with the study on Navi Mumbai and other satellite cities comparing them to other large cities. And Navi Mumbai was rated amongst the top 3 in terms of quality of talent, cost of talent and also other aspects like cleanliness, traffic, safety, attrition, cost of living on all these fronts, Navi Mumbai was ranked again quite high. In terms of our parks, again, we are reenergizing our parks by upgrading them proactively. Our experience center, which is coming up in Hyderabad, would be a part of its kind in the country. It will have the best club facilities, which any office park or office building will have in India. We're very proactively investing in landscaping in amenities. You saw the various achievements so far on the ESG front. And we are investing a significant amount of money in employee engagement to make sure our clients get back all their employees back into their campuses. With that, I will hand it over to Deepak Ghaisas.

Thanks, Ramesh. I would now request Bharat to proceed with the meeting.

Thank you sir. The report of the auditors for the financial year '23, '24 does not contain any qualification, observation or comment, which may have an adverse impact on the financial reporting of the Mindspace REIT. Accordingly, the said report is not required to be read out before the meeting. Now I would like to apprise the unitholders present at the meeting about the resolutions proposed the notice for the unitholders approval by simple majority. First resolution, to consider and adopt the audited stand-alone financial statements and audited consolidated financial statements of Mindspace REIT for the financial year ended 31st March 2024 together with the reports of the auditors thereon for the financial year ended 31 March '24, and the report on the performance of Mindspace REIT. Resolution #2, to consider and adopt the valuation report issued by KZEN Valtech Private Limited, the valuer, for the valuation of the portfolio of Mindspace REIT as at March 31, 2024. Resolution #3, to approve aggregate consolidated borrowing and deferred payments of Mindspace REIT and its Asset SPVs into directly Mindspace REIT Group, net of cash and cash equivalent up to 49% of the value of Mindspace REIT Group assets. Now I'd like to invite the moderator to call up on the names of the unitholders who have registered themselves for the speakers for this meeting. In case any questions are posed by unitholders through ask a question facility or a chat box, then the management would respond to such questions after the meeting is over via e-mail to the respective unitholders. In case any further clarifications required, unitholders may reach out to the compliance officer or Investor Relations cell of the manager with the Mindspace REIT.

Thank you sir. We'll now call upon all the speakers, who I registered one by one for the day. I now request our first speaker, [ Gaurav Rosadkar ] I request you to unmute your audio, switch on your camera, and proceed please. No feedback received. We now move on to our second speaker, [ Ms. Celestine Elizabeth Mascarena]. Ms Celestine, we request you unmute your audio, switch on your camera and proceed please. No feedback. We'll now move on to our third speaker, Mr. K. Bharat Raj. Mr. K. Bharat Raj, sir, we request you to unmute your audio, switch on your camera and proceed please.

Good afternoon, Chairman, and Board of Directors. I'm Bharat Raj attending from Hyderabad. Wonderful Chairmanship by Mr. Deepak and Mr. Nair given very nice presentation. One question, Mr. Nair. Apart from Hyderabad and Mumbai, you have plans to expand our Mindspace in other part of the states, please let me know. What is your future plans in Bangalore city? Second question, sir. I thanks for the secretarial department for sending in time link and wonderful CSR programs. Chairman sir, when can we expect a dividend payout from our shareholders in this financial year. That is very important. Bread and butter of the shareholders is dividends, sir, please look into dividend pay out sir. Once again sir, my wishes to you, all the best for coming years. All the best for the coming years. Thank you very much for giving this opportunity.

Thank you Mr Bharat, I'll start. We already have a significant presence in Pune and Chennai. In Pune, we are the dominant player. We have 2 of the best business parks in that city with us and also a stand-alone project. Last year, Chennai again saw one of the highest gross leasing numbers, Chennai has ever witnessed. And we were also beneficiaries there. We have -- in Pune, like Deepak mentioned, both our parks are nearly full. In Chennai, we have roughly just over 100,000 square feet left to be leased. So we are bullish on both these markets. With regards to Bangalore, we actively look for proposals every quarter the investment bankers and international property consultants. They get us opportunities and we actively look at these markets where we can grow it.

So with this, we have completed calling out the speakers. There are no speakers left for the day. You can proceed with the following meeting.

The proceedings of the meeting, along with the consolidated results of the remote e-voting and e-voting during the meeting will be announced within 48 hours of the conclusion of this meeting. And the said result, along with the scrutinizer's report will be informed to the stock exchange as per the applicable law. It will also be placed on the website of Mindspace REIT and the stock exchanges. Further, the transcript of this meeting shall also be made available on the website of Mindspace REIT. I offer a vote of thanks to the Chairperson on behalf of the unitholders, members of the Board and invitees present at the meeting. I now request Mr. Deepak Ghaisas, the Chairperson, to give his closing remarks.

Thanks, Bharat. The voting facility will remain open for the next 15 minutes to enable unitholders to cast their vote who have not yet cast their vote on the resolution. Further, I authorize any one of the CFO or the Compliance Officer to accept, acknowledge and countersign the scrutinizer's report in connection with the meeting and declare the results of the voting in accordance with the requirements prescribed under the applicable laws. I take this opportunity to thank all the unitholders for taking their time to join this meeting. I thank Board Members and other invitees for attending this meeting. Please take care of yourself, stay safe and stay healthy. I now announce the meeting as concluded. Thank you.