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

Ladies and gentlemen, good day, and welcome to Q2 FY '25 financial results of Mindspace Business Parks REIT Conference Call. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Nitin Garewal. Thank you, and over to you, sir.

Good evening, and thank you for joining Quarter 2 FY '25 Earnings Call for Mindspace Business Park REIT. At this point, we would like to highlight that the management may make certain statements that may be forward-looking in nature. 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 point of time. Kindly note that we have uploaded our operational and financial performance metrics in a spreadsheet format on our website in Investor Relations section. This has all the [ data ] since our listing that we have been disclosing in our investor presentation for your ease of reference. We'll be happy to hear your feedback on this so that we can make it more helpful for you. I would now like to welcome our CEO, Ramesh Nair; and CFO, Preeti Chheda. They will walk you through the business update and the financial performance during the quarter 2. We will then open the floor for Q&A. I'll now hand over the call to Ramesh.

Thank you, Nitin. Good evening, everyone, and thanks for joining today. I'm happy to share with all of you that we have had another good quarter at Mindspace REIT. We are accelerating our growth. We are achieving strong results and creating value for all our stakeholders. I completed my first year as CEO of Mindspace REIT in September. I wanted to thank our investors and analysts for all the support, which I got over the past 1 year. My gratitude to our independent and nonindependent directors, especially Ravi, Neel and Vinod for their guidance and support, which is helping us grow from over the past -- grew over the past 1 year. I'm lucky to have 3 of the best brains in commercial real estate guiding me. I'll now share some key highlights of the last 12 months. Our NOI grew from INR 4.79 billion to INR 5.03 billion. It's the first time we crossed INR 5 billion for the -- in terms of NOI. Our distribution grew from INR 2.84 billion to INR 3.05 billion crossing INR 3 billion again for the first time. Our LTV is at a very healthy level at 21.9%. Our borrowing cost, again, is at a very healthy 7.93%. We achieved in the last 1 year, gross leasing of 5.6 million square feet and net leasing of 1 million square feet. Our occupancy increased from 87.6% to 91.7% over the last 12 months. We improved, again, occupancy in Airoli to 82%, tackling what had previously been a big challenge for us. Our in-place rentals grew from INR 67 to INR 70.4 per square feet over the last 12 months. Our data center portfolio grew from 0.6 million square feet to 1.7 million square feet. Our overall portfolio grew from 32.3 million square feet to 34.7 million square feet. We have already upgraded 13 buildings with another 9 currently underway. Our GAV increased from INR 287 billion to INR 313 billion. NAV increased from INR 369.9 per unit to INR 392.6 per unit. We signed 68 new F&B outlets in our park. We gave returns of over 25% to investors, including our distributions over the last 12 months. We have also successfully demarcated 2.1 million square feet of [ exquisite ] area in Airoli under the new regulations. We've introduced lots of new amenities across our path. We conducted the -- over 4 client surveys, 1 client tenant survey to demonstrate our commitment to seeking feedback, which we will use for continuous improvement. We also organized close to 50 events in the last one year for our tenants to drive engagement and thereby increasing work from office. Happy to mention that across our portfolio, attendance has crossed 74% in the last quarter. Now let's come to the quarterly performance. The Indian office market continues to remain strong. Q3 calendar year '24 continues the positive momentum witnessed earlier this year. We are very well positioned for sustaining this profitable growth. On the market front, I would like to highlight a few IPC insights, which has seen in the last few weeks. The JLLreport stated that there is record-breaking leasing of 53 million square feet in the first 3 quarters of calendar year 2024. Gross leasing, that's nearly 20 million square feet, which is up 8.2%, marking the second highest quarter ever. increased demand across various industry segments from both global and domestic firms continue. Global occupiers accounted for around 57% of the Q3 leasing activity. Net absorption, again, across the top 7 cities reached 12.16 million square feet, the highest this year marking a 15% quarter-on-quarter increase. The vacancy rate fell to a 2-year low now standing at 16.8%. Separately, a CBRE report spoke about how there has been very good robust leasing activity in H1, which extended into Q3 with the space take up of nearly 19 million square feet. Leasing activity hit a 9-month record of close to 54 million square feet. 17% year-on-year jump in office leasing in Q3 2024, with the quarter witnessing rental growth across many micro markets. This is driven by sustained leasing activity, demand for high-quality assets and reduced vacancy levels. The strong office momentum from H1 extended into Q3 with 19 million square feet of space getting absorbed. Leasing activity again hit a 9-month record high of 54 million square feet. Office leasing saw 17% year-on-year growth in Q3 2024. The rental rates also increased in many micro markets driven by consistent leasing demand, [ a ] preference for premium assets and falling vacancy rates. The Knight Frank report stated that the office market is again poised for a record year. GCCs were the highest consumers of office space in Q3 2024. That's 37% of the volumes. Growing presence of GCCs and demand for domestic companies continue as key leasing drivers. To control the office market outlook remains positive with continued demand diversification. I've repeatedly highlight our growth drivers and will briefly highlight them for all of you again. We expect NOI to grow by over INR 900 crores over the next 3 to 4 years, because of leasing of our 2.1 million square feet vacant area, particularly in Airoli. Completion of 4.4 million square feet of under construction projects, planned development of 3.9 million square feet mark-to-market rentals and contractual escalations will also help us cross this INR 900 crore mark. Future acquisitions, whether from sponsors or third parties will further drive growth and expansion. Now coming to key announcements regarding new developments of quarter 2 of FY '25. We have made good progress in expanding our portfolio, which now stands at 34.7 million square feet. This is thanks to the strategic signing of 3 build-to-suit data centers with Princeton Digital Group totaling 1.05 million square feet at Airoli West. This strengthens our Navi Mumbai position as the #1 destination for data centers in India. We received board approval to acquire another 260,000 square feet in Mindspace Madhapur from a third-party owner. This enhances our ownership and consolidation within one of India's largest and best office business park. On our operating performance, we have received very strong leasing this quarter with several new leases signed, we leased 2.1 million square feet during the quarter. We are pleased to report an increase in occupancy rates by 60 basis points to 91.7%. Our market position remains strong with 6 out of the 9 parks maintaining occupancy rates more than 95%. We realized the re-leasing spread of 27.8%, which increased our in-place rent to INR 70 per square foot per month. We received approval for all our applications for demarcation of SEZ space. Total demarketed space now stands at 2.1 million square feet across Airoli East and West. We have already leased more than 900,000 square feet of this area. Changes in SEZ policy have eased leasing concerns for us in the Navi Mumbai market. Coming to the financial performance of the quarter. Revenue and NOI grew by 6% and 5.1% year-on-year, respectively. For the first time, our NOI crossed INR 5 billion. Our distribution crossed INR 3 billion again for the first time. It saw an increase of 7.5% on a year-on-year basis and came in at INR 3.05 billion. Our strong balance sheet, low debt levels provides us with financial flexibility to pursue growth opportunities. On the development front, projects are progressing well. The new office space is scheduled for timely delivery. R2 in Kharadi, Pune and [ BA ] data center in Gigaplex, Airoli will be ready in Q4 of this financial year. On the amenity side, we have been improving tenant experience with world-class amenities in our parks by adding more terrace amenities, by adding more fitness and medical centers, better access controls, better baggage and metal scanners, gaming arenas, separate jogging, bike lanes, all these are designed to offer a seamless experience for our tenants and their employees. We recently conducted a survey of 100-plus clients and received high ratings on key parameters such as responsiveness of Mindspace representatives, handling of queries and the quality of landscape to open areas. We have noticed the feedback, and we are also working on improving areas where we scored low. This client-centric approach ensures we elevate tenant satisfaction across all touch points. We're also focused on many tenant-centric innovations. We are committed to delivering a hospitality-like experience across our lobbies, we're enhancing our [ parks ] for adding more retail offerings. We have expanded our F&B offerings, improving overall tenant experience. We have also prioritized women safety and have implemented measures across our parks to ensure a secure environment for everyone. On the ESG and sustainability achievements, we continue to lead the market with our ESG goals. While we received the title of global listed sector leader for office development benchmark, we also received GRESB 5-star rating for the third consecutive year. Mindspace REIT outperformed GRESB and peer average goes for both office development and standing investment benchmark. We scored 99 out of 100 and 91 out of 100 respectively. Overall, we stand committed to innovation and sustainability. In conclusion, we are optimistic about the positive trends in the industry. We are confident of our ability to maintain this momentum. Our commitment to innovation, tenant satisfaction and sustainability keeps us well positioned for the future. Thank you all for your time. I will now hand it over to Preeti for further financial updates of the quarter.

Thank you, Ramesh. Good evening, everyone. We've had yet another quarter of strong financial performance. Q2 FY '25 saw a healthy growth in both revenue from operations and net operating income. Our revenue from operations for Q2 FY '25 stood at INR 6.2 billion, a year-on-year growth of 6%. Similarly, NOI for the quarter was INR 5 billion, a Y-o-Y growth of 5.1%. Our NOI margin from core renting continued to remain steady at 85%. We also continue to grow our distribution year-on-year. For the second quarter of FY '25, we announced a distribution of INR 3.05 billion, which is about INR 5.15 per unit, a year-on-year growth of 7.5%. As Ramesh mentioned, this is our second consecutive quarter of distribution growth led by strong operating performance. Gross value of our portfolio increased 4.8% to INR 313 billion Key contributors to the value accretion for the 3 additional data centers we signed with PDG at Mindspace Airoli West. Further, the addition of newer areas and ongoing development has also helped grow the value of our portfolio. We are constantly working to enhance the value of our portfolio through efficiency enhancements, redevelopment utilization of unutilized [ FSI ] potential, et cetera. NAV per unit at September 30, '24 stood at INR 392.6, up 3.2% from INR 380.6 at March '24. Our loan-to-value continues to remain low at 21.9%. This healthy balance sheet gives us enough headroom for acquisition and also development within the portfolio. Again, as Ramesh mentioned, we received the approval from our Board for the purchase of 260,000 square feet from a third-party owner at Mindspace Madhapur Park. The acquisition cost of INR 2.75 billion, together with transaction caused thereon shall be funded out of debt. Our cost of debt remained at 7.9%. We have worked to optimize the mix of a borrowing at [ SEZ ] and REIT level to achieve the best possible cost of funding. During the quarter, we received approval from SEC authorities for de-notification of our Pocharam asset. We have appointed advisers for divestment of the asset. We hope to hear from our advisers on the progress with the divestment over the next 2 to 3 months as we reach out to potential buyers of the asset. We have progressed well with the demarcation of certain SEZ spaces at Airoli Navi Mumbai Park as non-processing areas. So far, we have received approval for demarcation of 2.1 million square feet of SEZ space. Filling up of these existing vacancies together with completion of development pipeline over the next 2 to 3 years shall drive the NOI growth. Ramesh has already alluded to this. With this, I hand over the call to the operator to open the floor for questions. Thank you, everyone.

[Operator Instructions] Our first question is from Puneet from HSBC.

Congratulations on great numbers. Ramesh, if you can also talk a bit about the supply side part of the equation on the industry side would be very helpful. What kind of new supply are you seeing? And how much of it is really competing in some sense?

Puneet, I remember when I met you a few years back, I had told you that residential had -- has around 10,000 developers in India and office had around 45 developers in India. That 45 developer number today, Puneet, I think would be maybe around 15. So today, concrete is being poured only by the best developers in the country. And that number is only around 15 and most of these 15 names, not very worried about supply as such because if you look at our 4 key markets where we have a presence -- we have a presence in all the prime locations. Madhapur, when we acquired the asset 20 years back was a peripheral district. Madhapur, IPC brokers call it the CBD of Hyderabad. Airoli again today, which is people -- a lot of people call it peripheral, but at 16 minutes drive from Godrej, which is Godrej Vikhroli, which is, again, 185 of the markets. So not worried about supply. The industry is hugely consolidated. And we are holding concrete in all the 4 markets, increasing our supply. Again, let's look at it from an office point of view. Airoli, Navi Mumbai has a lot of land. But what's also happened in a market like Airoli is today because of the data center boom happening, land prices have shot from 4, 5 years back, which is maybe INR 6 crore an acre, today, people are quoting INR 30 crores to INR 40 crores an acre. So nobody can buy land at INR 40 crores an acre and build an office park as such and then still compete with us on Central. So we have advantages across in Chennai really doesn't matter. Out of the 1.2 million square feet we have, we have balance 70,000 square feet, which will get leads in the next few days or a few couple of weeks. So again, that's not a problem. So given our prime locations, not worried about future supply as such. I was in Hyderabad 2 days back looking at supply around Madhapur, we have very marginal. We are like 97% occupied there. And all the competing projects around us are also between 97% to 100% full. So not a worry.

Okay. Are you worried at all that the newer-looking buildings will give competition to your portfolio? Is that something on your mind at all? And what are you doing to address that?

That's a great question, Puneet. And that's exactly the reason why we have been energizing our path over the last few years, spending a lot of money on upgrades, and whether with this -- look at Hyderabad, we are learning. In Hyderabad a couple of our competitors did good park. We learned from them and we're creating a world-class experience center, we were spending like INR 150 crores to create the best club facility in the country there. We are spending money today on landscaping. We are spending money today on amenities. You saw all the F&Bs, which we have opened, all our focus on ESG. We have completed close to 10 building upgrades we have completed. 9 is ongoing and YTD, what we are planning to upgrade in the future is 10. Actually, my team correct me, we've upgraded 13 buildings already and 9 is underway currently. So upgrades is something we need to do. There are times when you're spending like INR 1,000 per square foot just in upgrades. And some of the buildings, you should see like our building store in Madhapur, the lobby would look better than a newer building. So those investments are happening very, very proactively. Like I said, 13 completed 9 ongoing and 10 plans for the future. So that's a significant part of my portfolio.

Understood. That's very helpful. And also if you can talk about your data center business model, how much do you need to invest in? Is it just limited to building or would you [indiscernible] like utilities and maybe anything that you may -- investment that you would like to do, some thought there?

Data center is definitely something of -- [ with this ] the country and Navi Mumbai is going to see a lot of boom. The third part is the -- we have run out of land for future data center development. But today, if you look at our REIT, I don't think there's any developer who has 5 data centers in their portfolio. We are #1, I think North, there's 1 or 2 data centers that someone has, Bangalore, there is one. Otherwise, most of these data centers are either being invested by the solo players themselves or the hyperscalers. So data center was part of the strategic priorities we've been focusing on for some time now. And that strategy is now paid off with us having 1.7 million square feet and 5 data centers. So I wish we had more land -- but with 5, currently, we have to stop our data center development.

And then how much would you need to invest if you can also talk in terms of megawatts of power that [indiscernible] data centers would...

Previously, we could have the some rooms on megawatts. But Puneet, what we are seeing is with improvement in chips and NVIDIA and all that stuff happening, square footage is not translating directly into megawatts because what we are building today is going to be occupied, let's say, 1.5 years down the line. And at that time, megawatts could become double the way the technology speed is improving. So I would have told you an answer for this 6 months back, but today at the pace at which technology is improving, things are significantly changing every month in terms of data center storage capacity.

And would you be investing in all the utilities or just the...

So what we are doing is we are giving them a cold shell which is basically the structure. A typical office building today cost is close to INR 5,000. The data center building, which we are giving to our clients, that cost is around INR 7,000. So we in the shell, we are not investing in MEP and racks and we have no intention to get into the data center business as such, other than being developers and giving space to people who give us long-term commitments, and there is a lot more stability in rental. Just not to -- not to forget that some of these leases, we are also signing at 4% increased rentals -- rent escalations, which also helps us.

The next question comes from Parvez Qazi from Nuvama Group.

Congratulations for a good set of numbers. So a couple of questions from my side. First, when we look at your leasing in Q2, most of the tenants are engineering, manufacturing, professional services, coworking, et cetera, but we don't see too many tenants from the tech space. So wanted to get your views on what is happening there? Do we expect a pick up sometime soon or that continue to lag? That's the first question. Second, both committed and actual occupancies have gone up. So what levels do we expect to end FY '25 with? And lastly, the occupancy list SEZ versus non-SEZ?

So in terms of sector-wise breakup of leasing, I agree with you totally, that tech leasing has dropped. I think that's also reflective of the overall IT services industry. So in terms of leasing, this time, it was engineering and manufacturing 42%, coworking around 17%, and manufacturing and process is around 12%. So in terms of, again, occupancy, second question of yours, which is what is our estimate. We are hoping to reach something like 93.5% by end of this financial year, that's the target and looking like we would reach there. In terms of vacancy of SEZ NPA versus non-SEZ, we have, like I mentioned, we have a total vacancy right now of 2.1 million square feet. SEZ in vacant area is 0.6 million square feet, non-SEZ vacant area is 1.5 million square feet. One year back, we were talking exactly opposite numbers. And this is mainly because how proactive we've been in terms of getting our unleasable SEZ spaces demarketed real fast. Our non SEZ occupancy today is 88.8%. And SEZ occupancy is 90.8%. Total SEZ area today, which is at 2.1 million square feet like I mentioned, which is converted to NPA, and we have leased 45% of it. So only 0.5 million square feet of non-converted remains vacant. I was kind of deep diving into our Airoli Park and the NPA converted but weakened today stands at 11 lakh square feet. Partial SEZ vacancy. So sometimes our floor plates are 50,000, 70,000 square feet. Some of it -- if one tenant lease partially the others, we cannot demarket that. So that stands around 210,000 square feet. NPAs to be applied, where we know a tenant is going to vacate, but to start the paperwork, we'll have to wait till the tenant moves out. That stands at 170,000 square feet. NPA initiated is around 83,000 square feet. SEZ committed by tenants. Today, that's 46,000 square feet and NPA to be applied as 45,000 square feet. So you total all this up, that comes to that 17 lakh square feet, which is vacant. So we are really digging deep -- tenants even half floors, quarter floors where are tenants, we can't demarcate, we have full-fledged strategy in terms of how we can get that leased. So a lot of thinking going behind the scenes there for this.

The next question comes from Pritesh Sheth from Axis Capital.

Firstly, on -- specially on Airoli, your leasing outlook there. How do you see occupancy rising given the breakup of numbers that you have provided. What's the outlook there over probably this year or next couple of years. I'm sure you would have reiterated earlier as well in previous calls, but just an update on that.

So great question. Pritesh, so if you look at Airoli, I'm a lot more bullish than what I was 1 year back, mainly because we have managed to get all that vacancies, SEZ vacancies demarcated. Look at our recent deals, we have signed a GCC for 257,000 square feet with 1 of the very large chemical companies globally. There's another big manufacturing companies who have taken 70,000 square feet in the last quarter again, GCC. Yesterday, I heard that another banking GCC has taken 400 feets with the co-working players within our campus. Navi Mumbai, definitely, we've seen some of those [indiscernible] awards happening in the San Francisco, Silicon Valley of India. And I think Navi Mumbai, given all the positives from quality of life, to talent availability, to cleanliness, to traffic, to safety, to low attrition cost of living, real estate costs. All that is definitely we are seeing momentum towards -- one other good point which came up Pritesh, here in Bombay, you would have seen that announcement of where the government a few weeks back took the toll off and look at the -- in Bombay, the toll actually used to divide Mumbai and Navi Mumbai, that's significantly changed in terms of merging both the cities. Again, on the infra front, there's so much being written about Navi Mumbai's infra, which I'm sure you are aware of, whether it's Trans Harbor Link, whether it is Navi Mumbai Metro Rail Corporation, Navi Mumbai International Airport, the Kalba bypass Bridge, the Giga station, which has come 6 minutes walking from Gigaplex, our Airoli-Katai Naka elevated Freeway, which is going to get ready soon, the Ulwe, Coastal Road, which is coming up, Panvel Karjat suburban rail. So all the massive infra which everybody has been talking about all of us saw the [indiscernible], the flights, the airports plane landing at the international airport. So all these are definitely going to help Navi Mumbai, and we have been beneficiary to the changing mindset of IT services, BFSI and manufacturing DCCs in Navi Mumbai.

So what would be your leasing outlook there? I mean, in the next couple of years, will Airoli assets be back at 95%, how do you think about that?

What I would say is, today, the market is anywhere between Thane and Navi Mumbai, which is today, the INR 60 to INR 75 market of Mumbai has a demand of around 2 million square feet every year. And in that, we, over the years, have for at least 50% of that market. And that would be my in terms of being having a realistic expectation of 1 million square feet to be leased in our bonds.

Yes. That's helpful. Secondly, on the Building 4, which is coming up at Kharadi, end of this year, we are only 6 months away from delivery. What's the leasing status there in terms of pre commitments or the pipeline that we are seeing?

Yes. Before we get into the leasing status, that building is on track for completion in Jan, Feb of 2025, 90% of the work is more or less completed. The OC will come very soon, the CFO approvals will come very soon. That building, what we call R2 internally because this is the Building 4. That's a total leasable area of 1.04 million square feet. We are in advanced stages of talking to a GCC for the full building. We also have an IT services company, which has shown interest for half the building. And another GCC, which has shown interest for the other half of the building. So we have a backup also, but very, very good chance that the GCC we are talking to release the full building, and hopefully, we'll be able to share some good news very soon.

Got it. And on Madhapur, I think you mentioned not much supply coming up there. We'll have 2 buildings in FY '27, and our existing vacancy is also very low there. What would be your outlook on the rentals there? Like Kharadi would be planning to lease it out at the later part of the construction stage where you have 6 months or a year away to deliver those buildings and probably wait for how market is and decide on rent? Or what's your strategy there? Or whether this leasing would be the first priority rather than rentals?

Actually, very good question, Pritesh. So our Hyderabad building, we are at the fourth level. We have crossed more than 23% of the building completion, a lot of concrete being poured, I was there reviewing the construction progress 2 days back. We have placed most of the contracts, the MEP facade, all that contracts have been placed. This is going to be a 1.5 million square feet building. There are 2 active tenants who have shown interest in this park. Now we need to take a call if we want to do the lease now or should we wait a little bit further down because the building would get somewhere completed around early to mid-next year, so that's the call we need to take. But that wouldn't -- the Hyderabad, the first building wouldn't be stressing me at all right now because market is super hot. And there is absolutely no supply in and around our park. So we don't -- we can actually command a good -- very good rental and today, our a lot of leases, which are happening in some of our properties, which are a little old itself are like [ $80 ]. So we've crossed the INR 80 mark, therefore not worried about rentals and not worried about absorption for that building. The next building, I think we would wait a little bit, the Building 8, which is a 1.7 million square feet building. Right now, we are overall reached only 15% stage in that building in terms of construction through this. So we have enough time to -- and we want to create a nice multi-tenanted building there. We don't want to be in a hurry to do pre-leasing there because we have seen in Hyderabad, if you can wait a little bit, we won't wait in the last months, we can see that the rentals will go up. So the rentals today in Hyderabad, Madhapur is in its early to mid-INR 80s, we definitely see this increasing by the time Building 8 comes up, and we will be beneficiaries of that. But not at all stressed about leasing these 2 building, Pritesh.

Got it. And one last, if I can push. 3.9 million square feet upcoming pipeline that you have, which has probably not yet started, -- can you provide a split of that? I understand like 1 million square feet is that data center, another 1.5 million square feet is the new building that we are looking to do in Airoli East. But apart from these 2, what am I missing out here?

So the data centers now, which we have announced, that's 1.05 million square feet. Building 15 in Airoli East, that's 1.5 million square feet. We decided to stop this a quarter back when we announced it because we saw, we saw the leasing momentum pick up very well. We also have the Building 17 in Airoli East, which is going to be nearly 8, 8.5 lakh square feet building, which will have around 2.5 lakh square feet of hotel, which has already been leased to a higher agency and 6 lakh square feet of office coming there. We also have another 600,000 square feet potential, which we are calling, Building 18 in Madhapur. So that's what the total is going to be in terms of newer buildings from our park -- our group.

Sure. And timeline of delivery would be 4 years from here on?

Right now, we are seeing 3 years for Building 15 and Building 17. Again, maybe close to 3 years for Building 18 in Hyderabad. Data center will be a phased development with the first building. See, the data center buildings advantage is low-rise. We can deliver it quickly. There are no basements. Your DGs and all that is kept in a separate building next to you. So most of these buildings are not more than 7 stories high. So in terms of speed, also we can complete quite fast with Pritesh.

Next question comes from Mohit Agarwal from IIFL.

Ramesh, you mentioned that you're looking at occupancy by the end of this year at about 93.5%. So what would be the gross leasing assumption that you've taken for the second half? And which assets would be leased for?

So we are hoping to lease more space in Airoli. We are hoping -- we don't have much of space left in Madhapur, but that will also get leased around 3 lakh square feet, we have -- we will -- I think we'll at least to a couple of lakh square feet. Plus Chennai, whatever 70,000 square feet. So we're looking at 2 million square feet as an overall thing for the year.

2 million for the second half.

Second half of the year.

Yes. The other thing you spoke in your introductory remarks about INR 900 crores NOI to come from all the development projects that are taking. So that's 10 million square feet, which includes the let-to-lease portion and area under construction plus future development, correct?

That's right. Yes, 2.1 million of vacant area, 4.4 million of under construction and planned of 3.9 million.

Yes. So within this, for both your under construction piece and your future development, what is the kind of yield on cost that one should expect and it kind of put into both the separate buckets? Is it similar? Or is it different for your under construction and future development projects?

Yes. It will be similar for both. I don't think both of them will be different. Now obviously, when we are doing any of these developments, at least we want to look at double-digit low double-digit yields, development yields. Of course, sometimes it becomes a little difficult if we have historical land, then it becomes easier. Obviously, you're buying new land and doing, then it's a little tighter, but double digit is what we're generally going for.

12% to 14% is the right range?

Yes, around 12-ish give or take.

Okay. Understood. And lastly, you also mentioned about upgradation CapEx. You've been upgrading your Madhapur buildings. So you mentioned about 1,000 square feet -- INR 1,000 per square foot. Approximately on an annualized basis, how much would that budget be for upgradation of your properties?

This year, our overall CapEx is around INR 1,100 crores overall CapEx. In that, the CapEx for upgrades is around INR 170 crores.

[Operator Instructions] The next question comes from Tanvir Suri, who's an individual investor.

I just wanted to understand how the data center deals are structured -- I mean, do they have any -- any life -- I mean, is there a -- like do clients keep switching? Or how is the deal structured once the building is made?

So what we do is we do typically a 20-year initial term where there is an option to renew for 2 additional terms of 10 years each. There is a lock-in period of 15 years, which is where the rent is confirmed. And like I said, we do the base building, which costs us anywhere between INR 6,500 to INR 7,000, and all the MEP, all the other stuff internally is the [ VG ] sets and all the racks and air conditioning inside and everything is done by the client who in this case is a [ solo player ] who would subsequently give it to many even or he would give it to hyperscaler. So that's how the model is. We are not in the data center business here. We are in the business of providing office -- we are just providing data center space, real estate space for data center operator.

Got it. Got it. So you said there's a 15-year lock-in and that includes escalation as well.

Yes. escalations typically are around 4% annually for the data center [indiscernible].

The next follow-up question is from Pritesh Sheth from Axis Capital.

Just 1 question for Preeti. On the NDCF slowdown, the finance cost at REIT level was INR 150 crores last quarter and this quarter, it's down to INR 87 crores. What has led to that lower number? And how should we think about it going ahead?

So I think the only difference is because we had MLD, which we redeemed in the first quarter -- so we add that bulk of INR 80 crores of MLD interest, which got repaid on redemption. So that's like a one-off thing that happened in Q1. So you are not seeing that record. So these are the numbers which you could go with for Q2.

[Operator Instructions] As there are no further questions from the participants, that concludes this conference. So on behalf of Mindspace Business Parks REIT, that concludes this conference. Thank you all for joining us, and you may now disconnect your lines.

Thank you, everyone, and wish you all a happy Diwali.

Thank you, everyone. Happy Diwali.