Good evening, everyone. A very warm welcome to all for the Embassy REIT's fourth quarter and full- year FY 2022 earnings conference call. Currently, all participants are in a listen-only mode. Our speakers will address your questions at the end of the presentation during the question and answer session. As a reminder, this conference call is being recorded. I would now like to introduce your host for today's conference, Mr. Abhishek Agarwal, Head of Investor Relations and Communications for Embassy REIT. Sir, you may begin now.
Thank you, operator. Welcome to the fourth quarter and full- year FY 2022 earnings call for Embassy REIT. Embassy REIT released its financial results for the quarter and financial year ended March 31, 2022, a short while back. As is our standard practice, we have placed our financial statements, earnings presentation discussing our performance, and a supplemental financial and operating data book in the Investor section of our website at www.embassyofficeparks.com. As always, we would like to inform you that management may make certain comments on this call that one could deem forward-looking statements. Please be advised that the REIT's actual results may differ from these statements. Embassy REIT does not guarantee these statements or results and is not obliged to update them at any time.
Specifically, the financial guidance and any pro forma information that we will provide on this call are management estimates based on certain assumptions and have not been subjected to any audit, review, or examination procedures. You are cautioned not to place undue reliance on such guidance and information, and there can be no assurance that you will be able to achieve the same. Further, there are significant risks and uncertainties related to the scope, severity, and duration of the COVID pandemic and the direct and indirect economic effects of the pandemic and related containment measures on Embassy REIT and on our occupiers. Joining me today are Michael Holland, the CEO, Vikaash Khdloya, the Deputy CEO and COO, and Aravind Maiya, the CFO. Mike will start off with business and industry overview, followed by Vikaash and Aravind. We will then open the floor to questions. Over to you, Mike.
Thank you, Abhishek. Good evening, and thank you all for joining us on the call today. We recently completed the third year since our listing, crossing multiple milestones, and we are set on a clear growth path for the future. While we will take you through the details of our full- year performance in a while, I'm pleased to report that we have delivered in line with the enhanced guidance set out in January this year and comfortably exceeded our original expectations outlined in July last year. Despite COVID disruptions, we have successfully delivered on our leasing, development, and financial targets. In the last year, we leased a total of over 2.2 million sq ft, including over 1 million sq ft of new leases in line with our enhanced leasing guidance. We delivered the 1.1 million sq ft JP Morgan campus within timelines and budget.
We launched the Hilton Garden Inn ahead of target schedule, which is already seeing breakeven run rates, and we are ready to open the 266-key Hilton Hotel next week at Embassy Manyata. We completed a timely refinance of our zero coupon bond and locked two-thirds of our debt at attractive interest rates, and that too from a widened investor pool. Overall, we delivered on our distributions guidance with INR 21 billion or INR 21.76 per unit annual distribution. A good year, particularly so given the external environment. The year ahead looks encouraging, and we are enthused by the continuation of multiple positive themes for our business. We have seen a continued improvement in office attendance and a reduction in COVID cases and restrictions since the peak of Omicron in January. The physical occupancy of our parks has ramped up considerably.
From around 10% at the end of last month, it has gone up to around 20% as of yesterday. A 25,000-person increase in just four weeks. As per the conversations with our key occupiers, we expect the occupancy numbers to continue on this upward trajectory over the coming weeks and months. Along with the back to office movement, the record order books, tech spends, and offshoring, as well as rapidly increasing headcounts for our core customer base, technology, and global captives, is translating into significant demand for office space and requests for proposals. In parallel, the continued focus by companies on higher quality, wellness-oriented properties is likely to result in stronger leasing interest in our portfolio.
We are well- positioned to benefit from this demand acceleration given our concentration in the right markets and our focus on the total business ecosystem offering and sustainability performance of our properties. Our robust FY 2022 performance and promising FY 2023 growth prospects places us in a great position. Our business resilience continues to reflect in our stock performance and consistent uptick in our unit holder register despite geopolitical conflicts and resulting global market volatility. We are excited for the upcoming year and our endeavor to continue to deliver value to our unitholders, as demonstrated consistently over the last 12 quarters. Lastly, earlier this year, we announced that Aravind Maiya, our CFO, had expressed his desire to step down to pursue other interests. We are grateful to Aravind Maiya for his contributions and wish him success in his future endeavors.
The identification of long-term CFO candidates has commenced, and in the meantime, our Deputy CFO, Abhishek Agrawal, will take over as the interim CFO from 1st of June. Our strong finance team of over 40 individuals with best-in-class systems and processes continues to be fully focused on delivering to our unitholders. I will now hand over to Vikaash to present our business and operating highlights for the year.
Thank you, Mike, and a very good evening to everyone. Despite the external challenges, we concluded another good year for our business and are set on a positive growth trajectory. Key business highlights for the year are. We leased 2.2 million sq ft across 47 deals at 18% spreads and achieved 14% rent escalations on 7.7 million sq ft. We delivered 1.1 million sq ft JPMorgan campus within timelines and budgets and ramped up new growth cycle with 4.6 million sq ft new office development. We launched one of India's largest mixed-use complexes, offering 619 dual-branded Hilton Hotel keys at Embassy Manyata. We concluded INR 9.3 billion add-on acquisition at our investment entity, Embassy GolfLinks, and initiated evaluation of 5 million sq ft Chennai ROFO opportunity from Embassy's sponsor.
We announced our overall ESG strategy, our 2040 net zero carbon operations commitment, and a 75-25 renewable program. Let me cover the details under four broad areas of leasing, organic growth, acquisitions, and sustainability. First, an update on our leasing for the year and outlook. We are pleased to report that we achieved 2.2 million sq ft of total leases in the previous year across 47 deals, with the deal activity by number of leases similar to pre-pandemic levels. We delivered over 1 million sq ft of new leases across 31 deals, in line with our enhanced leasing guidance last quarter. Notably, around half the space was leased to new occupiers, many of them smaller, newer, tech-focused players with high growth potential for further expansion in our properties.
Additionally, we successfully renewed 1.2 million sq ft at 13% spreads and secured 14% rent escalation on 7.7 million sq ft across 89 deals. With this, we ended the year at 87% occupancy and a promising pipeline of 500,000 sq ft, along with encouraging pre-commitment discussions for our under-construction projects. Our leading pipeline and conversations with occupiers support our view on three clear trends in the Indian office space. First, the timing of pent-up demand translating to lease closures is directly linked to the back-to-office ramp-up. With record hiring and increased offshoring, multiple corporates have onboarded more employees than their existing office capacities, a trend which was highlighted during our recent interactions with certain occupiers. As office utilization continues to increase, ready availability of quality office stocks becomes a key differentiator.
Further, long-term office space planning is fast becoming a key focus for occupiers, given the business growth, talent hire, as well as limited supply in key micro markets. As a result, many global captives have now issued RFPs for pre-commitments. Second, there has been an increase in demand from high-growth players looking to set up offices in new locations, including first-time occupiers in India, who are focused on accessing talent to support their growth. These corporates are experimenting by leasing smaller or flex spaces, but a substantial growth potential in mid-term. As part of our strategy, we have signed over 20 such leases last year at an average deal size of around 50,000 sq ft, and we are in advanced discussions for more. We believe this sets us in a strong position to capture future demand from these growing corporates.
Finally, the demand rebound is varied across sectors and micro markets. Of the 31 million sq ft pan-India active RFPs, around 55% relate to global captives and around 60% are Bangalore-based requirements, given the Garden City's well-established ecosystem, large office market, and talent availability. Expansion and consolidation are the two key themes for Bangalore RFPs. Mumbai is also showing encouraging signs of demand pickup, especially from the financial sector. Given that physical home infrastructure challenges are especially acute in Mumbai, the back to office ramp-up has been significantly faster here, which is leading to increased deal activity. Relocation to higher quality and well-connected properties are the key themes for Mumbai RFPs. Our 84% portfolio exposure to these two cities, coupled with favorable location of our properties and several infrastructure initiatives for enhanced connectivity positions us extremely well.
Moving to our leasing guidance for FY 2023. We are targeting a total lease up of 5 million sq ft, comprising 1.7 million sq ft new leases on our operating portfolio, 1.2 million sq ft pre-commitments, and 2.1 million sq ft renewals. Of our 3.1 million sq ft lease expiries during this year, 1.2 million sq ft are likely exits, but with a significant mark-to-market opportunity of over 55%. Moving to our organic growth updates. First, an update on our new office development. During the previous year, we successfully delivered a state-of-the-art 1.1 million sq ft campus to JPMorgan at Embassy TechVillage, or ETV. Given the global demand in this ORR micro market, we launched an additional 1.9 million sq ft new office development.
With this, our ongoing construction projects now total 4.6 million sq ft. We have significantly ramped up activity at site and are on track with our target delivery schedules. However, construction of our 0.6 million sq ft N3 Block B at Embassy Manyata has been impacted given delays in pre-construction approvals, including the acquisition of necessary transferable development rights. On a positive note, we are evaluating additional leasable area opportunities totaling over 1 million sq ft, comprising 600,000 sq ft at Embassy Manyata through redevelopment of certain existing blocks and 400,000 sq ft new block at ETV. We will update you as we make progress on regulatory approvals for these. Moving to hotels.
We are delighted to announce the launch of one of India's largest mixed-use hotel complex at Embassy Manyata, comprising 619-key dual-branded Hilton Hotels, 60,000 sq ft convention center, and an 85,000 sq ft retail and F&B hub. Strategically located at our park entrance, this hotel is complementary to our office offering and significantly increases Embassy Manyata's competitive moat. We have already signed over 110 corporate contracts, and the 353-key Hilton Garden Inn, launched in March of this year, is already witnessing encouraging occupancy levels. Similarly, given the recovery in travel, we are seeing occupancy pick up for our other two operational hotels. With a further boost from the opening of international borders, hospitality demand is set for a strong rebound.
We have also kick-started construction of the 518-key dual-branded Hilton Hotels at ETV in Bangalore's ORR, a micro market with significant long-term opportunity given the demand-supply mismatch. We see hotels as immensely complementary to our office offering. During the year, we also completed master plan upgrades for Quadron and TechZone in Pune, launched a public skywalk and flyover near our Bangalore properties, and initiated Central Garden, an 8-acre amenity zone at ETV. We continue to ramp up our office construction and kickstart new hotel projects to enhance the total ecosystem of our properties, preparing them for the resurgent demand. Next, an update on our acquisitions. During the last year, we consolidated ownership in Embassy GolfLinks, EGL, property at Bangalore, one of India's best office parks.
Our 50% owned investment entity, Golf Links Software Park Private Limited, or GLSP, acquired 0.4 million sq ft area within EGL from strata owners, thereby consolidating GLSP's ownership footprint to 3.1 million sq ft. We have witnessed strong leasing for this newly acquired area. GLSP also acquired the property management business for the entire 4.7 million sq ft EGL business park. Property management ownership is a continuing theme for us, given the long-term strategic benefits of full alignment and improved service delivery to occupiers. The entire acquisition was completed by GLSP for a total consideration of INR 9.3 billion and was funded through a debt buyback at 70 basis spread to recently raised five-year fixed coupon debt at 7.35%.
Since acquisition, the 0.4 million sq ft area has witnessed strong leasing given its consolidation within our EGL property. In addition, we continue to evaluate the right of first offer opportunity received from Embassy's sponsor in January in relation to Embassy Splendid TechZone, our 26-acre business park in Chennai, totaling around 5 million sq ft when fully developed. We like the impressive scale, global occupier base, and micro market of this property and will update you as we progress further on our evaluation. This is in addition to other third-party opportunities which we are currently considering. As demonstrated by our INR 97.8 billion successful acquisition of ETV in December 2020. We remain highly selective and are focused on ensuring acquisitions are complementary to our existing portfolio.
Our robust governance framework, strong balance sheet, and well-established access to capital markets are our key strengths and help us pursue accretive growth. Finally, an update on our ESG initiatives. Earlier this year, we announced our ESG strategy based on three key pillars of responsible planet, revitalized communities, and responsible business. We have committed to achieve net zero carbon emissions by 2040 across our operational portfolio and have set medium-term goals for our 19 ESG programs, key being our 75/25 renewable program. That is our commitment to achieve 75% renewable energy usage across our properties by FY 2025. To that end, we have initiated a 20-megawatt solar rooftop project across our pan-India properties, this being one of Asia's largest such initiatives.
This project is on track for end 2022 completion, and is expected to deliver over 30% IRR, given the attractive 5.95% certified green financing. In recognition of our efforts and leadership position in sustainability, we received multiple prestigious ESG recognitions, such as the Golden Peacock Award for Sustainability, a four-star GRESB rating, a portfolio-wide WELL score, and USGBC LEED Platinum rating for all our Mumbai, Pune, and Noida properties. We consider our ESG focus and commitment to be aligned with the broader goals of our global occupiers and investors, and our leadership position as a strong differentiator and a long-term advantage. In summary, we concluded the year with strong execution of our leasing strategy, successful delivery and ramp-up of our office and hotel developments, and considerable progress on ESG front.
Looking forward, we are well-placed for growth considering improving leasing outlook, significant mark-to-market opportunity, and our substantial on-campus development. Additionally, as market consolidates to fewer and more institutional landlords, we are well-positioned for new growth through accretive acquisitions. Over to Aravind now for our financial update.
Thanks, Vikaash. Good evening, everybody. Let me start with our financial highlights for the year. We surpassed our net operating income and distribution guidance provided in July of last year by 5% and 1% respectively. This outperformance was largely driven by our leasing recovery, as well as improved operating performance by our hotels. We refinanced our INR 36.5 billion ZCB with coupon-bearing debt at positive spreads of approximately 300 basis points, leading to a pro forma INR 1.3 billion annual interest savings. Post this significant refinance, our balance sheet remains conservative with 24% leverage and 6.7% cost of debt. We enhanced post-tax distribution yield for our unit holders by simplifying the two-tier structures of our Manyata and ETV properties and increasing tax-free component of our distributions from 66% in previous year to 82% in FY 2022.
Going forward, we expect approximately 85% of our distributions to be tax-free. We achieved a 6% year-over-year increase in gross asset value for our portfolio, independently assessed by valuers at INR 494 billion as of March 31, 2022. Our NAV has also increased by 2% year-over-year to INR 393.9 per unit, primarily driven by improved market outlook, lease-up, market rent assumptions, and new deliveries. Now an update on our FY 2022 income performance and distributions. Revenue from operations grew by 26% year-over-year to INR 29,626 million, mainly driven by revenue acquisition due to ETV and other completed acquisitions in the previous financial year, ramp-up in hotel occupancy, and rent escalations on 7.7 million sq ft leases.
The impact of these positives was partially offset by a decline in occupancy since the start of the COVID pandemic. NOI and EBITDA both grew by 23% year-over-year, in line with the increase in our revenue from operations and factors to corresponding CAM and hotel operating expenses. Our NOI margins stood at an impressive 84% and continue to be best in class, reflecting the scale and efficiency of our business as well as our low fee structure. Net distributable cash flows grew by 12% to INR 20,639 million, mainly reflecting the increase in our NOI and EBITDA. The impact of these positives was partially offset by additional interest costs on coupon-bearing debt raised for acquisitions and our ZCB refinance. Earlier today, the B oard of Directors declared a distribution per unit of INR 5.26 for Q4, representing a 100% payout ratio.
With this, Embassy REIT has declared annual distributions of INR 21.76 per unit for FY 2022, about 1% higher than previous year. Before I move to our FY 2023 guidance, an update on our balance sheet strengths. Our fortress balance sheet is well-positioned to drive growth. We have a pro forma debt headroom of INR 120 billion with average debt cost of 6.7%, one of the lowest in the industry. We undertook a few notable steps during the year, which has further consolidated our strong balance sheet position. Through our INR 16 billion debt raised during the year across listed bonds as well as SPV level debt, we widened our debt investor pool with participation from numerous domestic mutual funds, corporate treasuries, and domestic as well as multinational banks.
The regulatory permission to insurers and FPIs to participate in REIT debt issuances further enabled us to access a new and deep capital pool and achieve their first time participation in our debt book. We successfully refinanced our legacy ZCB by raising INR 46 billion coupon-bearing debt at 6.5% debt cost, significantly lower than the 9.4% ZCB raised at IPO. Given the rising interest rate environment, our assessment of prepaying this debt in November last year ahead of the actual maturity schedule has been immensely beneficial.
Including additional refinance of INR 7 billion debt across various term loans and construction debt, we refinanced a total of INR 53 billion debts during the year and achieved positive refinancing spreads of around 260 basis points, leading to a pro forma annual savings of INR 1.4 billion to the benefit of our unit holders. We continue to opportunistically explore additional refinancing opportunities. We locked in majority of our debt at fixed interest rates, which positions us well given the trend towards hardening of interest rates. As of March 2022, around 62% of our debt book is at fixed coupon, and we do not have significant debt maturities in FY 2023. All our debt continues to be rated as AAA/Stable by credit rating agencies.
For the as of 31 March 2022, our entire INR 121 billion debt book is fully coupon-bearing, thereby simplifying the cash flow through for our distributions and enabling easier understanding of the yield and growth components of our REIT product by current and potential unit holders, including our growing retail investor base. As part of our broader ESG strategy, we successfully raised INR 22 billion of green loans during the year, much ahead of our FY 2024 target of INR 10 billion. I'm pleased to update that 16% of our overall debt book comprises of green loans. As Vikaash mentioned earlier, ESG is a key business focus for us, and the 19 programs across three pillars are fully integrated into our execution priorities. Lastly, our outlook for FY 2023.
We expect our NOI to be in the range of INR 25,679 million-INR 28,382 million, with a midpoint of INR 27,030 million, which is 9% higher than previous year. We expect our NDCS to be in the range of INR 19,541 million-INR 21,598 million, with a midpoint of INR 20,569 million. Correspondingly, our DPU is expected to be in the range of INR 20.62 -INR 22.79 per unit, with a midpoint of INR 21.7 per unit, in line with the previous year. I would like to highlight that this distribution guidance includes the impact of the ZCB, which we refinanced in November last year with a coupon-bearing debt.
To that end, our new guidance should be viewed as a core recurring distributions. On a like-for-like basis, post factoring the impact of ZCB refinancing, our guidance is 9% higher compared to the previous year. Our outlook is based on the following key assumptions. Considering the improved demand outlook and our leasing pipeline, we expect a total leases of 5 million sq ft, comprising 1.7 million sq ft new deals on operating portfolio, 1.2 million sq ft of pre-leases on under construction projects, and 2.1 million sq ft of lease renewals. We have also factored income from our recently delivered 1.1 million sq ft JPMorgan campus at ETV. We will benefit from the full- year impact of the successful 14% rent escalations on 7.7 million sq ft across 89 leases in the previous year.
We also expect to achieve 14% rent escalations on an additional 8.2 million sq ft across 68 leases during FY 2023. In relation to our hotels, considering the revival of business travel and hospitality demand, we expect continued improvement in business on books across our 1,096-key operating hotels, including the soon to be inaugurated Hilton Hotel at Manyata. We have factored a positive EBITDA of INR 400 million from hotels compared to an average cash drag of INR 244 million in the previous two years. Finally, we have factored incremental INR 650 million interest costs relating to the recent 1.1 million sq ft office and 619-key hotel deliveries, as well as 0.9 million sq ft expected completions during FY 2023.
We have also factored INR 1.7 billion or INR 1.8 per unit full- year impact due to interest expense outflows given our recent ZCB refinance. While business outlook and sentiments have certainly improved, please note that our guidance remains subject to the evolving nature of the pandemic. We are focused to deliver accretive growth through mark-to-market leasing, new development completions, and prudent acquisitions. We remain well- positioned to finance our growth given our strong balance sheet. Over to Mike for his concluding remarks.
Thank you, Aravind. Another very solid and encouraging year, marking our three-year anniversary since listing in April 2019. Over the last three years, we signed a total of 6.4 million sq ft of leasing across 135 deals. We delivered 2.5 million sq ft of new space, launched three premium hotels of 849 keys. We expanded our occupier base from 165 to over 200 corporates. We acquired a 9.2 million sq ft world-class business park, raised over INR 36 billion equity through India's first QIP via REIT. We raised over INR 174 billion debt. We financed around INR 89 billion debt, reducing our debt costs by around 265 basis points. We launched our ESG framework and 2040 net zero commitment.
Finally, distributed over INR 58 billion to our unitholders, which, along with our stock performance, equals over 15% annualized total return. Our team has accomplished a great deal in these three years, despite having two years in the shadow of the extraordinary circumstances of the global pandemic. Finally, I am pleased to confirm that the board has today approved the appointment of Vikaash Khdloya as CEO for EOPMSPL, the manager to the REIT, and that I will retire from the business effective 30th June 2022. Vikaash is known to many of you, as he has been part of our leadership team since before our IPO in April 2019. Our nomination and remuneration subcommittee has followed a rigorous process of assessment by engaging two globally recognized leadership consulting practices to assess potential external candidates, as well as an independent skills assessment.
The NRC has unanimously concluded that Vikaash Khdloya is the best fit for the role of CEO to Embassy REIT. It has been a privilege for me to serve in this position for the three years post-IPO, and I am confident that our strong leadership team, led by Vikaash, will take the business through its next phase of growth for the benefit of all our unitholders. Looking forward, we have a clear strategy to further solidify our resilient business and undertake accretive growth by building and acquiring assets complementary to our industry-leading portfolio. We have an excellent team of over 160 very talented individuals who are committed to execute this strategy and are driven by our ultimate goal of delivering growth and maximizing value to our unitholders. Let's move to Q&A.
Thank you very much. We will now begin the question-and-answer session. Anyone who wishes to ask a question may press star and one on their touch-tone telephone. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use handsets while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. Reminder to the participants, anyone who wishes to ask a question may press star and one at this time. First question is from the line of Kunal Tayal from Bank of America. Please go ahead.
Great. Thank you. Firstly, Mike, I wish you well for your next phase. Enjoyed the many discussions we had. Also, Vikaash, congratulations on the elevation. I had two questions. The first one is the new leasing outlook for fiscal year 2023. You know, good to know that it's higher than fiscal year 2022, but you know, it doesn't yet seem to be back to fiscal year 2020 levels. Is it really the physical occupancy rates which is holding this back or anything else? My second question is around the upcoming expiries. I believe you know, you're trying to highlight that you'll retain 60% of this, which is in line with historic average. You know, is there scope for positive surprise or a significant movement on the percentage as you go through the year? Thank you.
Thank you, Kunal, and thank you for your kind words. Vikaash, would you like to talk through that leasing outlook and also the expiry space?
Sure, Mike. Thank you, Kunal. Quickly on our leasing outlook and, you know, how it compares to previous years. Just to give you a kind of broad, you know, broad outlay, the pre-pandemic, our average leasing, both new leases and end of tenure renewals was approximately 2.7 million sq ft across both FY 2019 and FY 2020. To that extent, compared to the pre-pandemic level, you know, we believe this guidance demonstrates a positive outlook. Of course, in FY 2022, we did about 2.2 million sq ft of total leasing. We think it's pretty encouraging the way things are looking, especially Bangalore, our core market. That's you know, just on your first question.
On your second question on expiries, if you may recollect that we did mention that we had one large legacy occupier in Manyata, who had decided to relocate for cost reasons. You know, a big chunk of that likely exits of 1.2 million sq ft comprises that 700,000 sq ft exit, which is the last of the staggered exits that's been happening by this occupier. The good news is that we have a phenomenal 55% mark-to-market opportunity given that it's a senior old lease. But we do.
To your question, we do see opportunities for early renewal where, you know, large occupiers whose expiries are not within the next two, three years are engaging with us to explore early renewal opportunities, blend and extend, as we call, for two reasons, not only because the market supply is, you know, especially constrained in core markets, but also because, you know, a lot of occupiers are looking to upgrade their furniture and fit outs, and they would like to ensure they time the upgrades both with the back to work as well as, you know, with renewing and locking in a longer term lease with us. So I think that trend is something we have seen as emerging over the last quarter or so. We'll have to see the next couple of quarters, but that's one trend in play.
Can I, Kunal, just add a couple of data points around that? I think we mentioned last quarter, and we're really at a similar position. There's 31 million sq ft of RFPs out there. 60% of that is focused around Bangalore. We've got a very encouraging pipeline of over half a million sq ft. We've got conversations going with occupiers right now of over 1 million sq ft and long-term pre-commitment type of opportunities that run into the 4 million-5 million sq ft. The prognosis over the next 12-24 months is, as we've said before, very encouraging.
Sure. Thanks, Michael. Thanks, Vikaash.
Thank you, Kunal.
Thank you. The next question is from the line of Murtuza Arsiwalla from Kotak Securities. Please go ahead.
Yeah. Hi, Vikaash. Congratulations on your elevation. Mike, we hope to very happy for the association we've had. Just two questions from my side. You know, when we talk about the likely exits of 1.2, do we have any visibility of new tenants that could take that space? Also, on the 2.7, which is currently under construction and likely to come on board, you know, any leads on what the pre-committed leases are? The third one is on the acquisition of 0.4 million sq ft at GolfLinks. Can you just elaborate on, you know, the INR 932 crore? So are we, you know, you know, how does the ownership for the 0.4 million sq ft asset at stake? We still continue to own 50%.
Also, what is the NOI that one could look at from this 0.4 million as it stands today? Some more details on the 0.4 million sq ft acquisition. Thank you.
Murtuza, there's a lot of questions in that. Vikaash, do you want to take some of those?
Sure, Mike. Thank you, Murtuza. Why don't I address your first question, Murtuza? Yes. You know, the 1.2 million sq ft that we have projected as likely exits, of course, all of these exits don't happen today. They happen over the course of the coming year, right? With about 500,000 sq ft each in the first two quarters, and then it trickles down to, you know, lower numbers in Q3 and Q4. Half of the space will be available to be backfilled only after September of 2022. Having said that, we have encouraging names in our pipeline for backfilling this, and you know, that's included in the leasing guidance of 1.7 million sq ft that Aravind mentioned.
Let me give you some flavor of the kind of occupiers that we're speaking to, just, you know, you'll get a sense of, you know, how the demand is emerging. In ETV, we are speaking to a global automotive firm which is focused on EV and motion control. That's for 30,000 sq ft. We are talking to a $10 billion crypto-related tech firm, for another 30,000 sq ft in EGL. We are interestingly talking to a specialized offshoring advisor who advises large global corporations end-to-end on offshoring, and that's at Manthan at Embassy One. Plus, we are discussing a lease at FIFC with one of the largest global music label companies, and that's for about 30,000 sq ft.
Just to give you a sense of the last one or two of those is we are talking to a cloud-based SaaS provider for about 90,000 sq ft in one of our properties in Noida. You know, I can just give you flavor, but what we're seeing is a trend of you know, across sectors, whether it is automotive, whether it is insurance, energy, of course, global captives, you know, and we're also seeing some of the EV companies who are looking to take up space in our property. It's a very encouraging pipeline. We do think that these are the occupiers who will be the high growth occupiers who will eventually scale up. This is a very focused midterm strategy from our side.
As I mentioned in my prepared remarks, that we did the same number of deals in FY 2022, which we did pre-COVID of approximately 31. That's the focus. Just to come to your second question on pre-leasing commitments. You know, as you know, we discussed earlier, of course, Pune continues to be lagging behind Bangalore. So we are yet to see momentum pick up, but we are just seeing some encouraging signs with just in the last one week, we've renewed about 500,000 sq ft with existing occupiers in Pune. But Bangalore, we have seen very healthy traction in terms of demand on pre-commitment.
At ETV, we are speaking to two large global banks who have actually ramped up more than 50% in Mumbai and are now looking to ramp up around similar levels in Bangalore City. Those requirements are anywhere in excess of 1.5 million sq ft. We are also seeing a pipeline from large tech firms in ETV. You know, obviously all of these are midterm requirements because the supply also comes up in two to three years from now. Bangalore is seeing encouraging pre-leasing activity. Similarly, Manyata, we're talking to one of the largest banks, you know, which is an existing occupier for the MC Block A, the 1 million sq ft, which comes up later this year.
Again, our strategy here, Murtuza, will be we would like to lock in anchors for properties which are nearing completion. At the same time, something which is two or three or four years away, especially in a rising rent market, we would not, you know, we would not want to, you know, pre-commit the entire portion, but at the same time, de-risk by, you know, by being selective about the amount of area and the occupier we commit space to. Lastly, on the Golf Links question, you know, and maybe I can just talk you through the slide number 30 on our earnings deck.
You know, the basic philosophy for our Golf Links acquisition is, one, we really like, as a team, owning more of what we already own, whether it's within the campus or whether it is surrounding to our campus. Again, this was an opportunity to consolidate, and it made more sense to do it through the joint venture entity because it's better alignment. Again, as a team, continuing team, we like owning property management business of all the business parks that we currently own. This was the broad theme. The entire consideration of INR 9.3 billion purchase consideration has been paid by the joint venture entity, which the REIT owns 50%. You know, it has been acquired by that entity. Of course, we own 50% economics of that entity.
Interestingly, the way we have also structured the deal is that we, as REIT, have financed the debt to this joint venture entity at a 70 basis point spread for this acquisition. It's a fully levered acquisition. This SPV, the joint venture entity, had no debt earlier, so this obviously helps the joint venture entity in terms of enhancing its NOI, but also it helps us in more efficient cash flow through as we kind of receive the 50% profits from this entity. Overall, it helps the joint venture entity with a positive spread in terms of the acquisition versus how it's being financed. At the same time, it helps us overall in alignment and in better cash flow too.
Murtuza, you know GolfLinks. It is one of the best parks in the country, if not the best park. We were able-
Sure.
To acquire that at a 4.8% discount to the valuations. There's many attractive elements to that deal, adding the high quality to our portfolio.
Sure. Just to clarify, if I understand this right, the acquisition is 100% debt funded acquisition, where the REIT has taken the debt on the trust, lent the money to Golf Links. You know, you get 100% of the interest at that 70 basis spread for the. I understand that right?
That is absolutely correct, Murtuza. Also it helps.
Okay.
In a better cash flow through-
Sure.
Even on the profits of the joint venture entity, which are currently being paid as dividends.
Sure. Any color on the occupancy of that 0.4 million sq ft and the NOI that we're looking at?
Occupancy in Golf Links, as I think you're aware, has consistently been close to 100%. The space that we acquired was acquired originally at a 58% occupancy. In the last few months, we've leased up significant proportions of that. It's now 69% occupancy, and we have got more than enough inquiries to bring that to full occupancy at more than underwritten rentals in the near future.
Great. Thank you.
Thank you. The next question is from the line of Amandeep Singh from Ambit Capital. Please go ahead.
Thanks for the opportunity. Firstly, congratulations, Vikaash, on the elevation and all the best, Michael, for the next phase. My first question is on the Chennai micro market. Given you have received the ROFO for Embassy's Splendid TechZone, can you give a brief overview about the Chennai as a micro market with respect to commercial real estate and how the upcoming supply would stack up in the competing micro market? Any sense on that?
Yeah. A number of things that we like about that Chennai property is the location within the city, we believe, is strategically important for the medium term. It's very close to the airport. It connects GST Road with OMR, so it's very much today and tomorrow's location, not perhaps yesterday's location, which some other parts of Chennai would be. I think that is witnessed by the fact that there's a significant proportion of committed leasing by an international bank, by a couple of international banks actually in that space, and an IT services company. We saw last year, Chennai leasing actually had an uptick, and that area of the market actually is underserved by high quality integrated assets like ours. Chennai market historically has been around about a 4 million sq ft market.
We think that the quality of this product plus the location, as I've outlined, is something that makes it very appealing to us. We're still looking at the numbers and we're still looking at the deal structuring.
Thanks. Thanks for this. Secondly, on expiry, so as you mentioned about 0.7 million sq ft of expiry at Embassy Manyata. We also note that a large chunk for Embassy Galaxy and Quadron is up for renewal this year. Any sense on early discussions over here?
Yeah. Thank you, Amandeep, for that. As we said, you know, if I could just, you know, lay out last year the exits, guidance that we had given and the renewal guidance, we actually were on target on our renewals. This year as well, we think, we believe that the guidance we have laid out on the 1.9 million sq ft, you know, we will achieve that. We have already got renewal notices for about 500,000-700,000 sq ft, especially in the Galaxy. One of the large leases in Galaxy, as you mentioned, at the mark-to-market rents that we would expect in the property.
At the same time, you know, obviously so many of these expiries come up during the course of the year, so we will keep you updated in Q1 and Q2 updates. We do believe that, you know, we'll be able to achieve this. Galaxy has a lot of those coming up during the second half of the year. We'll keep you posted, but some good early traction already with two large renewals, one in Puravankara and one in Galaxy. We've just received notices last week for renewal.
Sure. Thanks. Thanks for this. This is very helpful. That's all from my side and all set.
Thank you.
Thank you. The next question is from the line of Puneet from HSBC. Please go ahead.
Yeah, thank you so much. Vikaash, congratulations on your elevation, and Michael, wish you best for your next phase. Hope you enjoy that too as well. My first question is, again, on the EGL acquisition. Will it be fair to say that as soon as we acquire it becomes DPU accretive for us from point one only?
Puneet, hi. As Vikaash mentioned, there are a number of benefits from this acquisition, and one of them is the cash flow through which is available for us. To answer it, pretty simply, yes, it becomes accretive to us, from us, for us from day one onwards. FY 2023 guidance factors in that accretion.
Is it fair to say that the yield that EGL would earn from that asset will be higher than 8.1%?
Puneet, thank you for that. Yes, on a stabilized basis, we do believe that at the individual deal basis, at the joint venture entity level, this deal will be accretive. You know, the NOI yield will be higher than you know, than the debt at which the acquisition has been made and the debt was around 8.1%, adding the REIT 70 basis points spread.
It's not right now. It's on a stabilized basis, you're saying, right? Maybe a few months from now.
That's right. Yeah, we expect it to stabilize in a quarter or two. You know, again, opportunistically, we are going to lease it to growth occupiers given, you know, we have some large expiries coming in 2023, 2024, 2025 in GolfLinks and we want to move the rents higher there.
All right. Okay. Basically it becomes DPU accretive just out of that 70 basis points spread, for the time being.
No, Puneet. It will also be marginally accretive, just on a income flow through basis for first year.
Okay, that's it. My second question is if you can comment a bit on what are you seeing on the market rentals for your properties. Obviously, last two years have been tough. Are you seeing any signs of market rentals going up or is it still too early to expect that?
I think, as we've said in the previous quarter, the rental levels, particularly in Bangalore, have held up pretty well throughout the pandemic period. They've either been flat or marginally positive. In the last couple of quarters we've seen some significant increase in gains. Maybe I think there was some published data around a 4% year-on-year rental increase in Bangalore. We think that rents in the key markets for high quality properties are now beginning to see growth.
Okay. That applies for your properties as well, right? Which are anyways among the marquee and highest rental earning assets as well.
I think that's particularly so for high quality properties like ours. In fact, I think our overall thesis tends to be that there will be a gravitation of occupier interest towards our type of property, and therefore we will see more growth in our type of property than you would in the broader market as a whole.
Right. Can you comment similarly for Noida, Pune, and Mumbai?
Yeah. Bombay in particular, we're seeing some really positive interest in Bombay. As Vikaash said in his comments between Bombay and Bangalore, that's over 80% of our portfolio. Those are two markets that you know really are robust at present and in the last quarter. What we see in markets like Noida and Pune is going back to the high quality products that we're able to provide is very much differentiated from the vast majority of the market. Those types of properties will attract the best occupiers, and we're already speaking to some really top-tier global technology names. Consequently, they will also achieve higher rentals than are there in the sub-market, as has indeed been the case over a number of years.
Over previous year also, you expect new leasing to have higher rentals? In all the three markets.
Sorry.
Can you repeat?
I think we would generally say that all rentals will be at or higher than they have been over the last 12 months. There'll be differences in the market, but it's a difference to the positive.
Understood. That's very helpful. My last question is on your, you know, working capital contribution to NDCS. It's been quite steady and strong over last few quarters, and the trend continued into current quarter as well. How should one read that? What is driving it, and how long will it sustain?
Sure, Puneet. I think, as we did explain, last year as well, there are a few contributors to this working capital. One of them was the whole rental guarantee. Then we do have this fit-out agreements. You know, the other driver around this working capital is the lease deposits, which could be sometimes positive, sometimes negative. As we look at FY 2023, I would say that some of these contributors continue, especially around the deposits around new lease-up, because we have a significant amount of new lease-up coming up for next year as well. So at a broad level, I would say that these numbers will be more or less similar as we look at next year.
Rental guarantee would go out of it, right? It'll move on the
That's correct.
Top line.
That's correct.
Yeah.
That's correct.
Okay. Thank you, sir. That's very helpful. Thank you so much, and all the best.
Thank you. The next question is from the line of Kunal Lakhan from CLSA. Please go ahead.
Yeah, hi. Good evening. Yeah. Am I audible? Hello?
Yes.
Am I audible?
Yes.
Yes, you are audible.
Yeah, hi. Firstly, like, you know, all the best to you, Michael, Mike, for, you've been of great help and, I wish you all the best in your future endeavors. Congrats, Vikaash, on your elevation. My first question was on the guidance. If you look at our NOI growth, you know, in the midpoint of our guidance is almost 9%, but DPU growth or distribution growth is flattish. Just wanted to understand, like, what is playing out here. Secondly, a related question to that was like, you know, we acquired ETV last year and it was supposed to be an accretive DPU or accretive, like, you know, going into future years. So when do we see that happening? Secondly, does this guidance also build in the efficiencies coming from the collapsing of the tier two structure in Manyata?
Sure. Kunal, I think let me take the three questions one by one. In terms of DPU guidance, as you rightly said, the NOI is up 9% while the DPU is in line. That is largely due to the annualized impact of ZCB. That number is around INR 1.8 per unit, so that's like 8%. The 9% increase in NOI gets offset by negative 8% due to the ZCB annualized impact. Leaving aside all of the smaller items, I think this is the single largest contributor for the DPU guidance for next year to be flat. That is one. Secondly, in terms of ETV acquisition, as we did mention last quarter, the acquisition from ETV was actually much higher than what we had underwritten, and those are getting reflected in the FY 2022 numbers itself.
Overall, our acquisition has played out much better than what we had underwritten. That's already getting reflected in our business. Lastly, in terms of collapsing the structure, yes, the two large entities, which is Manyata and ETV, both have been collapsed now. If you see the tax-free distribution for this quarter was around 87%. Our guidance for the next full- year is that approximately around 85% will be tax-free to unitholders. That's the broad guidance on the entire distributions.
Aravind, if I may just add, you know, while the DPU is in line, as you rightly said, on a ZCB adjusted or pro forma basis, the DPU is actually 9% higher. Which kind of reflects the growth outlook that we have on the business, given the way the market demand is looking to pan out. I think with the feedback that we've received, we're in a great place in terms of our balance sheet to now pursue growth in the next couple of years, having refinanced with ZCB.
Sure. That's helpful. My second question was on if you can give some color on, you know, what will be the CAM revenues accrued to us, from the deal that we did with Golf Links, and what will be the EBITDA also on the same?
Well, in terms of Golf Links, just at a high level for you, this entire acquisition, as Vikaash mentioned, has happened at the joint venture entity, so none of the NOI or the EBITDA gets consolidated into this. At a very high level, the way to look at it is it's a close to 3 million sq ft park, so the CAM, it continues to be a typical cost plus arrangement for us. So the entire CAM revenues for the business will get accrued to the joint venture entity. So none of this gets reflected in our consolidated P&L. It's more the cash flow through which will come, which we explained previously.
Okay. All right. Yeah. Thanks. Thanks, and all the best.
Thank you. The next question is from the line of Pulkit Patni from Goldman Sachs. Please go ahead.
Yeah, thanks a lot for taking my questions. My first question is the 1.2 million sq ft, you know, of the vacated area for this particular year. Can you highlight this is across which parks, and is bulk of this the legacy lease at Manyata that we don't expect to get filled because of the renovation work we'll have to do?
Pulkit, hi. Vikaash here. Just to answer your question, you know, as I mentioned, the bulk of this, about 600,000-700,000 sq ft of this is at Manyata with one large legacy occupier. That space comes up for availability only earliest in October this year. Of course, usually we would spend anywhere between three to four months to refurb the space, especially given these are legacy blocks, before we put that back to market. Having said that, we are always in constant discussions with occupiers on forward-looking pre-commitments. Again, as I say, you know, we have a fantastic about 150% or higher mark-to-market opportunity on this. The in-place rent, if I were to highlight to you, is about INR 38.
You know the last rents we've done at Manyata are anywhere, you know, in the north of INR 95 . Yes, you know, it's more a timing issue, where the product will be available for us to offer to a new tenant only in the second half of the year, and typical refurb will take about a quarter or so.
Fair point, Vikaash. Vikaash, related question. Whatever you'll be spending on this refurbishment, is it going to be adjusted from the operating cost, or is it part of the CapEx schedule that we have?
It is. You know, it's a good question. This one, given it's legacy blocks, you know, this will be part of a CapEx schedule. We've already included the cost in our supplemental data book, forward-looking three-year CapEx outflow that we have projected.
The INR 47 crore number that I see in that?
That is correct.
Okay. Okay, great. That's it from my side. Congratulations, Vikaash, and good luck to Michael.
Thank you.
Thank you.
Okay.
The next question is from the line of Mohit Agrawal from IIFL. Please go ahead.
Yeah. Thanks for the opportunity. Most of the questions have been answered. Just two clarifications. So one is, you know, on when you gave the number of total lease of 5 million sq ft for next year, 1.7 million sq ft of new leasing. Is it fair to say that of this 1.7 million, 1.2 million is gonna compensate for that 1.2 million exits, and the incremental, you know, increase in occupancy is gonna be 0.5 million sq ft? Is that the correct way to look at it?
Mohit, hi. Yeah, that is the correct way to look at it. If I may just add, we will also have new deliveries during the course of this financial year. On a same-store basis, what you said is absolutely correct. We also, if we do get the approval for the additional 600,000 sq ft SAR that I mentioned on some of the legacy Manyata blocks, we may take that off from our operating area and from, you know, we may not offer that to occupiers if it goes through redevelopment, if we do believe that's accretive, you know, after receiving approvals. There are a couple of moving pieces on the completed area, but yes, as you said, incremental leasing, what we have projected is about 0.5 million sq ft.
Sure. Can you also comment on your hospitality portfolio? You know, you've built in INR 400 million EBITDA for FY 2023, and we've not, you know, in the FY 2022 numbers, we've not seen an improvement, you know, apart from the new hotel coming in. Have you started seeing business travel resuming, and how has the April month been? If you can give some color on that.
Sure, Mohit. Why don't I take that? You know, just to give you a flavor of Q4, you know, was slightly lower than Q3 in terms of occupancy for both the operating hotels, simply because January and February were impacted by the Omicron and the travel restrictions. However, having said that, we have seen a very encouraging outlook on the hotels. Now, we have three operating hotels, including the Hilton Garden Inn, in which we launched ahead of schedule in March. In fact, in its very first month, you know, Hilton Garden Inn kind of had break-even numbers.
Just to give you a flavor of where the occupancy was yesterday, and of course, it's just a point in time, you know, across our hotel portfolio, roughly we were about 50-55%, you know, with Hilton at Embassy GolfLinks as high as 94%, and Hilton Garden Inn and Four Seasons under 40% range, you know. We are seeing encouraging demand, especially for the Hilton Garden Inn at Manyata, which we've just launched. Hence we are, you know, very positive on the way the hotel demand recovery is panning out. Of course, it's subject to any further restrictions that do come up due to COVID.
Okay, great. That's all from my side. Congratulations, Vikaash, and all the best, Michael, for future.
Thank you.
Thank you. You know, on the topic of hotels, just to highlight, we're opening the Hilton next week is being launched, and there's a conference center attached to that. We believe that is part of the complete business ecosystem that Manyata has to offer. We would invite you when you're down in Bangalore to come see, stay, and you'll see how our theory of total business ecosystem is actually being made live with that complex.
Sure, sure. Would love to be there. Thank you. Thank you so much.
Thank you. Ladies and gentlemen, due to time constraint, we will take that as a last question. I would now like to hand the conference over to Mr. Abhishek Agarwal for closing comments.
Thank you so much for joining us on today's call and for your great questions. Most of the data points covered today can be found on our website and in the published materials, and we are always happy to engage further if any additional clarifications are required. Good evening to you all.
Thank you. Ladies and gentlemen, on behalf of Embassy REIT, that concludes this conference call. Thank you for joining us, and you may now disconnect your lines.