Good evening, everyone. A very warm welcome to all for the Embassy Office Parks REIT's first quarter FY 2026 earnings conference call. Currently, all participants are in a listen-only mode. Our speakers will address your questions during the question- and- answer session at the end. As a reminder, this conference call is being recorded. I would now like to introduce your host for today's conference, Mr. Amit Kharche, Head of Corporate Finance for Embassy Office Parks REIT. Sir, you may begin now.
Thank you. Welcome to the first quarter FY 2026 earnings call for Embassy REIT. Embassy REIT released its financial results for the quarter ended June 30, 2025, a short while back. As is our standard practice, we have placed our financial results, 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 Embassy 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, any financial guidance or performance 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. We are cautioned not to place undue reliance on such information, and there can be no assurance that we will be able to achieve the same. Joining me today are Ritwik Bhattacharjee, our CEO, Amit Shetty, our COO, and Abhishek Agarwal, our CFO. We will start off with a brief remark on our business and financial performance and then open the floor to the questions. Over to you, Ritwik.
Thank you, Amit. Good evening, everyone, and thank you for joining us on the call today. Before I discuss the earnings for the quarter, I am pleased to announce that the board has approved the appointment of Amit Shetty as the Chief Executive Officer of Embassy REIT, effective August 1, 2025. Amit is currently the Chief Operating Officer and known to many of you already as a member of our leadership team. Amit has played an instrumental role in building Embassy REIT into India's leading commercial office enterprise, and I wish him the very best. I will be a Senior Advisor to the REIT. It's been a real privilege to have led Embassy REIT and been a part of this organization, and I thank Jitu, Aditya, the board, and the entire REIT team for their continued support and trust.
I will pass it on to Amit to say a few words.
Thanks, Ritwik. Good evening, everyone. I'm really pleased to lead the REIT at such an exciting time for our business. I look forward to working with the team and interacting with all of you. The business is in very good shape, and as you will see during the earnings call later, the fundamentals are very strong, and we've got a very strong quarter to announce as well. Over to you, Ritwik.
Thanks, Amit. As Amit alluded to, we're really pleased to report a strong start to FY 2026. Here are some of the highlights for the quarter. We've leased 2 million sq ft across 25 deals, up 9% year-on-year. The 2 million sq ft marks our highest ever Q1 fiscal quarter leasing. The leasing includes approximately 1 million sq ft of new leases at releasing spreads of around 38%, 400,000 sq ft of renewals, and 700,000 sq ft of pre-commitments, which is a real shot in the arm from GCCs, technology, and healthcare companies accounting for the majority of leasing. Our occupancy stands at 88% by area, 91% by value, both up by around 300 basis points year-on-year. Excluding Quadron and Pune, our occupancy is 91% by area, 92% by value.
All Bangalore assets are now over 90% leased, reaffirming the strength of our core market, which contributes 75% of our GAV. Overall, 10 of our 14 properties are above 90% in occupancy, including 6 at 100%. GCCs continue to drive demand and account for 64% of portfolio rentals across approximately 100 tenants. Pre-leasing activity led by Chennai has been the clear theme this quarter. Block 10, which is roughly around 0.43 million sq ft, 430,000 sq ft at Embassy Splendid Tech Zone in Chennai, which is scheduled for delivery in Q2, has been fully pre-leased to a global healthcare company that's already a tenant of ours. Block 4, which is 600,000 sq ft in Chennai, has been 14% pre-leased, including the expansion option to Dexian.
In Embassy Manyata, Block D1 and D2, which is slated for delivery in Q4 FY 2026, saw an additional pre-leasing of approximately 160,000 sq ft, which brings the total pre-commitment for this block to approximately 80%. Our FY 2026 deliveries of 3.2 million sq ft are now 84% pre-leased, including expansion options. A quick note on strategic capital recycling and some inorganic growth. We entered binding documents to divest approximately 376,000 sq ft at Embassy Manyata, that comprises two strata-owned blocks, including a vacant vintage block that requires significant CapEx. This exit aligns with our capital recycling, and this deal is expected to close in the coming quarter, subject to conditions precedent. In addition, we've received an invitation to offer from Embassy Developments Limited, or EDL, a potential 3.3 million sq ft commercial project in Whitefield, the opportunity in Whitefield, Bangalore.
The opportunity is under evaluation in line with applicable regulations and governance protocols. In other updates, the 518-key Hilton hotel at Embassy Tech Village is on track for October 2026 delivery. The remaining 2.8 million sq ft of commercial pipeline scheduled for FY 2027-2028 is 30% pre-leased, including expansion options. The hospitality segment is tracking in line with expectations, with 60% occupancy and 9% year-on-year growth in revenue and EBITDA, aided by 10% growth in ADR. Given geopolitical events in the Middle East, we did see that some travel plans were disrupted in the quarter, and that did have a small impact on our portfolio. Overall, the markets have stabilized pretty significantly thereafter. The solar performance remains muted due to the lower unit generation, coupled with reduced tariffs in Karnataka. Overall, a very solid quarter, which positions us very well for the rest of FY 2026.
I'll hand it over to Abhishek to present our financial updates.
Thank you, Ritwik, and good evening, everyone. Let me take you through the financial highlights for Q1. Revenue from operations stood at INR 1,060 crore, up 13% year-on-year, and NOI at INR 872 crore, up 15% year-on-year. This increase was largely driven by new leasing, rental escalations, recent deliveries, and contributions from the fully integrated Embassy Splendid Tech Zone asset. We declared distributions of INR 550 crore or INR 5.8 per unit for the quarter, representing a growth of 4% year-on-year. This was supported by NOI growth and working capital changes, partially offset by increase in interest expenses. During the quarter, we raised INR 4,225 crore of debt at a blended coupon of 7.18%, which was largely used to refinance higher-cost debt.
This included NCD issuance of INR 750 crore at a coupon of 6.97%, which is the lowest coupon we have ever achieved in the last four years, reaffirming our position as a top-tier credit in India's commercial real estate sector. Our net debt stands at INR 20,183 crore as on 30th June 2025, implying a leverage ratio of 33%, with an average in-place coupon of 7.59%. Following the debt refinance post-quarter closure, our in-place coupon now stands at 7.55%, reiterating our strong balance sheet position with dual AAA credit ratings. In addition to above, we recently raised a 10-year NCD of INR 2,000 crore at an effective coupon of 7.33%. This issuance saw strong participation from leading insurers, pension funds, and mutual funds. This marks the first 10-year issuance by a REIT in India, underscoring the strength and quality of our credit profile.
Now, moving on to the forward outlook for FY 2026. We remain on track with the FY 2026 guidance that we provided last quarter. We continue to expect our NOI to be in the range of INR 3,589 to INR 3,811 crore, and DPU to be in the range of INR 24.50 to INR 26 per unit. At midpoint, this guidance implies a 13% growth in NOI and a 10% growth in DPU on a year-on-year basis. I will now go through some of the key assumptions underlying our full-year FY 2026 guidance, with one quarter of the year behind us. We continue to expect portfolio occupancy to be between 90% and 91% by area or between 93% and 94%, excluding Quadron at the end of FY 2026. Hotel NOI is expected to grow by approximately 9% year-on-year, supported by steady improvements in both occupancy and ADR.
Interest costs are anticipated to rise by 10%- 12% year-on-year, primarily due to the impact of the asset deliveries in FY 2025 and the planned deliveries during the remainder of FY 2026. We remain committed to delivering on these growth metrics while optimizing capital efficiency and maintaining strong cash flows. With this, let us now move to Q&A, please.
Thank you very much. We'll now begin with 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. Participants, you may press star and one to ask a question. The first question is from the line of Puneet from HSBC. Please go ahead.
Yeah, thank you so much. First of all, thank you to Ritwik for holding the fort in the interim, and Amit, welcome to your new role and best wishes for that. Secondly, my first question is to do with the thought behind divestment of Embassy Manyata. If you can reveal a bit more to who you are selling to, what is driving this thought process, and how should one think about valuations, yields, etc. on this asset? What does it do to your future thought of at one point of time acquiring more of these assets within Embassy Manyata?
Anything else? First of all, thanks, Puneet, for those kind words. Any other question or is this it?
Second is, if you can get your thoughts on the divestment of the Pune asset, which was at one point of time contemplated. Is that now not in consideration anymore? Lastly, if you can also talk a bit about the leasing environment right now in the context of what's happening around the globe. Any updated thoughts would be very helpful. That's all. Thank you.
Okay, let me, we'll parcel this out. I think on Embassy Manyata, I'll let Amit Kharche handle that, and then we'll move on to talking about Pune for a little while. I'll start with Pune a little bit, and then Amit Shetty can add on to that and then move on to leasing. Kharche, why don't you go first?
Sure, Puneet. To whom we are selling, that is the one thing we have a confidentiality with them, which we won't be able to share on this call. For the rationale behind the divestment, it's simple. These are, let's say, 20-year-old blocks facing an occupancy risk, and it will require a substantial refurbishment if we were to bring it back, the occupancy which we are seeing in Manutha. We got an opportunity. Someone was willing to, as you know, 2.2% higher than the independent valuation. We just thought we'll divest this asset and use this use of proceeds for a future proposition if we were to repay that or use these proceeds for any strategic acquisition or anywhere else. That is the plan right now. We have entered into binding documents.
As and when we'll be able to move closer to the closing, we'll keep the market updated about the use of proceeds.
Amit, is the client available on this?
Just, yeah.
Yeah, Puneet, just to add on that.
Yeah.
Good, good.
Yeah.
No, no, good. Just to add on what Amit said, I was saying that these are just strata blocks in two of the buildings, which were some floors, and the building also had a lot of other strata owners. Operationally, also, it makes sense to, I mean, that also helps us to take this.
Yeah. Just adding, Puneet, this asset had about 17 other strata owners, right? The fact of the matter is that of the 376,000 sq ft that we owned, 231,000 sq ft is currently leased, 145,000 sq ft is vacant. Of that 231,000 sq ft, about 105,000 sq ft, there is an exit notice as well. It just made logical sense for us because new leasing will require a significant amount of investment, plus the risk of holdover and waiting of time. We just thought that there was a great opportunity for us to recycle the capital and that's what we thought is the right thing to do for the business. Moving on to Pune.
Yeah, look, let me start with Pune, and Amit, why don't you add upon?
I think on Quadron, yeah, we had spoken to the market about taking it off and maybe if somebody wanted to have it, given the fact that there were a number of issues with the location, the fact that IT services, that was a large tenant, and left it and kind of wreaked havoc on occupancy. I think the fundamental thing was we did get people kicking it around for a few numbers, but they certainly weren't anything we were interested in. Ultimately, we just took the call internally, and even, you know, we're having a chat with the board at various times that, look, at some point in time, the cycle turns, right?
I think if we are okay with waiting it out, clearly, I think we've always approached it from if there's absent a good price for this, we are more than happy to think about keeping it with us for the moment. Pune is obviously expanding. It's doing well. While it's not maybe some of the other pricier parts of Pune, at some point when the metro comes in, at some point when Navi Mumbai Airport picks up and you see that kind of traction, we could see a turnaround. I mean, we're seeing a turnaround in Noida at this point in time where you wait long enough for the asset eventually to not be done. I think for now, we're content to keep it. I'll be totally transparent. We also just look at the portfolio and the numbers of the portfolio ex-Embassy Quadron for a bit.
It's just, I think, the way that we think that it should run is a small, very, it's a fraction of the value of the portfolio and the contributing analysis of the business. Yes, it's unfortunate that it's reached that position, but I think at some point in time, it'll turn. I'll leave it at that. Amit, did you have anything to add?
I think you covered it all, Ritwik, and I'll probably move to the third question that Puneet asked is, how do we look at the overall market from a leasing perspective? Puneet, I mean, look, the markets look really good. There's a lot of activity happening in the market. It's been a very robust first quarter, 19, almost about 20 million sq ft getting absorbed. The supply is actually chasing the demand. The IPCs have projected approximately drop in vacancies as well across the country, which is really encouraging. The rental rates are moving up, right, about 5%- 7%. I think it's an overall great story for us. Also, Chennai is really firing for us. We've just pre-leased about half a million sq ft plus in Chennai. We've done some interesting pre-lease in Bangalore, and that momentum continues in both the market. We've done some exciting work in Noida.
We've done about 225,000 sq ft that we've already leased, and we've got a very, very active pipeline of about 1.5 million sq ft, right? The market is seeing potentially about 12 million sq ft of active RFPs. We're participating in about 90% of these RFPs. The story can't be greater for us.
Understood. Just lastly, on the walkdown from NOI growth to NDCF growth, you did talk about some bit of interest rate impact. Should it have been that stark, a 15% NOI growth translates into less than 4% NDCF growth? What are some of the other factors and how should we decompose this? A lot of new assets also came in, right, in the last couple of quarters.
Yeah, Puneet. There are total three parts to it. One is the interest portion. The second one is payment of the property tax. What actually happens is the property tax of Bangalore properties was paid for the full year in the first quarter itself. There is that second impact. The third impact is the properties that we delivered in the last year, last quarter. Now, the non-cash NOI is kicked in right now. However, the cash NOI will kick in from Q2 and Q3 onwards.
You're saying they're not rent-yielding per se. They're still in the rent-free period.
Yes, because we delivered it in the last quarter. Now, the cash rent, actually, the RCD starts in Q2, Q3 onwards.
The interest on the debt you had taken for that, you start paying that now from the last quarter onwards.
Absolutely.
Okay. If you could share the quantum of the property tax, should it not be a part of pre-NOI expense because the NOI also grew 15%, right?
Yes. What happens is property tax is, yeah, you're right. It is a pre-NOI expense, but the cash went out. NOI, the larger chunk was also the non-cash. All these three taken together explain the difference between 13% of NOI and 4% of DPU.
Non-cash rent versus interest, I should assume, is the gap between NOI growth versus NDCF growth.
Yeah, yeah.
Okay. Great. Thank you so much and all the best.
Thank you.
Thank you. Our next question comes from the line of Pritesh Sheth from Axis Capital Limited. Please go ahead.
Yeah. Thanks for the opportunity, and congrats, Amit, for your elevation. First, on this divestment picture, we are just trying to understand. These blocks that we are now having off, they were not contributing to rents as of now, or what is the NOI rental kind of impact? Obviously, it will be minuscule, just trying to understand whether they were contributing anything or not.
Yeah. Pritesh, right now, you know, the occupancy is around 6%. We have received additional notices for this block. Suppose that occupancy will drop to around 32%, and we see the rentals in the range of INR 8 crore, which will be close to 2% NOI as opposed to the exit.
Okay. Got it. Is this a part of that MFAR block?
Yes. Yes.
Okay. Second question on Embassy Splendid Tech Zone. I think the first block that's coming up in September saw a good pre-leasing. What's the outlook on the second one? Will that also be fully leased before it's delivered completely, or 500,000 leasing a year should be a good leasing run rate in Chennai that we see?
Absolutely. Pritesh, firstly, thank you for your wishes. From an overall Chennai perspective, the market is actually really, really hot. In terms of the overall supply, there is actually no quality supply in the market. We are probably one of those developers who's actually got stock that's actually coming up into the market at the right point of time. Having said that, to answer your question on Block 4, we've already pre-leased about 14% to a company called Dexian, and we've got a very strong pipeline. The hope is that we will pre-lease this, but we're confident that at least 50% of that building will get pre-leased before delivery.
Sure. That's pretty helpful. Just one last on the cash taxes part. It has been pretty much in the 5% of EBITDA kind of a range since quite a few quarters. Would that run rate remain for medium-longer term, or eventually, we would start paying a little higher taxes once your previous losses get completely absorbed? Just guidance on that.
Yeah, Pritesh. The expectation is that for the medium term, it will remain similar to 5%, but it will increase by, let's say, 1% in the longer term for the reasons which you mentioned.
By 5%, you are saying?
Yeah.
By a percent or so, it can go to like 5%, 6%, 7%, or 8%.
It can go to 6 or max 7. The expectation is 6.
Okay. Fair enough. Got it. That's it from my side. Thank you. All the best.
Thank you.
Thank you.
Thank you. Our next question comes from the line of Parvez Qazi from Nuwama Group. Please go ahead.
Hi. Good evening, and thanks for taking my question. My first question, I'm not sure if you've already covered this.
I'm really sorry to interrupt. Parvais, sir, you're sounding a bit muffled.
Hi. Is it better now?
This is much better. Yes, please go ahead.
Sure. My first question is, and sorry if you've already answered it, I wanted to get your views on the recent tariff issue. How do you see things panning out for us, especially in the GCCs market? There have been talks about global leaders not wanting more U.S. jobs to come to India. I wanted to get your views on that. Second is some progress on the SEZ front, any de-notifications, etc., this quarter. Thank you.
Yeah. Let me take the first one, Parvez. I think it's very, frankly, it's too early to call, right? I think this conversation around tariffs generally points to the fact that the U.S. administration is always looking to make a deal. It doesn't necessarily always pan out that it tends to be a zero-sum game. There clearly is obviously a lot of noise in the market, but I think the market is also learning to deal with that. It is something that we don't expect to subside over the coming quarter or even the coming year in this administration. I think, yeah, there is, you know, and it's not the first time that we've thought about the fact that, look, could U.S. companies be subject to sort of some kind of conditions about not hiring jobs in India and moving it overseas? I mean, these are also capitalistic corporations, right?
I mean, they exist to deliver returns for their shareholders. I don't think it's sort of just such a binary outcome that you stop hiring here and you start doing that. The economics of comparative advantage simply don't lend themselves to that. I think it's just, you know, frankly, while there are tariffs, while tariffs do have consequences, and they will obviously cause both might be inflationary and at the same time could even lead to sort of a slowdown in economic activity and output. I don't think necessarily that it just means that people are going to stop hiring in India. The other thing is that there's effectively, you know, what we are seeing in our portfolio is that there is a massive migration towards GCCs and companies from other parts of the world. We've got Australian banks. We've got Danish healthcare companies. We've got, you know, Japanese companies.
There's British companies. There's a whole host of, you know, GCCs worldwide and across sectors looking to hire in India simply for the talent. I think there's an incredible hedge that we have in the portfolio against sort of some of the American, the risks to the U.S. sort of part of the portfolio that we currently have. Even that, I don't think it's going to be there. There might be some degree of rationalization in some form. That, I would say, is normal course rationalization and not sort of structural sort of, you know, fleeing off labor by U.S. companies. On the SEZ, if you want to take that. Yeah.
Parvais, sir, we have lost the audio from your line.
Yeah, I can't hear anything.
Just one moment.
Right.
Hello, ladies and gentlemen. The line for the management seems to have disconnected. Please stay connected while we reconnect the management back. Ladies and gentlemen, we have the line for the management reconnected. Please go ahead.
Yeah, sorry about that, guys. Parvez, where did we lose you?
The SEC issue.
Okay. Just to quickly recap, Parvez, the total SEZ that we've de-notified so far is about 7.8 million sq ft. Last quarter, we've de-notified about 1.4 million sq ft. In future, we plan to de-notify, demarcate additionally 3.2 million sq ft.
How much of the 7.9 million sq ft has been already leased?
Of that, you know, about 74% is already leased.
Sure. Thanks and all the best for the future.
Thank you.
Thanks.
Thank you. Our next question comes from the line of Vikas from Kotak Securities Limited. Please go ahead.
Yeah. Hi. The transaction which you guys did in Embassy Manyata for INR 530 crore, you are saying that part of it, 145,000 sq ft, is vacant, and some portion of the leased portion also will get vacated. Is there any clawback from the buyer in terms that you have to guarantee a yield for a certain period of time, or there are no guarantees from the lease to the buyer? The entire leasing risk and revenue risk is on the hands of the buyer.
Yeah, there is no clawback, and we have already entered into binding agreements. There is no clawback.
No guarantee of returns on the purchase price?
No, this is M&A as usual. You know, once we do the deal, the risk and reward gets transferred.
Okay. Fine. Thank you.
Thank you. Our next question comes from the line of Vishal Parekh from Kotak Alternate Asset Managers Limited. Please go ahead.
Hi. Good evening, team. We wanted to check regarding the recent consultation papers which SEBI stated and various news reports regarding classification of REITs as equity for the mutual fund schemes. There's also a certain one paper which they approved in July, which mentions that the REIT and InVITs can be part of the residual portion of mutual fund schemes. What are your views around that? Is it positive, or it could potentially be detrimental if debt and hybrid funds are not able to hold the REIT units?
Okay. Let me start. I think for me, and this is my view, I've always thought of a REIT as being a high dividend-paying stock, right? At the end of the day, and the way that it's been structured worldwide is that they actually operate as companies. They enter equity indices. They're part of the S&P 500, the S&P 400 in America. They're part of the STI in Singapore. I could go on and on with every country about how they're treated. I think the problem actually lies in the way we view it. I think the problem is the fact that it offers the characteristics, the security of a bond while giving you equity upside, maybe not the way that it does for high growth, but it certainly has mid-level, very attractive growth prospects. I think it should be in indices.
I think what that does is it brings in a whole bunch of passive money. It brings in, and let me tell you, global investors already, we're already in the MSCI. We're already in the across every passive structure worldwide. You can actually buy it as a stock somewhere else. I just think that to make the asset class attractive, in turn, for India, you've got to treat it with that whole thing about being a stock and having that same mind share. I think we get told a lot that, oh, people don't know about it. They don't know about it because you treat it like a fixed income security. I'm not saying, and listen, I have nothing but the highest respect for the security of fixed income.
I think for this asset class to be more mainstream, more liquid, and also be safer in a way from the way it trades, it needs to have the balance of sort of an equity, the liquidity, and that kind of exposure. Now, does that mean that a debt and a hybrid security person doesn't do that? We can have a carve-out. I'm sure that's what I think we're trying to ask ourselves. How does that happen? We value the response of it. It's totally up to how you have your mandate and your return profile work within your fund, right? I think if the volatility of the security basically sits there and messes up your returns, I think that's not a good thing for you.
At the same time, if there is a way you can participate because you can assume that, look, this is going to give you X over, let's say, whether it's a G-SEC and then, you know, X over Y on your cost of capital and on an IRR basis, I think you can still invest in it. Structurally for us, we think about this, we've been talking to regulators for, I mean, I've been personally talking to regulators for six years on this, right? It's something that really needs to change at some point because otherwise, it's going to be very detrimental to the growth and the liquidity of the structure.
We said on the residual portion, definitely that is very positive for us.
Yeah.
Sure. Okay. Noted.
Thank you.
Before we take the next question, a reminder to all the participants, if you wish to register for a question, please press star, then one. Our next question comes from the line of Sumit Kumar from JM Financial Services Limited. Please go ahead.
Hi. Good evening. Congratulations on a good set of numbers and congratulations to Amit as well and all the best for the future. My question is regarding the guidance of occupancy, which is in the 90%- 91% range. Given that the deliveries of 3.2 million sq ft, a large part of it is already pre-leased, you're guiding for an incremental 4.6 million sq ft. I would like to know your thoughts on that. Are you being conservative or it's something that had been built in your business plan that way?
Firstly, thank you for your wishes. Just from an overall perspective, we have about 5 million sq ft of total vacancy, right? We believe that about 2 million sq ft of that is sitting in Bangalore. By the end of the year, we have another 0.5 million sq ft of that to be delivered in Chennai. 2.4 million sq ft is in Pune, which is a drag. Given that we'll be able to fill our Bangalore and Chennai portfolio, we're pretty confident of achieving our guidance on the occupancy range.
Yeah, I think my question was more that a lot of these deliveries are already, you know, sort of fully leased or 100% pre-leased. There's only one block that we have about 14%. Wouldn't this number be a little more given the run rate that we've achieved in Q1?
Yeah, when we started the year, we gave this number because of the global tailwinds that we saw, and you know, we're hopeful that we'll actually beat these numbers.
Okay. Cool. Okay. That's all for my side. Thank you.
Thank you.
Thank you.
Our next question comes from the line of Vaibhav Khandelwal from Laburnum Capital Advisors Private Limited. Please go ahead.
Yeah. Hi. Thank you for taking my question. Recently, there was some news of an IT player cutting some thousand jobs approximately across its workforce. I just wanted to ask, are you hearing such news from any other IT players that are in our portfolio? I understand that it's like a relatively smaller portion of our occupancy base, around 7%- 8%. I just wanted to sort of get a sense of how you're thinking about it. How do you think this might impact us in the future if other players do the same thing? Thanks.
You know, actually, we are not hearing a lot of noise around this. I mean, yeah, obviously, TCS made that, but if you see the Infosys results, that was very, very strong. You know, we felt encouraged by seeing Infosys results. Having said that, like you rightly mentioned, the overall ITES portfolio is about 8%. Some of our existing ITES occupiers have actually taken up more space with us, right? That's encouraging for us.
All right, Amit. That's all. Thank you so much. All the best.
Thank you.
Thank you.
The next question comes from the line of Harsh Modi from JPMorgan Chase and Company. Please go ahead.
Yeah. Hi. Thanks. I just wanted to double-click on the discussion around the risks from some of these discussions with the U.S., AI, all of that. I understand you are still getting a lot of inquiries and you are confident on delivering. Are the potential lessees trying to negotiate a contract where they can basically walk out or figure some way of reducing the commitment? Are there any discussions which allow them to have a rethink if need be at a later date? Anything on those lines happening at all?
Not really. All our leases are very structured, very standard. Our leases have a 10-year period with a lock-in that is predefined, right? There is no claw out of those contracts, right? These are all watertight agreements that we have with the occupiers. The second thing that we'd like to highlight is most of our occupiers are actually guys who have fitted out their own fit-outs, which means that they've actually invested into the premises, right? Having said that, them walking out midway is very unlikely.
Right. In terms of, and I'm a bad example, but there were a lot of cases when there were high water contracts in a different space. There was a clause that said, "I pay you X million dollars, and then I can walk out of the lease." I forget what's the legal term for that. Is there a request for something on those lines just to create some sort of leeway if things really become tough, let's say if AI actually takes over, agentic AI takes over? How are you having those discussions?
Honestly, we've not had any discussions even remotely towards that direction. In fact, I've always been advocating a lot of AI work is actually coming into India. India happens to be the second largest AI talent pool across the world, right? Having said that, most of our occupiers within our portfolio are fully doing AI, and actually, they're hiring a lot of AI talent. That's the conversation that I'm actually having with the CXOs today.
I think there's just a lot of early-stage sort of ruminations and discussions around what AI does, right? I think there's a lot of stuff that, though it's going to fundamentally change the way we work, maybe. I think it also just means it's an opportunity for people to reskill. I don't think the first thing that's going to put the domino to fall is Indian real estate and people restructuring, right? Having these sort of contracts that allow them to move out. We didn't even see that during COVID, where you actually saw sort of a pandemic. There were a lot of people, because India still represented such value for real estate, they kept the spaces. You've got to realize this is fundamentally extremely compared to, let's say, New York or San Francisco or London or Hong Kong. This is still, you know, one-third, one to one-fifth of cost.
I think it makes, and you can still hire people fast. You can hire people at scale. It just makes sense to keep it. No, we're not saying that. I think it takes a couple of more years to play out for what AI really means for the job market, but nothing of the sort right now.
Yeah. Great. Thanks for the color. The final question is a bit more housekeeping. Cost of fund, if I'm on slide 25, since it declined 35 bps, is it from annual, the 7.90% annual number, or is it fourth quarter? I just want to understand how much has it gone down Quarter- on- Quarter. Let's say, knowing where interest rates are, how much more shall we expect a decline in cost of funds over second and third quarter? Thank you.
The number that you are seeing, 7.90%, was as at 31st March 2025, and 7.55% is as at 30th June. Now, after considering all the refi that we have done, out of the NCDs that we raised up to 30th June, we also did one raise, which is a 10-year bond at the average of 7.33%. That will further reduce this. From here on, what will also happen is, the loans that we have from banks, which are variable rate now, bank loan interest rate, you know, it's not coming down right now. It will take some time. Difficult to say where we will land, let's say, as at 31st March 2026, but definitely, it should be lower than where we are today.
Right. That's fair. Where I'm coming from is, one is I just wanted to see if you could quantify to the extent possible. A range is fine. Also, just want to understand sensitivity. In case we end up getting, let's pick a number, 50 basis points of cut, what does that mean for your cost of fund? Does it come with one-quarter lag, two-quarter lag? Just broad sensitivity is all I'm looking for.
Okay. Let me explain it this way. The total debt book is around INR 20,000 crores. 58% is fixed now. Out of that, only INR 2,000 crores come up for refis. Any rate cut from here on, we'll get benefit only on those. The balance, 42%, it depends because as of now, the last 50 basis point reduction, that benefit also we have not received till now because the MCLR of the bank has not gone down. Still to bake in. If you arrange, it can be, let's say, 20 to 25 basis points lower from here as of 31st March. We'll have it in watch game.
Right. That's all I was looking for. Thank you so much.
Thanks. Bye.
Thank you.
Thank you. As there are no further questions, on behalf of Embassy REIT, that concludes this conference. Thank you all for joining us, and you may now disconnect your lines.
Thank you.