Good morning, everyone. A very warm welcome to all for Embassy REIT's Second Quarter FY 2023 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. Should you need assistance during this conference call, please signal an operator by pressing star then zero on your touchtone phone.
I would now like to introduce your host for today's conference, Mr. Abhishek Agrawal, Head of Investor Relations for Embassy REIT. Thank you. Over to you, sir.
Thank you, operator. Welcome to the Q2 FY 2023 earnings call for Embassy REIT. Embassy REIT released its financial results for the quarter and half year ended September 30, 2022 yesterday. 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 investors 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 performance information that we have provided 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 we will be able to achieve the same. Joining me today are Vikaash Khdloya, the CEO, Abhishek S. Agrawal, the interim CFO, and Ritwik Bhattacharjee, the CIO. Vikaash will start off with business and industry overview, followed by Ritwik and Abhishek. We will then open the floor to questions.
Over to you, Vikaash.
Good morning, and thank you all for joining us on the call. We have many encouraging trends and data points to communicate today. We delivered yet another strong quarter with 1.6 million sq ft total leasing, including impressive new leasing and pre-commitment activity. We launched 2.5 million sq ft across new and redevelopment projects, taking our total active development pipeline to 7.1 million sq ft, the highest since our listing. We entered into non-binding discussions for potential acquisition of two properties across Bangalore and Chennai, totaling 7.1 million sq ft leasable area. We continued to maintain our robust balance sheet with low 36% leverage, attractive 7.1% debt cost, and 66% of debt booked at fixed rates. Finally, we remain on track with our FY 2023 guidance and have delivered on our NOI growth and distributions.
A solid quarter of business performance, and we continue to invest in our growth. Our business and stock remain resilient and offers a compelling combination of yield, growth, and value. Amidst a challenging global macro environment, Indian office REITs have outperformed global peers. India's structural advantage as the global knowledge capital and the preferred offshoring destination continues. The expanding offshoring demand from new and existing global captives is benefiting premium quality, wellness-oriented workspaces, and these are the hallmark of our portfolio and strategy. It is encouraging to see a continued upward trend in back to office. The physical occupancy in our properties is up 21% quarter on quarter and is currently around 35%. Multiple announcements have recently been made by global and Indian corporate majors regarding their plans to significantly ramp up their office utilization post the festive period.
Let me now update you on our leasing performance. We achieved 1.6 million sq ft of total leasing in Q2 across 27 deals and expanded our occupier base to 223 by adding 15 new names to our rent roll. This 1.6 million sq ft includes new leasing of 587,000 sq ft at 19% re-leasing spreads and in fact, 4% above market rent. We signed end of term renewals of 459,000 sq ft, mainly at our Pune and Noida properties at 28% renewal spreads. We also successfully pre-committed 528,000 sq ft, mainly to ANZ in our under development project M3 Block B at Embassy Manyata. With this, we ended Q2 with a stable occupancy of 87% and a promising 700,000 sq ft deal pipeline.
While Bangalore continues to drive India's office demand resurgence, we are also witnessing pickup in activity in other cities. Continuing the trend from last quarter, the leases signed in Q2 span established sectors such as banking and financial services, high growth sectors such as cloud infrastructure and fintech, as well as upcoming niche sectors such as renewables and healthcare tech. As you can see from our 1 million sq ft commitments to J.P. Morgan and ANZ in H1, global captives and banks continue to hire Indian talent and are progressing on RFPs to cater to their business needs.
Further, global captives continue to expand and set up new centers in India, driven by growth and transformation projects as well as cost and optimization needs. While demand from services tech occupiers remain below historical numbers, the recent moderation in attrition and concerns around culture and productivity are both likely to accelerate back to office ramp-up and space take up by these occupiers. As you may recall, we had given a 5 million sq ft leasing guidance for FY 2023. We are happy to report that at mid-year, we have already leased 3.4 million sq ft, achieving around 70% of our annual guidance.
Of the expected 3.3 million sq ft expiries for FY 2023, we have to date successfully renewed 1.3 million sq ft at 15% renewal spreads and expect a further 566,000 sq ft as likely renewals during the remaining of this fiscal. Additionally, we have secured 14% rent escalations on 2.7 million sq ft in Q2. These contracted rent escalations and a mark-to-market rent potential are two significant growth drivers embedded in our business. Next, an update on our ESG program. We continue to make progress on our three-year roadmap across our 19 defined ESG programs. 100% of our operational portfolio is now certified for the highest standards of safety and wellness through a five-star rating from the British Safety Council, one of the world's leading health and safety organizations.
We are also extremely proud to report that our industry-leading ESG program and transparent disclosures have once again been recognized by GRESB, the global standard in ESG benchmarking. In just our second year of participation, we were awarded with the highest five-star rating for both our operational as well as development properties. Finally, our sustainable finance debt has now grown to INR 33 billion, around 25% of our overall debt book. Our ESG program remains a core pillar of our business strategy, and we envision it as a key competitive advantage, both from the perspective of our occupiers as well as our investors. Finally, moving to the outlook for Indian office. India office is highly differentiated from other global office markets. Unlike many other global cities, India office demand continues to be resilient.
This is driven by India's unique positioning as the unmatched talent hub of the world, combined with significantly lower rents of around $1-$2 a foot a month, even for prime properties in gateway cities. While there are growing concerns of a slowdown in the developed markets, any recessionary environment in the respective home countries of global corporates, in our view, will only accelerate demand for India office. Past downturns have prompted global companies to further optimize costs and efficiency and offshore more work to India, and we witnessed this play out post the global financial crisis as well. Occupier preferences have also changed in favor of high quality, well amenitized, sustainable spaces, resulting in consolidation of office demand with grade A institutional landlords. We are well-positioned to capture this demand given our high-quality product, our overall business ecosystem offering, and our robust development pipeline.
Even on the supply side, market continues to consolidate towards fewer and larger institutional quality landlords with strong balance sheets which are well-positioned to fund growth by accessing debt at competitive rates. Looking forward, we believe that the liquidity squeeze, rising interest rates, and potential supply slippages on the one hand, and robust demand and flight to quality on the other, will further propel rent growth in our key micro markets. A great deal to be positive about our business amidst the overall macro environment, all trending in the expected direction laid out in our previous earnings calls.
Let me now hand over to Ritwik to expand further on our growth initiatives.
Thanks, Vikaash. Good morning, everyone. I'll provide a snapshot of key growth initiatives for Q2. We launched a 1.2 million sq ft redevelopment project at Embassy Manyata at a yield on cost of 22%. We committed 468,000 sq ft in the under construction M3 Block B project at Embassy Manyata, and we've kickstarted the development of a new 700,000 sq ft block in the same property. We've executed non-binding offer letters to acquire two office properties that total 7.1 million sq ft of leasable area in Bangalore and in Chennai. First, an update on the development portfolio. We continue to deliver state-of-the-art buildings, and we're bringing forward our future development pipeline to cater to the momentum we foresee in office demand in the years to come, particularly in Bangalore.
This quarter, we have multiple updates to give you on Embassy Manyata. We're pleased to announce our first ever base build redevelopment project to transform two of the earliest buildings, D1 and D2. Both these buildings comprise 400,000 sq ft of area, and we aim to increase the current leasable area of these buildings to 1.2 million sq ft. We have over 170% of a mark-to-market opportunity on these buildings, given the significantly below-market rents on expiring leases. Given the strategic location of the D parcel at the center of Embassy Manyata, we're confident that this redevelopment will help us achieve premium rents. We estimate this building to cost INR 6 billion, and we plan to deliver it by December 2025. This project is highly accretive, and we expect to deliver a yield on cost of 22%.
We've already finalized building designs, secure the environmental approval for demolition, and building approvals are in progress. Next, we're witnessing significant leasing traction for our 600,000 sq ft M3 Block B. We are pleased to announce that ANZ, a premier banking conglomerate, has pre-committed to 468,000 sq ft, or 78% of this upcoming building to meet their business needs. They've kept the balance 133,000 sq ft of area under an option for future growth. While the development of this project has been delayed due to the non-availability of transferable development rights, or TDR, and other related approvals, we're seeing progress on these approvals, and we expect to deliver this block in mid-2025.
Finally, given the leasing traction for both completed properties and under construction developments at Embassy Manyata, we are launching a new 700,000 sq ft block, L4, in this business park. Together with the existing developments, including the 1 million sq ft of M3 Block A, Embassy Manyata will now have 3.5 million sq ft of projects under development to cater to occupier demand. Besides these, we're on schedule to deliver our other ongoing developments of 1.9 million sq ft in Embassy TechVillage, located at ORR in Bangalore, and 700,000 sq ft in Embassy Oxygen, located in Sector 144 in Noida. We're close to completing the Hudson and Ganges Towers, the 900,000 sq ft office block in Embassy Tech Zone in Pune's Hinjewadi micro market.
We expect to receive the occupancy certificate by the end of October, and we're seeing early demand traction for the project as demonstrated by a 60,000 sq ft pre-commitment by global captives in the automotive, electronics, and tech sector. Our total development pipeline now aggregates 7.1 million sq ft, the highest since our listing. Given our track record of bringing projects to market on time and within budget, we view this pipeline as one of the biggest drivers in our growth roadmap. I would like to highlight that over 80% of these projects are in Bangalore, the city which continues to lead India's office absorption. Our total committed CapEx for this 7.1 million sq ft of developments is INR 32 billion, of which INR 22 billion is pending costs that we will spend.
The pipeline is expected to add over INR 8 billion to our NOI upon stabilization and an accretion of 30% over FY 2023 midpoint NOI guidance. Given the CapEx debt that prices around 8.5%, the land component of these developments fully paid for, and an attractive rent profile, particularly in Bangalore, our development portfolio sets us up for impressive yield on cost spreads. Additionally, our GRESB sector leader ranking amongst Asian office peers for our development portfolio reflects the pedigree of our on-campus development program. Next, an update on our hotels and our total business ecosystem. Buoyed by a rebound in business travel, our four operating hotels continued to perform strongly in Q2. The average occupancy increased to 49%, and ADRs grew by 57% year-on-year.
Consequently, our Q2 hotel EBITDA of INR 250 million tracks well ahead of our guidance. Even though our hotel business contributes less than 5% of our total NOI, our hotels are immensely complementary to our office offering and drive office demand. We continue to invest in the development of our new 518-key dual-branded Hilton hotels at ETV, and we're on track to deliver these hotels by 2025. Our other asset upgrade projects are progressing on schedule and within budget. Our investments to upgrade the amenities, wellness, and sustainability features are pivotal in widening the moat of our properties. Our upgrade of the infrastructure at Embassy Manyata serves as the best case study of the above.
Since we listed, we have invested in a public flyover, skywalks, 619 key Hilton hotels, a 60,000 sq ft one-of-a-kind convention center, and an exciting 86,000 sq ft retail and F&B area that we plan to launch later this year. These upgrades have clearly differentiated Embassy Manyata, and over the last 24 months, we've successfully signed 681,000 sq ft of new leases with over 20 occupiers at approximately a 4% premium to market rents. Finally, an update on our acquisitions. Earlier, we executed two non-binding offer letters with Embassy Sponsor to acquire two high-quality properties in Bangalore and Chennai, which total 7.1 million sq ft.
Approximately 3.7 million sq ft of these properties is completed or nearing completion, and 54% of the area is currently leased or pre-committed to renowned global occupiers in banking, financial services, healthcare technology, and IT service sectors. The properties for which we executed the offer letters are the 5 million sq ft Embassy Splendid Tech Zone business park in Pallavaram, Chennai, and the 2.1 million sq ft Embassy Hub property in Yelahanka in North Bangalore. We believe these integrated office properties add meaningful scale, too, and are complementary to our existing office portfolio. The Embassy Splendid Tech Zone property enables us to access a new growth market in Chennai, while Embassy Hub consolidates our position with an entry into a new micro market in North Bangalore. While the Chennai property was offered through a ROFO in January 2022, the Bangalore property is a new opportunity.
The above non-binding discussions have a 120-day exclusivity period, and they are subject to further diligence, negotiations, funding, and approvals from regulators, board, and unitholders as may be applicable. We will keep you posted as we progress. We are also evaluating certain other acquisition opportunities from third parties. We remain prudent, focused on prudently financing any potential acquisition through an optimal mix of debt and equity to ensure we deliver value to our unit holders. We continue to closely monitor the capital markets to identify suitable financing channels and transaction windows. As you're all aware, market conditions are currently challenging, and we will look to de-risk any funding requirements, both for acquisitions and the development pipeline.
Over to Abhishek now for our financial updates.
Thank you, Ritwik, and good morning, everyone. Key financial highlights for Q2 include. We grew net operating income by 13% year-on-year to INR 7.038 billion, with operating margin of 82%. We announced distributions of INR 5,175 million, or INR 5.46 per unit, representing a 100% payout ratio. We successfully refinanced INR 7.5 billion debt at 96 basis point positive spread, and locked in 66% of our total debt at fixed cost. We continued to maintain a strong balance sheet with low leverage of 26% and pro forma debt headroom of INR 112 billion. Let me take you through the details. First, an update on our Q2 financial year 2023 income performance.
Revenue from operations grew by 17% year-on-year to INR 8,571 million, mainly driven by new lease-up, contractual rent escalations, delivery of our 1.1 million sq ft J.P. Morgan campus at ETV, and ramp-up of business in our recently launched as well as existing hotel portfolio. This was partially offset by the impact of exits in our office portfolio over the last year. Net operating income and EBITDA grew by 13% year-on-year, primarily driven by an increase in revenue from operations, partially offset by the increased hotel operating expenses corresponding to the increase in hotel revenue. Our NOI and EBITDA margins stood at 82% and 80% respectively, and continue to be best in class, demonstrating the scale and efficiency of our business.
Net distributable cash flows stood at INR 518.2 million, down 3% year-on-year, but up 2% quarter-on-quarter. The year-on-year increase in our NOI and EBITDA contributed positively to our NDCF, which was mainly offset by incremental interest costs on the INR 46 billion coupon-bearing debt raised in November 2021 to refinance our earlier zero coupon bond. Further, earlier today, the board of directors declared Q2 distributions of INR 517.5 million, or INR 5.46 per unit, representing a 100% payout ratio. Taken together with our earlier distributions, we have now cumulatively distributed over INR 68 billion in the 14 quarters since our listing. Moving to our balance sheet and other financial updates. We remain focused on actively managing our debt book, and given the ongoing interest rate hikes, we continued our strategy to lock in fixed rates.
During Q2, we successfully refinanced INR 7.5 billion bank debt with a 96 basis point lower cost debt, resulting in annualized pro forma saving of INR 70 million. This refinance comprised a new INR 5 billion fixed rate green bond at 7.65% for a three-year tenure and a INR 2.5 billion floating rate term loan at 7.98%. We were able to refinance at attractive terms due to our robust balance sheet and our AAA stable rating. As a result of the above and earlier refinancing, 66% of our total INR 136 billion debt now carries a fixed rate with an average maturity of 2.3 years, and an additional 24% carries a fixed rate for financial year 2023. Also, less than 2% of our debt matures in the next 12 months.
Given 90% of our debt book is locked at fixed rates for financial year 2023, we are substantially insulated from the impact of any further rise in the interest rates. On the regulatory side, insurance regulator IRDA recently created 3% dedicated limits for domestic insurers to invest in debt and equity of REITs. Further, market regulator SEBI has allowed REITs to raise short-term debt by issuing listed commercial paper. We welcome both these developments and expect these to further expand the capital pool for REIT debt and to reduce our cost of funding.
With these positive regulatory developments, as well as our 26% low leverage at 7.1% impressively low cost and our INR 112 billion pro forma debt headroom, we are well-positioned to finance growth opportunities. Before I move to our financial year 2023 guidance, let me provide an update on our half yearly portfolio valuations as of September 2022. As per independent valuer assessment, our gross asset value grew by 7% year-on-year to INR 508 billion. This was mainly driven by our recent deliveries and ongoing development CapEx, improved hotel performance, increase in market rents for few properties across Bangalore and Mumbai, as well as the add-on acquisition by our joint venture entity. Consequently, our net asset value as of September 2022 increased by 3% year-on-year to INR 400.71 per unit. Lastly, an update on our financial year 2023 guidance.
During our Q4 earnings call in April 2022, we had provided our full year financial year 2023 guidance, comprising a midpoint NOI of INR 227.03 million and a midpoint DPU of INR 21.7 per unit, both within a range of ±5%. At midpoint, this guidance implies a 9% year-on-year increase in NOI and an in-line DPU compared to previous fiscal. On a like-to-like basis, post factoring the impact of ZCB refinancing, this DPU guidance is also 9% higher year-on-year, reflecting the efficient flow through of our NOI to distributions. Based on our YTD performance, I am pleased to reconfirm this guidance.
While there has been a resurgence in our leasing and hotel business performance, both of which are tracking at or ahead of our estimates, we expect our debt cost to be higher than our initial assumptions given the rapid rise in the interest rates. Looking beyond financial year 2023, given our growth levers to mark-to-market rent growth, new lease up and deliveries, we are well positioned to accelerate our NOI and DPU growth to the benefit of our unitholders.
Over to Vikaash for his concluding remarks.
Thank you, Abhishek. Another quarter of solid earnings growth. Our business continues to be in excellent shape, benefiting from strong fundamentals for India office, growing preference for high quality properties, and the unique offering and positioning of a best-in-class portfolio. On the business front, we are well positioned and have signed 3.4 million sq ft leases in H1, already achieving around 70% of our overall annual leasing guidance. We have accelerated growth by actively developing over 7.1 million sq ft projects, over 80% of which will come up in Bangalore, India's best performing office market. Overall, we remain on track with our FY 2023 guidance, which is heartening amidst the uncertainty and earnings slowdown fears globally. On the capital front, with continuing support from regulators, there is encouraging news on widening of the debt and equity capital pool accessible to Indian REITs.
We continue to see the REIT product evolve, and we welcome the increased participation from retail investors, insurers, domestic mutual funds, as well as global sovereign wealth funds. Looking forward, we remain committed to our business strategy of delivering total returns through regular and predictable quarterly distributions, supplemented by growing our NOI and distribution through growth initiatives, both organic and inorganic. We have an excellent team committed to deliver this growth strategy by serving our over 220 occupiers and 65,000 unitholders.
With this, let's now move to Q&A.
Thank you very much. We'll now begin the question and answer session. Anyone who wishes to ask a question may press star and one on their touchtone telephone. If you wish to remove yourself from the question queue, you will press star and two. Participants are requested to use handsets while asking a question. Ladies and gentlemen, we'll 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 Kunal Tayal from Bank of America Securities.
Operator, can we continue with the Q&A?
Yes, sir. Kunal, may I request you go ahead with your question, please? Your line is on talk.
Okay, thanks. There was a lag. I was not able to hear, but hopefully, it's all good now. Vikaash, thanks for taking my question. You know, the first one's on your- -
Operator, would you mind sorting that out, please, and making sure that doesn't happen again, please? Thank you.
Yes, sir.
Okay.
Just to continue with the question, you know, on the leasing target for the year, you know, you've pretty much achieved your pre-leasing ambitions. You've done quite a lot on the new part of it as well. Is it that the business intensity in H2 could be something different versus the first half of the year? Or is it more likely that you could sort of achieve more than what you set out for at start of the year? That's my first question.
Sure, Kunal. Would you want to mention a second question as well?
Yeah. The second question was, you know, on the acquisition potentials that, you know, that you've identified. I mean, I was just noticing that both of them actually have a fair amount of future development potential. I wanted to check if that's by design because, you know, it might be easier to make them NAV accretive that way. You know, is there a different set of criteria when you look at what's sort of already ready, what is the future development? If you do allow a third as well, sort of very curious about the remark about some of the leasing being 3-4 percentage points above the market rents. Curious as to what exactly drives that.
Sure, Kunal. Thank you for your question. Why don't I take the first and the third, and I'll request my colleague, Ritwik, to take the second one. The leasing guidance, one, we're, you know, pretty pleased that we have been able to achieve around 70% of our annual guidance. If you recollect, against the 5 million sq ft total leasing guidance, which includes new leasing pre-commitments and also end of tenure renewals. You know, last year comparatively, we did 2.2 million sq ft. And even pre-pandemic, the numbers were lower than the 5 million sq ft target we set for ourselves. It was a pretty, you know, pretty good target to set. You know, what we've seen, Kunal, is there's been pretty good momentum on pre-commitment, especially by banks.
Simply that shows that, you know, occupiers are today looking beyond the immediate and planning for the medium-term requirements, especially given markets like Bangalore are seeing a complete dislocation on demand and supply, available supply in the right micro markets. Even new leasing, we are around 60% of the target we laid for ourselves. You know, what I would say is we are pleased with how we have performed so far. You know, we are hoping to deliver beyond the guidance that we have laid out, but we'll have to wait and see simply because we believe the Q3 ending December, you know, activity usually slows down a bit due to the holiday season. Having said that, we continue to see momentum on the ground and our strategy, our dual strategy of, one, targeting the large banks and captive centers for pre-commitment.
On the other hand, targeting smaller high growth occupiers is paying rich dividends because those occupiers we leased out over the last two years are actually now in conversations to take up more space. We are in a good place. A majority of our leasing has been in Bangalore, again, demonstrating why the market is so good in Bangalore. The other thing I wanted to highlight, Kunal, here is, you know, of our roughly 4 million sq ft vacancy, about 3 million sq ft is SEZ vacancy, right?
You know, while we all are aware of the conversations on DESH Bill, that pretty much shows that on a pro forma basis, occupancy moves up from around 88-89% on a same store basis today to, including the SEZ space, about 97%-98%. Because SEZ space, obviously the demand has moved to non-SEZ and we are waiting for DESH Bill. We remain very positive and we'll see how the next two quarters pan, but the conversations on the ground continue. You know, just coming to your point on the leasing trends and the market premiums. You know, this is a query that we've been receiving generally from across the market participants, and hence we provided this data point.
We've always maintained that we achieve premium to market rents. Now in this context, the market rents are rents which CBRE has assessed based on the positioning of a property, which they have already factored a premium compared to what's available in the market. You know, we have been able to do at premium to even those market rents. Not only the substantial mark-to-markets, but we do even beyond just the market rents, which goes in the making of the MTMs. We've laid out the number of 4%, at a portfolio level as well as from Manyata over the last two years, we again leased at 4% premium, the odd 600,000 sq ft of new leasing that we have done. We're pretty pleased with that outcome.
Again, it goes to show that today the occupier is not thinking about rents as much, it's thinking about the overall business ecosystem and what, you know, what they can offer to their employees to hire and retain them. I think the positioning of the product is really important and, you know, it's not about rents in most markets today.
With that, you know, Ritwik, why don't you take the second one?
Yeah, sure, Kunal. I think just on the two acquisitions and your question around sort of the amount of development that's actually in that portfolio, which sort of totals roughly around, you know, 5 million sq ft. You know, that's, you know, when we look at sort of these big business parks or you're looking at sort of the campus style facilities that we have, there is obviously sort of a fair amount of development in there. I think when you talk about it being by design, you know, in our view, the way we look at sort of this development is exactly what we've spoken about in our earnings today.
Where we wanna control the economics, the land's effectively fully paid for, and, you know, these are markets where there is clearly rental growth, there is demand. Effectively, what we've been able to do over the last sort of two, you know, three years since you've visited is take that development, bring it online, you know, to the tune of, you know, a few million square feet a year, and just make sure that it tracks sort of the demand in the market. I think that's how we think about de-risking that development. I'm not so sure that right now we sort of look at it from a NAV accretive sort of viewpoint immediately. I think it's a little bit more of a holistic view that look, there is obviously the completed.
We are in these growth markets and high demand markets where the development will eventually sort of pay off at the right sort of, you know, economics. That's why we think about, you know, buying the whole park. 7 million sq ft overall right now effectively gives us sort of the firepower to have a 50 million sq ft portfolio, right? That's how we think about the development. We would like to sort of obviously proceed along those lines.
Yeah. Thanks, Ritwik. Just sort of going back to the comment on the rental premium. It sounded like, you know, we should view that 4% number as more like an Embassy premium of sorts, and not as much a lead indicator that the rental rates overall in the marketplace might be starting to look up.
Kunal, that's a very interesting question. Let me give you my view on that. One, I think generally it's safe to say that rents have started ticking upwards in most markets. You know, 1%-2% in, you know, non-Bangalore markets maybe. Bangalore has already seen a healthy growth in rentals, which is already factored in the market rents with CBRE estimates. I think what we go out there as Embassy REIT, is we wanna ensure that we position it premium and not just because we want to get better rent. Of course, we would like to, but also, you know, Kunal, we want to attract those quality of occupiers who are not so much focused on rents, but who really like the overall business ecosystem.
We want to cater to the kind of occupiers who actually suit our existing occupier base of premium high quality ecosystem, because that's what we're offering. That is the reason why the portfolio has been so resilient. You know, a bottom of occupancy of 87% despite the pandemic. You know, that's the business model that we really like. You know, Ritwik spoke earlier about the pipeline acquisitions, while we are still evaluating those. You know, quality is really something we are really focused on because this is a long-term business, and we really want to ensure the properties continue to dominate in the market long term. For that, we really need to attract global high quality occupiers because they are the ones who pay higher rent, and they are the ones who continue to grow.
Okay. All right. Thanks, Vikaash. Thanks, Ritwik.
Thanks, Kunal.
Thanks.
Thank you. The next question is from the line of Puneet from HSBC. Please go ahead.
Yeah, thank you so much, and congratulations on good performance. My first question is just looking a little closer to maybe next few quarters. How are you seeing the leasing momentum for M3 Block A and the other two, you know, which are likely to be ready in next quarter, you know, Ganges, Hudson? If you can comment a bit on that.
Sure, Puneet. You know, let me give you a flavor. On M3, you may recollect that we have Block A and Block B. Block B now is effectively fully pre-leased and committed by ANZ, including the growth options. Block A, the 1 million sq ft to deliver by December this year. We are right now in intermediate discussions for around 400,000-450,000 sq ft. Again, those premium rentals I just spoke about with one global occupier. We're hoping to see if we can conclude that by early next year, 2023. You know, then we'll obviously effectively take handover of that, given it's on a forward purchase construct. Again, Manyata is seeing them improved and increased demand, especially post the launch of the hotel.
You know, we've just seen certainly a lot of traction building up. Again, you know, we expedited the L4 block, the 700,000, which is just right now at excavation stage, which Ritwik mentioned, again for the same reason. There are occupiers who are currently asking for build to suit design options. We see this strong momentum continuing as a lot of occupiers seek to both consolidate and also move out of existing A- or B+ properties. On ETV, if you may recollect, you know, again, this is at early stages of construction. This 2 million sq ft, 500,000 was already pre-committed to J.P. Morgan. We are in intermediate stages of discussions again with another bank for about 200,000 sq ft.
There are early stage discussions for another 1 million sq ft, you know, with other tech occupiers. Again, on ETV, our strategy is not so much to pre-commit everything today. We want to be balanced, one, to de-risk the project itself. At the same time, we want to achieve those premium rents. Given the delivery, actual delivery is 2.5-3 years out, we would take a more calibrated view on leasing it out. You know, we could theoretically lease this much faster given the strong demand and, you know, very little available vacancy and the ETV positioning. We'd want to kind of maybe by the time we deliver do 50%-70% pre-commitment and push the rents higher for the balance and lease that up within six months post-delivery.
On ETZ, the Embassy TechZone property, which is in Pune, we currently have inquiries of 400,000 sq ft. This gets delivered end of this month or early November, we receive the OC. Now, here again, as I mentioned earlier, the traction has been slow in Pune. We think the ramp up on the traction and demand will also be steady, slow and steady. It's unlike the Bangalore market where we see a lot of demand. We'll have to be patient here. Just to give you a flavor, we recently signed a 60,000 sq ft lease with a global captive of an American infotainment company, which has renowned global audio brands. This is for 60,000, again at the market trends that we mentioned.
We are in discussions currently with two occupiers in pitch to advanced stages. One is a California-based integrated managed healthcare provider, and the second one is a world-leading insurance and financial services company. Both put together, this is about 300,000 to 350,000 sq ft. I just want to again emphasize that Pune is going to be slow on lease-up. As we see encouraging trends from the IT occupiers of back to work, and we've heard numerous announcements. As we see the percentage inching upward on Pune park attendance. Right now, compared to last quarter when it was 15%, this quarter the Pune park occupancy, the physical attendance was 35%, so pretty encouraging.
I think we think as it approaches 50%-60%, there'll be a threshold at which point in time we will see good demand traction. Again, just to close off on that one, Hinjewadi micro market remains one of the most competitive rent markets in India, and offers the best cost versus utility trade-offs. You know, we feel reasonably good about it. Bangalore obviously is at the forefront, but Pune hopefully will pick up in the next couple of quarters.
Right. Is it fair to assume your Bangalore occupancies are also similar, 35%? Or it's only for Pune?
That's right. Bangalore occupancy is at around the same percentage. Pune and Noida have made the largest jump, which was both at around 15%, and Noida is now at 41%, roughly, for our properties, Pune is 35%. Bangalore has been stable at around 35%, although ETV is much higher and Bombay obviously leads at +60%.
All right. While I understand the India story is absolutely great and offshoring trend will continue, but are you picking up any signs of worry that physical occupancies will come a little later and there is a pending recession in the global market, so some of the leasing decisions for next two quarters may get delayed? Is there any indication to that extent?
Puneet, you know, that's an interesting question. A couple of things there. You know, one, if you've seen, you know, our existing Q2 deals, we have done deals across banking, financial services. We've done deals with healthcare firms across the value chain, whether it's a major pharmaceutical company or a health tech R&D center. We've done for other niche sectors like renewables and electronics and tech. You know, the way we are looking at Q3 and Q4 is two things. One, the large banks and captive centers continue with the RFP process, although there is increased caution and they, you know, we believe the larger RFPs of 800,000 to +1,000,000 sq ft , they will take more time for closure.
I think this is very consistent with what we've been also hearing from the tech companies on how they are seeing the deal pipeline. At the same time, it's very interesting to note that the high growth, the smaller quantum spaces that we spoke about, that's finding a lot of traction. We are seeing a lot of companies who are looking to take up 40,000, 50,000, 60,000 sq ft. We did a lot of them in Q1 and Q2, about 20+ such deals, smaller sized deals, which is about 4x or 3x what we would have ordinarily done pre-pandemic. Those are the ones where we are seeing good traction. The leasing pipeline of 700,000 sq ft that we indicated, you know, that shows those intermediate to advanced discussions that we are having for Q3.
The momentum continues. I'm happy to give you a flavor on what kind of occupiers are looking for space, but it's a range of occupiers from, you know, new GCCs with large companies globally who are setting up their first time center or guys who are already existing in India with their global captive premises but who are expanding into R&D centers. Or then there's global consulting firms, private equity firms who are doing really well. There's obviously you'll have some of the other pharmaceutical companies which are now actually showing up with their global captives here. We remain pretty positive about it. Of course, the 1 million sq ft kind of deals will take time.
Yeah. Can I just add to that, for a second, if you don't mind, Puneet? You know, if you also look at sort of some of the U.S. bank results that have come out at this point in time, there's obviously been a big mixed bag simply because profits are down, because capital markets volatility, deal making is down. The underlying core businesses that they run that's sort of driven by sort of, you know, just deposits, interest, technology, investments, that continues to fire. I think if you think about the pre-commitments that we've seen across in our portfolio, sort of, you know, really talks to the, a lot of these banking majors and financial services firms, you know, looking to sort of invest in the future. That hasn't kind of gone away.
I think it's all but inevitable that, look, there is gonna be a sort of an economic slowdown out west for sure, and I think that's gonna have a ripple effect on our markets. It's gonna have a ripple effect on funding costs. The broader space requirements that people have might effectively, the conversations might move at the margin a little bit, but I think the long term secular trend for our space will continue to be, you know, very robust, and that's why we will continue to also invest in it.
Understood. That's helpful. If you don't mind, just two more questions. Are we done with the entire IBM exit or is there still more to go?
You know, Puneet, you know, why we would not want to comment specifically on one client. If you see our expiry pipeline, exits for this year, the balance exits are roughly around 100,000-200,000 sq ft. The next year, total expiries, not necessarily exits, are 900,000 sq ft as of now. I think that will probably answer your question. That's for the full portfolio. That will probably answer your question.
Understood. That's very helpful.
This quarter, of the 850,000-900,000 sq ft, there was one large staggered exit which already got factored into the occupancy and also into our numbers, around 400,000 sq ft in Manyata of a legacy lease.
Got it. Last one on this, on the hotel side. I was under the impression that the market is doing quite well, but the Four Seasons part of the portfolio still seems to be running quite weak. Any comments on what needs to be done there?
Yeah, Puneet, your observation is absolutely correct. While our hotel business is really firing with Manyata actually achieving break-even levels in the first month of 619-key hotel, you know, Manyata Hilton, that's phenomenal. At the same time, on the other hand, Four Seasons, which is a very small component of our already small hotel component in our portfolio, that's been underperforming. We have recently changed the management teams, operating teams on the ground, and we are looking to revisit our positioning in the market. We have now moved our room rates higher, and we will, you know, see an impact of that in the occupancy in the short term, but we are trying to reposition the hotel.
The hotel actually, if you recollect, never got a good launch simply because at that time of launch, when it was ready, just we hit the COVID period. You're right. It's a, it's a small part of a portfolio. Of course, we would want to do much better than what we're doing, but not something that really concerns us simply because it's a very, very small component of the NOI and distributions.
Got it. That's great. That's all from my side. Thank you and all the best.
Puneet, thank you.
Thank you. A request to all the participants. Please restrict to two questions per participant. If time permit, please come back in the question queue for a follow-up question. The next participant is Rahul Mhatre from ICICI Prudential. Please go ahead.
Congrats on strong leasing traction. We could see that EBITDA growth and NOI growth was pretty strong, but because of the interest, like adverse movement on the interest expense, that didn't flow through the DPU. When will we see that interest expense will stabilize and it will actually start flowing through the DPU? Secondly, we can see that we have a strong development pipeline of 7 million sq ft. How do we plan to fund this CapEx? Because I think if we want to maintain the triple A rating, we would cap our leverage to 35%. How do we plan to fund this?
Yeah.
Hi, Rahul Mhatre. This is Abhishek . I take the first question. The EBITDA and NOI are growing. However, as you rightly pointed out, the interest has also risen. The reason for this is basically the ZCB refi that we did. If you remember, it was a zero coupon bond.
Yeah. I know that, ZCB. I was just asking when it will stabilize and when--
Yes. The point that I wanted to make is that this increase is basically because of this, and it will stabilize over the next quarters as the NOI and EBITDA will also grow because of the leasing that we have done during the last two quarters. This interest was also because certain projects were delivered because of which the interest which was getting capitalized is now moving to P&L. Having said that, this will stabilize over the next couple of quarters.
Okay.
On a CapEx question, Rahul, if I may take that. You know, as of today, you know, as Ritwik mentioned, you know, the yields are pretty accretive on the CapEx. Given debt, we are still able to access debt financing for CapEx around 8.5% handle. We are comfortable financing it through fully through debt. You know, just to highlight the entire INR 2,000 crore that Ritwik mentioned that we are, which is the pending construction cost, that is staggered over the next three-four years. That's not just you know, in one year. Hopefully, you know, the NOI also starts growing as some of the projects like M3, you know, and ETZ starts coming up in the next two or three quarters.
We think, you know, that will balance the needs of maintaining our debt ratios, and with, you know, we'd be able to continue to borrow and fund the CapEx program fully through debt.
The debt would be raised in, you are saying three-four year maturity bonds?
No, no. That's not what I said. Sorry. Just to clarify, all I'm saying is this INR 2,000 crores, which is just the office figure, and obviously there's infrastructure and hotels, all of that will be fully funded through debt. We will keep accessing CapEx debt construction financing at SPV level so as to avoid the negative drag which a REIT level bond will have, because that will have to borrow at one go, and construction would require it in tranches. What I'm saying is we will also need to borrow the money in phases because all of the construction spends are not happening on day one or year one.
As we continue the construction, we'll keep borrowing this INR 2,000 crores. At the same time, the NOI will start growing as we deliver the earlier of these buildings, which are on schedule for later this year. Hopefully that will match, and we'll be able to maintain our EBITDA, and our other ratios for debt and maintain the triple-A rating and also access at those interest costs.
Yeah, I think if you just look at our supplemental data book which we put out, on page 19, we show you sort of the breakout of what we have at the REIT level and at the SPV level. I think that'll give you an idea of how we think about construction financing, the cost of that, and then the various maturities. That's effectively what we will continue to sort of do at the SPV level, and then, you know, as and when there is a requirement to fund at the REIT level, we go out to the bond market.
Okay, thanks. Thanks for answering.
Thank you, Rahul.
Thank you. The next question is from the line of Pawan from IIFL Capital. Please go ahead.
Hi. Thank you for the opportunity. This question is again on Pune. By when do you expect the occupancy levels to reach something like what is observed in Chennai or in your own portfolio in Bangalore? The second question is about Mumbai. Do you see, you know, Express Towers or the other key buildings that are there in Mumbai, do you see occupancies going higher?
I mean, like, more like what is the timeline that you are looking at? Thank you.
Yeah, Pawan. Thank you for that. If I got your question right, the first was in response in respect of the occupancy and when do we see it going up. Let me kind of break down the current occupancy, Pawan, and where we stand today, what do we see it on a pro forma basis, and what do we see it on an ex-SEZ vacant space basis. You know, I will just give you our view on how it will move. Today, as of Q2, our occupancy is at around 87%. You know, on a same-store basis, and factoring our guidance for the remaining half of the year, we expect to end up at 89% same-store basis because we add Pune property of 900,000 sq ft over the next quarter or so.
However, having said that, if you actually exclude the 3 million sq ft SEZ vacant area, which, you know, effectively it's been hard for the industry to market SEZ space, not just limited to us, but all office developers. Effectively, our occupancy as of the end of this year on a same-store basis and excluding the 3 million sq ft SEZ vacant area, primarily we have in Manyata and in Quadron in Pune, would be around 96%. In some sense, the occupancy is already, by the end of this year, will already be at pre-pandemic levels. Of course, the SEZ is an issue we all need to solve, and we are in discussions with the regulators on that. Just to take a step back, honestly, we are more focused on the NOI growth than the occupancy.
That is the reason why you know we don't want to lock in lower rentals just for the purposes of optics of you know occupancy. We are very selective of our occupiers, and we do not want to dilute our current roster. Let me give you an example of Manyata right? Where in Manyata we have had about 2.1 million sq ft of exits at about INR 58 over the last two years. These are two-year statistics. You know we let a large occupier referenced earlier in this call we let them leave partial space simply because it was really sub-market and we wanted to charge market rents given the quality of the ecosystem. In the same time period, we leased about 700,000 sq ft in Manyata. This is the last two-year timeframe right?
This is at average rents of INR 103. You know, the market rents as per CBRE estimates and the 4% premium that I spoke about. Effectively, there's 110%-112% mark-to-market on Manyata. Of course, there is more vacancy that we need to lease up. We've only leased 1/3 of what got vacated over the last two years. I just want to, you know, kind of show mention to you the way we think about it. For us, it's about NOI growth and hence DPU translating into DPU growth moving forward and not just on just occupancy number.
that is also the reason why our occupancy while still remains at 87% on a pro forma basis end of the year based on our guidance, but our NOI guidance is 9% up for the full year. You know, we would just encourage you to start thinking in terms of NOI growth more than just occupancy.
Sure. Thank you.
Thank you.
Thank you, Pawan.
The next question is from the line of Vishal Parekh from Kotak Investment Advisors. Please go ahead.
Hello. Congratulations for a good result. Could you throw some more light on the refinancing spread which has been achieved? For example, in the last year supplemental data, I understand that there was a green loan of Embassy TechVillage at 6.84%. Now that TechVillage loan has, it seems to be spread across multiple various other loans. Just wanted to understand how what changes have happened. That was my first question on the debt piece. On the second question I had on the Golf Links distribution. I understand that about INR 64 crores has been distributed from Golf Links apart from the dividends. Could you give a breakup of that INR 64 crores?
Sure. I'll request my colleague Abhishek to take this question.
Hi, Vishal. On the first question, we had a loan of INR 750 crores in BTPL, as you rightly pointed out, and the interest rates were hardening. If we had not done anything, if we had retained, the interest rates as on today would have gone beyond 8.7%. What we did was we did an early refi, and we refinanced it through a listed NCD, wherein we locked in a rate of 7.65% for somewhere around INR 500 crores, which was fixed for three years. Due to this, what we actually achieved is a spread as of today of more than 110 basis points, and we locked in the rate for three years.
The balance of the loan beyond INR 500 crores was refinanced through term loans, which was existing sanctions which we had on hand, where again the spread was standing as on today 30-40 basis points lower than what it would have been for the loan. Does that answer the question?
Yeah. Understood. Thank you.
On the second part, Golf Links distribution clarify.
Sorry, what was the question for the second part?
About INR 64 crores of distributions have been made from Golf Links, which is apart from the dividends which are coming from Golf Links. I believe last quarter you had given a guidance on the breakup of that distribution between interest and loan repayments which you all had extended to the Golf Link entity. If you can give the breakup of that INR 64 crores.
Yeah, Vishal. If you remember, there are actually three components. One was dividend which was INR 17.5 c rore and for this quarter. The second component was interest, which is at a fixed rate. This was somewhere around INR 19 crore for this quarter. The third is the amount of debt, which is basically dependent on the total cash availability with the joint venture entity. For this quarter, they have repaid INR 45 crore.
Understood. Just one last question. The CapEx crores when D2 blocked. Does that keep IDC, or it is just pure construction cost?
Vishal, it's a bit hard to hear you. Could you just repeat that last question again, please?
For D1 and D2, the new CapEx estimate is about INR 600 crores. Just wanted to clarify whether it includes IDC or it is pure hard construction costs.
Sure, Vishal. Vikaash here. The CapEx amount that we laid out, the budget, that excludes IDC. The yield on cost number that we've put out there, which is the 22%, includes not just the IDC, but also the rental loss for the 3.5 years or 4 years 'til the building is completed. The yield on cost factors IDC and the rental loss, but the CapEx outlay is just pure cash outlay that we forecast on this project on a full cost basis.
Understood. Thank you so much. Thanks for the clarification.
Thank you, Vishal.
Thank you. The next question is from the line of Saurav Agarwal from Avendus Capital. Please go ahead.
Thank you for taking my question. My question is on the financial part. You have answered this bit earlier. I just want to know what is the major reason for the drop in NOI margin and EBITDA margin. Can you list down what are the major reasons for that?
Sure. Why don't I request Abhishek to take this.
Saurav , actually what is happening is if you see the revenues are increasing largely because of the hotel revenue, because there was a super ramp-up in the hotel. Because of which, what has happened is the Because if you see the NOI margins of our commercial is above 90%, but the NOI margin for hotel is somewhere around 25%-35%. Because of which, even though the revenue has increased so much, the NOI, though it has increased, the margin of NOI has actually decreased by 2.5-3 basis points. Sorry, 2.5-3 percentage points. Similarly, that the same impact has flowed down to the EBITDA. Does that answer your question?
This is because of the nature of hotel revenue, you're saying you are not able to capture the same NOI as the commercial you are doing, right?
Yes, Saurav . Because what I'm saying is it is because of the mix. Commercial has more than 90% NOI margin and EBITDA margin. However, hotel has 25%-35% NOI and EBITDA margin on revenue. As and when the hotel revenue is increasing, the total NOI and EBITDA margin is coming down.
Yeah. Can I just add to that? At the end of the day, right, I mean, we're obviously in a situation where it's perversely a good thing because the hotel business is beginning to fire. That's gonna cost more money to ramp up, and that's actually putting pressure on NOI and EBITDA. What you're seeing is a slight lag, obviously, in terms of the commercial business at that point in time, not really keeping up sort of at that velocity. What we will find that over time, you know, in a good market, as demand comes back and as the projects continue to sort of lease up, that's gonna sort of then offset any expense pressure that actually comes from the hotel business.
Saurav , just to add to what Ritwik said, just to demonstrate the numbers. Our NOI margin for the office business last year was 87%, and the NOI margin for the office business for this quarter also stood at 87%. What happened was last year the hotel margin was, you know, negligible or 0% simply because the hotels were still recovering. This quarter, the hotel margins are at around 37%. This is purely because of the segment mix. As the hotels are ramping up and we're launching new hotels, you know, the hotels obviously have a higher cost proportion, and the EBITDA margins work differently in a hotel business and office business.
It is safe to say that ex hotels, the op margins, EBITDA and NOI margins are consistent or better than what it was in the previous years. If you would want to see more details on that, may I request you to refer to page number 13 of the supplemental data book, and we're happy to answer any questions, you know, thereafter.
Okay. Okay, thank you for that.
Thank you, Saurav .
Thank you. The next question is from the line of Mohit Agrawal from India Infoline. Please go ahead.
Yeah, thanks. Congratulations on, you know, five-star rating from GRESB. My question is on, you know, your initial thoughts on, the Chennai market, that you're looking to enter. When we look at industry data, the vacancy levels there are increasing, since the pandemic has come. Any thoughts on how has been the leasing demand and what have been your initial discussions with tenants, and how does it fit into the overall asset portfolio? The reason I'm asking is there's a significant leasing to be done, there, you know, should you decide to acquire this asset. What are your initial thoughts on that?
Sure. Let me start and Vikaash can obviously then sort of, you know, back me up sort of on some of the leasing sort of traction that we're seeing. The short answer is that, look, this is a market that we've actually wanted to enter in for a long time. It is obviously part of sort of the initial sort of ROFO portfolio. You know, I don't know if you've actually sort of seen where this asset is, but, you know, it's literally sort of 10 minutes from, you know, the airport to St. Thomas Mount, and it's on the Thoraipakkam-Pallavaram highway that connects up to OMR, right? It's in a spot where you've got probably a couple of other, you know. It's a great residential catchment.
It's clearly an area where you do have some global sort of, you know, real estate players and, you know, in other sort of, you know, developers and you know, just major sort of capital providers and allocators, real estate capital allocators, you know, commit to the area. I think what we are well ahead of the game there to actually sort of think about sort of where what the asset base is. There's clearly sort of been, you know, the people who lease there are sort of your banking majors and your major sort of tech companies. With the feedback that we've gotten is that, you know, there's been a lot of traction on that road, leasing traction.
We do see, we've spoken to a number of IPCs who have been saying that, you know, there are clearly, you know, banking majors, there are, you know, financial conglomerates, and there are data providers who are continuing to look for more space in that area. I think, you know, the way we strategically think about growing that. This is a great addition to our portfolio, right? At the end of the day, what we wanna buy is an asset that looks and feels like an Embassy TechVillage, like, you know, Manyata or like, you know, an Express Towers. I think we haven't. Just bear in mind, we're still working on it. We haven't committed to anything beyond sort of the offer letters.
At the end of the day, I think in an ideal world, we think that, you know, it's the perfect segue into a market like Chennai. Yeah.
Sorry when I blew you.
Hey, Mohit, did you hear me?
Yes.
Where did I lose--
No, I think most of it is clear to me. Yes. Yes.
Yeah. I think, I mean, let me just quickly wrap up and just say that, look, at the end of the day, and then we can talk. The leasing market in Chennai, I think, tends to sort of blow hot and cold depending on the locations that you're in. What we are seeing in this market.
Sorry, again, lost your audio.
Yeah, look--
Can't hear you.
Okay, yeah, then look, I'll just wrap up. There seems to be a slight audio problem. We're pretty happy with sort of the leasing trajectory that this
Sorry, I think we are having an audio problem. It's going on auto mute. Operator, can you just have a look?
Sure, sir. One moment.
Mohit, just a second, please. Appreciate your patience. We just wanna address your question.
Okay, why don't I just try and wrap this up, Mohit, for you. The asset is 5 million sq ft, 1.4 completed, almost leased out. 1.6 million sq ft is nearing completion. What we understand from the potential sellers here is there's 400,000 sq ft of intermediate to advanced discussions with one of the U.S. global banking majors. This property, mind you, already has three Fortune 500 companies. You know, on the balance portion of under construction of future development, you know, we will have. We will take a rational view on how we time the supply and deliveries, as we have done for the rest of our REIT portfolio. We are not overly worried about the huge potential development.
We think it'll help us from a growth perspective, but we just have to ensure we ramp up construction in the most staggered manner.
Okay, understood. My second question is, you know, you've spoken about physical occupancy improving, you know, especially ETV and Mumbai. How do you see that going forward? Do you see that improving slowly and steadily? Or do you see that there'll be an inflection point beyond which the number could kind of go up sharply to, let's say, 50%, 60% across assets? What are you picking up from your tenants?
Mohit, you know, again, that's a good question. You know, what we are seeing, one, you know, the steady ramp up has been encouraging. We would have loved it to be even higher. Having said that, there are distinct trends on what we are seeing, whether it's Mumbai or ETV. The higher up the value chain the occupiers are in a park, we are seeing better ramp up. With banks now pretty much mandating a certain number of days a week as compulsory, and you may have seen the statements made by the tech majors over the last two-three weeks on work from home on ramp up back to office. I think we believe that the ramp up should pick up materially. Again, obviously, every company is different, every park has its own nuances.
We do think there will be an inflection point somewhere around the end of the year or early next year. In our mind, as the physical occupancy at the parks reaches 50% or more, there will also be a trigger on occupiers and really, expediting on their space requirements. You know, let's see how it pans out, but that's what our understanding based on the ground level feedback is.
End of the year would mean calendar or fiscal year?
I would take it more as Q4. You know, it's still ramping up, but I think, you know, by end of March, you would hope to reach around 60%. We'll see.
Okay. Sure. Thanks a lot, and wish you all a very Happy Diwali.
Same to you, Mohit. Same to you. Thank you.
Thank you. Ladies and gentlemen, in the interest of time, we'll take this as our last question. The next question is from the line of Piyush Mittal from Kotak Investment Advisors. Please go ahead.
Hi. I think my question's been covered in the earlier questions, so I'm good.
Great. Thank you, Piyush, and wish you a Happy Diwali.
Happy Diwali to you as well.
Thank you very much. I now hand the conference over to Mr. Abhishek Agrawal 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 may not be possible, and we are always happy to engage further if any additional clarifications are required. Good afternoon, and here's wishing everyone a wonderful festival week ahead. Thanks.
Thank you very much. On behalf of Embassy REIT, that concludes this conference. Thank you for joining us. You may now disconnect your lines. Thank you.