Ladies and gentlemen, good evening and welcome to the conference call for Q1 FY26 financial results for Mindspace Business Parks REIT. As a reminder, all participant lines will be in the listen only mode and there will be an opportunity for you to ask questions after the initial remarks from the management. Should you need assistance during the conference call, please signal an operator by pressing star then zero on your touch-tone phone. Please note that this conference is being recorded. I now hand the conference over to Mr. Govardhan Gedela, Head Corporate Finance. Thank you. And over to you sir.
Thank you. Good evening everyone and thank you for joining the earnings call for quarter one financial year 2026 of Mindspace Business Parks REIT. At this point we would like to highlight that the management may make certain statements that may be forward looking in nature.
Please be advised that our actual results may differ materially from these statements. We do not guarantee these statements or results and are not obliged to update them at any point of time. I would now like to welcome our CEO and MD Mr. Ramesh Nair and CFO Ms. Preeti Chheda who will take you through the business update and the financial performance during the quarter. We'll then open the call to a round of Q and A. I'll now hand over the proceedings to Ramesh. Over to you Ramesh.
Thank you Govardhan. Good evening everyone and thank you for joining us on the call today. I am pleased to report another strong quarter for Mindspace Business Parks REIT. Our results demonstrate our robust performance during the quarter.
We have been beneficiaries of favorable trends in the Indian commercial real estate and our performance highlights REIT's ability to capitalize on this positive trend and also grow. Let me start with the overview and outlook of the industry. India's office space market, like we have seen, has been breaking records quarter on quarter over the last couple of years despite global uncertainties. Net absorption for calendar year H1 2025 hit an all time high of 24 million sq ft . Vacancy rates across most micro markets today is in single digits. Rent growth in every city with core micro markets leading this upswing. Global occupiers want Grade A green certified campuses and are willing to pay top dollars for them. I'd like to share some highlights from various IPC and other reports. JLL reported that India's gross leasing hit nearly 40 million sq ft in CY H1 2025.
This is up 17.6% year on year despite global challenges. Global firms drove 61% of leasing, reinforcing India's role as the talent and operations hub. CBRE, in the meantime, highlighted a 63% short run quarter and 27% year on year jump in new supply. It added that GCCs have dropped 36% of sales, with BFSI driving 44% of all GCC-led leasing. Also noted from the Cushman & Wakefield report that there's been a 250 basis point quarter on quarter drop in vacancy in the MMR region, down to 11.2%, much of this driven by BFSI clients. The Cushman report also spoke about how average Hyderabad citywide rentals have increased 15% year on year, with Madhapur driving the appreciation.
Gachibowli continues to offer a cost advantage, with rents being 25%- 30% lower than Madhapur. Knight Frank also noted that Mumbai's prime office rents rose 7% year on year, and I was taking the CRE Matrix report, which says that Navi Mumbai's office demand grows 40% in 2024. On the key announcements for Quarter 1 FY26, we delivered strong gross leasing of 1.7 million sq f t. In Q1 FY26, our portfolio's committed occupancy increased to 93.7%. This is the highest since listing. Our N OI grew by 24.2% year on year to INR 616 crores. Last quarter, we reported INR 539 crores, and this quarter it has grown to INR 606 crores. This is again the highest growth since listing.
We delivered a strong distribution growth for the quarter at 18% year on year. D PU grew by nearly 15% year on year to INR 5.79 per unit. Five out of eleven assets have a committed occupancy of 100%. Two more parks are occupancy is more than 97%. Mindspace Airoli West now stands at 92% occupancy, crossing 90% occupancy for the first time ever since the demarcation rules came out in December 2023. Airoli West occupancy has increased from 72% to 92%, and overall occupancy of Airoli has gone up from 76% to 85%. Lease rentals have also grown, and with new deals happening at around INR 70 in Airoli, this offers a substitute to capture rental growth. Our focus now lies on Airoli East, with our new high street retail offering called Mindspace Fusion becoming operational.
This public-facing retail destination will bring lots of new energy to the park. We are also awaiting one final approval to begin the hotel development within the same campus, with ongoing upgrades for Airoli East to become an even more attractive destination for occupiers. In terms of our operating and growth highlights, as mentioned earlier, we recorded gross leasing of 1.7 million sq f t. We delivered a re-leasing spread of 29.5%. This is the highest since listing. We achieved healthy growth in rentals across our micro markets, especially Madhapur, Hyderabad. In-place rent today stands at INR 72 per sq ft per month for the entire portfolio. GCCs account for a healthy 55% of our portfolio occupancy. Foreign MNCs excluding GCCs, another 20%. Three out of four companies in our portfolio is either a GCC or an MNC.
Our teams are actively working on an under-construction pipeline of around 3.7 million sq ft on the portfolio growth track. As you are aware, strengthening our portfolio through strategic acquisitions remains a priority. We have successfully entered Hyderabad Financial District with an INR 512 crore value-accretive acquisition of UCD. This is the 0.8 million sq ft office success. We acquired 100% equity shareholding in Mack Soft Tech Private Limited. We are rebranding this to The Square 110, Financial District. This is our first third-party acquisition outside our portfolio path and the asset is spread across 6 acres. This expands our Hyderabad portfolio to over 16 million sq ft. The acquisition happened at a discount of 11.6% to independent valuation. That provides us a strong foothold in an emerging micro market, Financial District. It is poised to benefit from the supply saturation in Madhapur.
It is fully aligned with our strategy to strengthen presence in existing markets. We managed to acquire this at a very attractive cap rate of 9.9%. This transaction highlights the embedded value of the assets and supports sustained growth. Further, the asset also offers a redevelopment opportunity in the near to medium term. Hyderabad Financial District is, as you know, its demographic. Hyderabad, like all of you know, is already one of India's most vibrant GCC hubs. It's home to over 350 Global Capability Centers and it's also the country's fastest growing ecosystem for tech and DSS innovation. This is fueled by a deep talent pool and very progressive state policy. The city continues to attract marquee global occupiers and the Financial District, once a government-led vision, has evolved into a premium business corridor. There is excellent connectivity, there is expanding Metro access, and there is world-class infrastructure.
Also, global leaders like Amazon, Google, Apple, Microsoft, Infosys, Wipro, TCS, Honeywell all have anchored in this micro market. As demand shifts from zones like HITEC C ity, Hyderabad Western Corridor is firmly positioned for the next decade of GCCs growth. This transaction is fully aligned with our REIT strategy of disciplined expansion within our core micro market. Over the last six months, we have grown our portfolio size by over 4.3 million sq ft. This is through a judicious mix of organic and inorganic growth strategies. Organically, we successfully constructed and leased 1.3 million sq ft. Our inorganic growth strategy again included acquisition of a frontage of 1.8 million sq ft, a large external third-party asset of 800,000 sq ft, and consolidation within our parks of 400,000 sq ft. Mindspace REIT again, on the development side, we have stayed aligned with our development pipeline.
We continue to roll out strategic portfolio-wide upgrades. This is aimed at boosting rentals and increasing tenant satisfaction. These are feedback-driven initiatives based on surveys, audits, and tenant feedback. Capital is being deployed to modernize assets and enhance occupier retention to enhance our urban reset flow and open areas. For a better experience on each of our projects, at Mindspace Airoli East, we launched Mindspace Fusion, our retail and SMB hub. At Mindspace Airoli East, this is growing into a vibrant zone home to around 22 retail outlets. Some other popular brands that will be hosted include Barbecue Nation, Game Ranch, and Radio Bar. It is open to public and is strategically located on the Thane- Belapur Road. This is designed to enrich the daily experience of professionals working in Mindspace East and West. It will also serve the wider Navi Mumbai population.
Also, Building 1, Building 9, 10, 11, and 12, and the clubhouse are currently in the design phase for a planned upgrade, and this will include upgrades of arrival, lobbies, landscaping, and facade. They are also planning terrace levels, coasts, and recreation amenities, and it's been planned in multiple buildings in the campus. At Mindspace Airoli West, we are planning for upgrades in Building 2 and Building 3 and also the Central Food Court. Currently, this is at the design stage. At Mindspace Madhapur, within our 10 million sq ft park, we have only 273,000 sq ft of vacancy. Following the exit of a major healthcare MNC tenant at top 50 rental, we successfully released the space to a global consulting firm at INR 95 per sq ft, so from 50 to 95. This demonstrates our ability to capture significant mark-to-market upside across our assets.
The Pearl Club, our experience center and high end cl ub, is on track for Q3 FY2026 completion. Building redevelopments are underway with B1, which is our 100% pre-leased , ready for handover by Q1 FY27. Building B8 will follow through in Q4 FY27 and is also on track. Facade enhancements are underway with a focus on infrastructure and ambience. At Gera Commerzone Kharadi our multipurpose amenity center Revive is officially launched. Conveniences like a full-fledged gym, learning suites, nap pods, and indoor game floors are all part of Revive. Uptake is strong as tenants use the space very regularly. Last quarter, we delivered the R2 building to a GCC client without surrender way. We reviewed R2 to capture best practices and learning, which we will use in future projects. At Commerce Yirwala, B7 is undergoing a phased lobby. Research work is progressing as per schedule.
Facade and lobby upgrades are being planned for buildings B2, B3, B4, and B6. Building B1 is set for enhancements including a new food court, lobbies, and facade uprising. The provision of the entrance portal is scheduled to commence soon. Plans are underway for terrace amenities and a revitalized central recreational garden. Shared outdoor zones are also being updated with enhanced features and design. All enhancements are focused on creating a livelier, more immersive campus experience for our tenants and their employees. On the customer density side, we introduced the new MEP retirement policy to standardize all future property upgrades. We assess all assets to ensure they have been smart, locally and naturally. Upgradation of key MEP systems is underway to ensure seamless operations and experience. We also added indoor sports, SMB outlets, pharmacies, and convenience stores across our park.
Prioritizing safety for women, we have launched several safety measures across our portfolio. We also hosted our first client ESG Advisory Committee session in Pune. With this, we let our clients go on the ESG vision with us. It's a very good participation and was very well appreciated. We also consciously invested in tenant experience tech. Recent third-party survey results, including our NPS and CSAT, have been positive. We have conducted an NPS Net Promoter Code survey and a Seized at Customer Satisfaction survey across our portfolio. External third-party client surveys include 172 clients out of 178 of occupying occupier clients and 2,566 of a tenant. This is further revision that we focus on non-monetary goals. This gives us valuable feedback and ability to implement interesting initiatives for our clients. We further made focus on our S23 hotelization initiatives across our portfolio.
These are basically a set of 23 measures designed to bring a hotel-like experience. In our office park we executed 16 successful V2C events across six parks, attracting thousands of employees to come and participate to ensure client convenience. We have enhanced focus on design and space planning. Lobbies have been revamped into vibrant breakout zones with indoor games, music corners, and cafe seating. Upcoming additions include terrace amenities, clubhouses, and covered walkways for an enhanced experience. Smart digital signages are now live and sync through the Mindspace app for seamless engagement. We launched a fourth ESG report for FY23 of the Mindspace REIT. We received a prestigious VE5 Star rating for several buildings in Mindspace Madhapur, Hyderabad. This rating again reflects a strong focus on energy-efficient building performance.
Our performance in key KPIs including green certification, energy intensity, and GHG emissions has now been fully third-party assured and we remain on track to meet all targets. TUV conducted a reasonable excellence audit of our BRSR code disclosure. We also conducted a limited assurance for our ESG Report. This independent review reinforces the credibility and transparency of our sustainability reporting. In conclusion, some of the concerns that were highlighted over the last few quarters and how they are being addressed. Last quarter's global uncertainty from the West Coast concern year. Our performance reflects the business's strong resilience to global uncertainties. Cost of debt has reduced from 8.15% to 7.84% this quarter. This is aided by our proactive refinancing efforts and rate cuts. Last quarter in-place rent growth again was slow but we have increased.
This was slow in the overall market but we have increased IT go up from 71 to 73 this quarter. Navi Mumbai vacancy, which was a key concern before, today Mindspace Airoli West stands at 92% occupancy. Leasing SEC was a challenge we closely monitored a while back. As of June 30, 69% of our NPA converted space is successfully leased, signaling strong recovery. Before I conclude, I'd like to share an update on our new board member. Mindspace REIT is delighted to welcome Mr. Sandeep Mathrani to the Board of the Manager. A veteran of more than three decades in U.S. REITs, Mr. Mathrani has led some of the sector's most prominent platforms. Having started as CEO of General Growth Properties (GGP), he was also the Global CEO of WeWork and also Vice Chairman of Brookfield Properties Retail Group.
Mindspace REIT will benefit from his extensive experience with large scale REITs in the U.S. His valuable global insight will help us drive forward and help us with our growth strategy. This further strengthens our board with now 6 independent directors out of 10. In conclusion, we have had yet another great quarter, renting up over 1.7 million sq ft. We have achieved a committed occupancy of 93.7%. Our NOI grew by a robust 24.2%, driven by our rising rents and growing occupancy. We delivered a strong quarterly distribution of INR 352 crores, up 18% year on year. We remain confident in the long term prospects of our portfolio, supported by the strength of our high quality assets, tenant relationships, and leasing strategy. Our commitment to strategic acquisitions and consistent development positions us for sustained growth over the long term.
At Mindspace REIT, we continue to build world-class workspaces and maximize value. Thank you all for your time. I will now hand it over to Preeti for further financial updates of the quarter.
Thank you, Ramesh. Good evening everyone. I'm pleased to present the financial results for the quarter ended June 30, 2025. We delivered yet another quarter of robust operating and financial performance. Our NOI for Q126 grew 24.2% YoY to INR 6.2 billion. Even on a like-to-like basis, excluding the impact of the third-party acquisition of Commerz one, Hyderabad, NOI growth stood at a healthy 18.3%, reflecting the strength of our organic performance. Revenue from operations for Q1FY26 increased by 21.4% YoY to INR 7.5 billion. We recorded an 18% YoY growth in distributions for Q1FY26 totaling INR 3.5 billion. Our DPU grew 14.9% YoY to INR 5.79 per unit. Here again, if we exclude the impact of the third-party acquisition, the DPU growth was still 11.2%.
Ladies and gentlemen, the line for the management has been disconnected. Please stay connected while we reconnect the line for the management team. Thank you. Ladies and gentlemen, we have the line for the management reconnected. Yes, ma'am. Please go ahead.
Yeah, I'm sorry about this disconnection so I'll just repeat myself on the distributions. We recorded 18% YoY growth in Q1 with total INR 3.5 billion. Our DPU grew 14.9% YoY to INR 5.79 per unit. Yet again, if we exclude the impact of The Square acquisition, the DPU was still a healthy 11.2%. This double digit growth was primarily driven by the strong operating performance. As Ramesh mentioned, during the quarter, we completed our first external acquisition outside our existing portfolio. The asset was acquired for INR 5,118 million which we funded out of debt. We did this acquisition at an attractive pricing implying a cap rate of 9.9% on stabilized NOI. Including this, we have now completed inorganic acquisitions of 3.1 million sq ft, taking our total portfolio size to 38.1 million sq ft.
We will continue to explore external acquisition opportunities that align with our investment philosophy and growth strategy. As of June 30, 2025, our LTV was low at 25%. Even if we add the debt taken for QCT acquisition after the quarter end, our LTV still remains at a comfortable level of 26%, providing enough headroom for future growth. Our cost of debt reduced by 30 basis points during the quarter to 7.84%. This was led by refinancing of debt of Hyderabad assets and a reduction in interest rates for both existing borrowings and refinancing, correlating to reduction in policy rates. During the quarter we raised INR 14 billion through CPs as well as NCD issuance, both at competitive interest cost. With interest rates softening, we will work to convert some of our existing variable cost borrowings to fixed cost borrowings to help lock in lower coupons for longer tenures.
A strong development pipeline within the portfolio, renting of vacant spaces in Airoli, growing rentals at our parks which provide us with better MTM opportunity, strong third-party acquisition pipeline as we may undertake going along with falling interest rates. All of these will aid the growth of NOI and DPU going forward for Mindspace REIT. With this I hand over the call to the operator to open the floor for questions. Thank you.
Thank you very much. We will now begin the question and answer session. Anyone who wishes to ask a question may press star then one on the touchtone phone. If you wish to remove yourself from the question queue, you may press star then 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 again. To register for a question, please press star then one. Our host question comes from the line of Pritesh Sheth from AXIS Capital. Please go ahead, Pritesh, your line is unmuted. Please proceed with your question.
Yeah, sorry. Thanks for the opportunity. First question is on the Q- City acquisitions. The committed occupancy right now is around 64%-65%. By when can one assume the leasing to reach 96%+ , like the NUSC Narmata process? Some thoughts on that.
Again, a second one. Congrats for our first third-party acquisition. Going ahead, how should we see this? Is it more of an opportunistic or are we already seeing some more pipeline, so as to see one acquisition every year? That goes to questions. Thank you.
Actually, Pritesh, great question. I think this is actually a mix of core, value-added, and opportunistic investment style. Core, obviously, we're getting a 9.9% cap rate. Value add because there is opportunity to kind of upgrade the facility, and opportunistic because there is huge redevelopment opportunity. This is a market where developers have done 7, 8, 9 FSI, and here on a 6-acre land we just have 800,000 sq ft. Eventually, in the medium term, there is redevelopment opportunity. We believe we should be able to fill this up in the next 15- 18 months.
What you should keep in mind about this micro market is Hyderabad today has an office absorption of around 8 million sq ft per annum. This is a net absorption process even more, so three years, 8 million sq ft, that's 24 million sq ft of market absorption. 80% of this happens in Madhapur, the high-tech city, which is 20 million sq ft. If you look at the next three years, the supply in Madhapur, thanks to buildings like ours, B1, getting released, there's already 2.5 million sq ft, so clients would be forced to look at other micro markets within Hyderabad, and that's where we believe that Financial District will see interest. We have to fill roughly 2.5 to 3 lakh sq ft, which we are comfortable that we will fill over the next 15-odd months. That's the place.
There is all three: core, value add, and opportunistic opportunity here in this asset.
Sure. On the question of how frequent these third-party acquisitions are going to be, is it hard to find a third-party opportunity in the market currently, or are you planning on?
participating in third parties. Ideally, you should target one every year. We're also actively looking at ROFO s, which we are continuing to look at. It's a good mix of organic and inorganic.
Got it. On the redevelopment opportunity in this asset, how would we avail that? I mean, do we have to demolish a tower and then rebuild it, or is there a vacant land parcel where you can utilize this? How can those things happen?
There are two towers here, one is the bigger tower and the other is the smaller tower. Out of 8 lakh sq ft, 6 lakh is the bigger tower and there is a 2 lakh sq ft tower. Over a period, if you can move some of those tenants from the shorter tower to the bigger tower, we could redevelop that. Given the location dynamics, I feel there would be good interest for that new level.
Okay, great. Sounds good. Just one last from the ROFO side, when can we, I mean, when are we thinking of adding up the next set of assets in the pipeline, especially regal units ? Some comments on that. Yeah.
We wouldn't be able to immediately comment on the timelines. It also, of course, depends on when we receive the notice from the sponsor. We'll have to wait and explore that as we go along.
Sure. Okay, that's on my side. All the rest.
Thank you.
Thank you. Our next question comes from the line of Jatin from Bank of America. Please go ahead sir, your line is unmuted. Please proceed with your question.
Sure. I'm sorry, I was on mute. Thanks for taking my session. My first one Ramesh, is you gave a very interesting perspective how demand supply is sort of looking like for Madhapur for the next two, three years. It looks like demand is significantly expected to be higher than supply. Would you think that this market has an opportunity to sort of see rental growth of let's say much higher than the typical 4, 5% that you see. Also in Airoli, that particular market, you know, in general industries level occupancies are still in the 80%, 85% range. How are you seeing rental growth for that particular market?
Hyderabad is the market where I haven't seen this kind of buying cracking that market for more than 22, 23 years. What we saw last year, close to a 20% panel increase. As I've seen that kind of rental increases in Madhapur, HITEC C ity market, now that there is no space available. One thing you should also remember is in HITEC CI ty, Madhapur markets, there is not even one acre left for new development. Whatever ones the supply of our competing developers, whatever they do plus what we do building, there is absolutely no land available because of which we believe rental increases would increase in Financial District. The two data points which I talked about in my speech is our vacancy in Airoli West Giga lex used to be, the occupancy used to be 72%.
That's become 92%, 72% in December 2023 just before the demarcation laws came up. Our overall occupancy has gone up from 75 to 85%. Also very happy to report that we've done a couple of deals at INR 70, you may remember that this market was stuck in the late 50s and early 60s for a long time. I'm very happy that we've done it. We've done a good domestic corporation and a very good Multinational Corporation at INR 70, which we believe would increase handles in this market. We have two, three competitors also around this market and they've also kind of reached more or less very less vacancy, which kind of gives us the opportunity to push up rentals in Airoli also. Yes,
perfect. Thank you so much. That was insightful. The second one that I had was more of a bookie question. On slide number nine of your presentation, FY26 expiries that you have broken down, 2.2 million sq ft into 1.5 and 0.7. Where does one fit in the early termination of 0.9 million sq ft? That's footnote number three because the exits that you sort of mentioned are lower than that 0.9 million sq ft. I just wanted to reconcile those two numbers. Thank you.
Jatin, if you look at what we have done from 2.2 million sq ft of expiry, we expect to retain 1.5 million sq ft of this 2.2 million sq ft. Out of this 1.5, we have. Actually already retained 900,000 sq ft. That's already happened. So 2.2, 1.5. We expect to be seeing 7 lahk is going to exit. Out of the 7 lahk exits, we already released 2 lahk sq ft out of 7 lahk, which leaves us with 5 lahk sq ft. I also spoke about in Hyderabad where a global healthcare major vacated a space where they were paying less than INR 50 rental and we managed to lease it at INR 95 to another global consulting major. There are those kinds of opportunities coming. In Airoli also, there have been opportunities where early 50s, we're getting opportunities at late 60s. These kinds of opportunities, I wouldn't worry too much about people exiting and expiry because I think that's a big opportunity to get tenants at higher space.
One thing that you also saw was some of our tenants doing early renewal where their leases are coming up for expiry next year, but they did early renewals now. That also comes into as part of this 2.2. They may not be actual expiry, but people proactively doing expiry to give us a longer lease period today than waiting for next year.
Thank you so much. Thanks a lot. That's all for me.
Thank you. Before we take the next question, a reminder to all the participants. You may press star then one to ask a question. Our next question comes from the line of Abhinav Sinha from Jefferies. Please go ahead.
Great to see the strong numbers now being reflected. A couple of questions. One on the operations side. Where do you see the Airoli rentals in say another couple of years?
I think Airoli will definitely go up. I've tracked that market quite a bit. We don't see much of competition at least in the next three, four years coming in that market. I believe everybody knows about all the infrastructure initiatives which the government has put in. If you look at the country, there wouldn't be so much of infra being put in. What's happening in Navi Mumbai right from the airport and Setu and all those infrastructure initiatives which are happening. Incidentally, there was a good meeting with MITC, the new CEO, last week and they're talking of making Navi Mumbai into a global GCC destination like Hyderabad. The right government, intent, the right infrastructure. I had spoken about this a little earlier in terms of how Navi Mumbai out of 10 parameters, in 8 parameters Navi Mumbai ranks in the top 3. KPMG has done this.
Again, Cushman and Wakefield again rate Navi Mumbai very high. From a GCC definition point of view, home supply, we calculated Mumbai is tough to find homes in Mumbai. In the 10 km radius of Navi Mumbai, we're talking 140,000 new homes which are under construction. There are so many positives which is driving infrastructure cost, where you find peace today at INR 70 in India, the BSSI talent which is there in eastern suburb Navi Mumbai, safety wise, traffic wise, quality of living wise. All those opportunities are there in Navi Mumbai. Go ahead, bullish on Navi Mumbai, Amina, but talks about a number. We have seen the rentals go from early 60s to 70 now, hopefully, I'm sure it'll go up further.
Right? Sir, a few questions. Firstly, on the acquisition that we are doing, what is the sort of, say, upgrade CapEx that one can expect in the next 12 odd months there?
In the next 12 months, we are planning to spend around INR 210 crore on average.
You're talking about Q-City.
Q-City we are still discussing, it's going to be between INR 40-INR 5 0 crore is what we are planning right now.
When you talk about redevelopment potential, I mean what are we looking at?
Redevelopment potential is 3x+ . What is there today? Today we have an 8 lakh sq ft building on a 6 acre plot. This could easily, in the medium term, if we decide to redevelop, become a 25 lakh sq ft kind of a building.
Oh wow. We have had a strong start to DPU growth. Also, this year I think, excluding Rizorg, we were at about 11%. Right. Is that a sustainable pace, you know, to say high single or double digit number for the remainder of the year, or you think this is more of a one off?
We don't have one offs this quarter, but I won't be able to put a number. I can say it will be healthy going forward and for multiple reasons. One, of course, the NOI growth has been strong and we are hoping that will continue for various reasons. As we've always discussed, with interest rates also softening, we will get the benefit of interest rates also. Therefore, we believe that going forward DPU growth also should be healthy. Obviously, you could have quarters of some working capital being positive, negative, that could happen. For the year as a whole, we believe you should see a healthy DPU growth.
Should we see the year ending on net debt, I mean, sorry, on the cost of debt, to more downside from.
Here I would say another 25 basis points- 30 basis points we should be able to give. We'll try for more, but I believe 25 basis points, 30 basis points reduction is something I would expect.
Okay, great. Thank you.
All right, thank you.
Thank you. Our next question comes from the line of Vasudev from Nuvama. Please go ahead.
Yeah, hi. Thank you Ramesh for the detailed commentary. Just two questions. More relating to the numbers front in terms of denotification. Now can you help me? How much area have we already demarcated and how much is in pipeline? And also the split of vacancies between SEZ and non-SEZ in terms of area and percentage growth if it's possible.
In terms of SEZ demarcation, we have received demarcation approval of around 2.3 million sq ft. Of this 2.3 million sq ft, 1.6 million sq ft is already being leased. That's close to 70%. 350,000 sq ft in Airoli East and 200,000 sq ft in Madhapur. We're targeting to get it demarcated over the next few months. That's the update on demarcation. Good news is today vendors closest started last year early calendar.
Last year there were still concerns about paperwork, how much to pay, all that. Today all this has become very seamless. The government has been highly supportive and there are times when we have done demarcation in like 45 days. The process is very smooth and we're able to do that and we proactively have done it. There are times when clients tell us just hold on to a thesis phase also. We kind of keep it on hold for clients who want exits.
Okay. In terms of committed occupancies, if you see we've already reached about 93.7%. By the end of the year will it be around these levels or you can see any further improvements as well?
Objective is taken to around 95% by end of this financial year. It's a large portfolio. Seen our portfolio size increasing all the time. We crossed the 37 million sq ft mark. There will be some amount of space which is coming up for sure every quarter after that we'll run push it up. The obstacle is right now staying focused to reach the 9th of Sept mber.
Okay. One last from my side on this Financial District acquisition that we've seen overall if we see the macro level vacancies in both micro market are increasing. Responded to how we thoughts on that and what kind of rental increase can we see in this asset in the near to midterm.
The Financial District today has around 30 million sq ft of stock. Institutional stock in that is around 10 million sq ft. If you look at non-institutional stock which has a lot of startup sold to HNI that vacancy level numbers are very high. If you look at institutional, that vacancy is already 17%.
India vacancy itself is around 16%,17%. One thing you need to look at is 80%-90% of all leasing is done by the six international property consultants. Typically, international property consultants advise their clients to go into institutional ownership, and no better name than Mindspace REIT from an institutional point of view. You need to look at it from a category. I have seen this in Delhi a few years back when I was tracking Golf Course Extension market. There was a year, I think it was 2018 or 2019, where vacancy level for Golf Course Extension was 62%, but vacancy for institutional was like 3%. We see those trends across markets. There are top 10 developers and future developers in the country who will have lower vacancy. Talked about a rental increase number, but like I mentioned before, 80% of the demand goes to HITEC City, Madhapur.
That market just doesn't have space. We're not going to see companies tomorrow saying I don't have space in Hyderabad, let me go to a Chennai or a Bangalore. They would say let me go to a micro market which is 20 minutes away, and that's where we believe we will benefit.
That was helpful. Thank you. Thank you.
Before we take the next question, a reminder to all the participants. You may press star and one to ask a question. Our next question comes from the line of Taniv and investors. Please go ahead.
Hi. Thanks for taking my question. My question is to Preeti. This time I can see that the distribution composition is slightly changed. We have less of dividend coming in and more of capital return. I just wanted to understand, and please explain me if I'm wrong.
The way this works is that the trust is giving out capital in the form of equity and debt to the SPVs. Like yourself, the other peers, REITs and INVITs that are there, they are reporting interest component along with return of capital and a few more parameters. I just wanted to understand, is it that the trust has absolutely not given out any debt to any of the SPVs and that is why we are not having any interest components, or there's another reason altogether.
Okay, so first of course there is debt which has been given. What happens is in our case the cost at which we are borrowing versus the cost at which we are lending to the SPV, there's not too much of a gap between the two. Therefore, you're not seeing much coming out by way of interest. That's one. That doesn't mean we are not giving loans from the REIT to the SPV, that part is there. In fact, that's one reason why you are having this amortization of loan or return of capital, as you may call part of that coming. Also, as I to your the first part of your question, generally the composition does change depending on the structure of every SPV.
For example, when we are buying newer SPVs, if these SPVs are newer SPVs and they have more debt as compared to older SPVs where debt got paid down and so on and so forth, then obviously the component of amortization of loan or return of capital gets higher, dividend is lower, that happens over a period. Therefore, you've seen some change to the composition mix as compared to what you saw earlier here.
Okay, that's fair enough. When you are saying that if we have given out debt to SPV, when it is coming back, it is coming back as return of capital. I mean, that is blended with the interest or what is. Is that understanding correct on my part?
No interest is coming as interest to the ex. Interest will come as they are not blended. Return of capital.
Correct, Exactly.
The loan is coming there. That is fine. In our case, the amount which we have lent for which we are taking out interest is a very small component as compared to the other.
Okay, fine.
No ma'am, composition, therefore you're not paying a material amount. Because earlier we had the Karuti component was much lesser. Therefore, you saw in the overall mix the absolute amount has not materially changed. It's just that the other elements have come in and the base has increased. That's why you are seeing this composition coming down.
Okay, the only reason is because when we as retail investors, when we are going to file income tax, this kind of is a little tricky because wherever we see TDS cut and interest component coming back, clearly in the distribution that you all give out on the email, we can easily say that, you know, that much is going to be taxed at the investor's hand or whatever. Then return of capital is, you know, later on deducted from your overall buying and selling of shares or whatever. It becomes difficult to understand, you know, how this works when there is no interest component at all. That's why I was just asking on.
On this definitely have some interest components, and at the end of the year when we are giving your 64B, you will clearly have a bifurcation of how much of the distribution has come from each of the component. There I don't see you should have a challenge. Obviously, we do have an interest component, though it's relatively smaller than the other two.
Okay. Okay ma'am, thank you so much.
Thank you.
Thank you. Our next question comes from the line of Harsh Kayan from Kayan Securities. Please go ahead.
Hi, my question was regarding SEBI has consultation paper classifying probably REITs as equity in the next couple of months if possible. They already are talking about it. In my understanding, I just wanted to know how will it affect Mindspace REIT and the REIT sector in general? Logically, the retail investor flow and there's no participation in indexes, so the yield compression could actually really come down. I just wanted to understand how will it affect REITs in general, mindsets in general from a financial point of view. Obviously, it should not make any operational distance. Hello?
Yes, I'm so sorry, just give me one moment. Yes, ma'am, please go ahead.
Yeah, could you just repeat the latter part of the question because we had some technical glitch. I couldn't hear 30 or 40 seconds.
No, I was just talking about the equity classification of REITs and then I was saying that it will not affect operationally, but from a financial point of view, a lot of obviously investors' money would come into REITs which is not previously accessible. It's more of an institutional product right now. I just wanted your opinion and understanding on how it would affect the sort of way you know Mindspace from a financial point of view, access to capital, and the risk sector in general. Logically, since you have such high value properties with probably 100% occupancy in one of your major, like you know, Madhapur and whatnot, there should be a major yield compression logically going forward. I just wanted your thoughts on that.
Sure. So firstly, SEBI have floated a consultation paper on inclusion of REITs and investment, and of course classification also was one matter there. We have got comments from all stakeholders, and now I think their internal deliberations are on. We don't know what the outcome will be. We'll have to wait and watch what the outcome will be. Assuming if we get included in the index in the IFS, then obviously we believe that the liquidity will stand improved, and with better liquidity, obviously transaction costs go down, there's better price discovery. I don't think it's any specifically, but the sector as a whole stands to benefit when the liquidity improves.
Now, whether that leads to any comparison of yields, etc., are difficult to comment, but liquidity is something which will definitely, definitely help because we have passive money coming in because of, and since we are included in a lot of global indices, you know there's a good ask to have of included here also, but obviously it remains with who we want quality.
Thank you so much.
Thank you. As there are no further questions from the participant, I now hand the conference over to the management for closing comments.
Thank you everyone for joining. It's been an interesting quarter with Q- City, which has also been accretive not just from an NOI perspective but also from a GAV and NAV perspective. All good quarter from occupancy, from NOI growth, distribution growth, and thanks for joining.
Thank you, everyone.
Thank you on behalf of Mindspace Business Parks REIT. That concludes this conference. Thank you for joining us and you may now disconnect your lines.