Ladies and gentlemen, good day, and welcome to the Earnings Conference Call of Nexus Select Trust for Q1 FY 2025. 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 presentation concludes. Should you need assistance during the conference call, please signal an operator by pressing star then zero on your touchtone phone. Please note that this conference is being recorded. I now hand the conference over to Mr. Pratik Dantara, Head of Investor Relations and Strategy from Nexus Select Trust. Thank you, and over to you, sir.
Thank you. Good evening, everyone, and thank you for joining the earnings conference call of Nexus Select Trust for the quarter ended June 2024. At this point, I would like to highlight that the management may make certain statements that may constitute forward-looking statements. Please be advised that our actual results may differ materially from these statements. Nexus Select Trust does not guarantee these statements or results and is not obliged to update them at any time. Specifically, any financial guidance or pro forma information that we will provide on this call are management estimates based on certain assumptions, and they have not been subjected to any audits, review, examination procedures. You are cautioned to please undue reliance on such information, and there can be no assurance that we will be able to achieve the same.
Joining me today are Dalip Sehgal, Executive Director and CEO; our CFO, Rajesh Deo; our COO, Jayen Naik; and our Chief Leasing Officer, Mr. Nirzar Jain. We will start off with brief remarks on our business and financial performance, and then open the floor for questions. Over to you, Dalip.
Thank you, Pratik. Good evening, everyone. It is my pleasure to welcome you to the earnings update call for the first quarter of FY 2025 for Nexus Select Trust, India's first listed retail REIT. Before we delve into our performance for the quarter, I wanted to spend a few minutes on the macro trends in India as we see them. I think all of you are familiar with the fact that the macroeconomic factors continue to remain favorable, with inflation being around 5% under control, GDP growth around 7%+. The retail, the real estate fundamental continue to be robust in our market with sizable demand supply dynamics. In short, I think the inherent consumption story, the growth story for India, is still very much intact. We may see some hiccups as we go through in the short term, but overall, I think the consumption story is very much intact.
We are, as you perhaps know, the second-largest REIT by market cap in the country. We started with an investor base of about 24,000 unit holders, which over the last 12 months has consistently increased and now stands at 39,000. We moved up from 24,000- 39,000. We would like to thank all our investors in showing faith in us. Our next phase of growth will be fueled by acquisitions, and we have made good progress there. In the past, we have announced acquisition of three malls in South India, which is Hyderabad, which is now in an advanced stage and expected to close soon post obtaining regulatory approvals. As indicated earlier, this will be fully funded by debt. Additionally, we have signed two term sheets for the acquisition of 0.8 million sq f t retail assets.
One of these is in north and the other is the southern part of the country. We have commenced the due diligence on these assets, and we expect these transactions to close over the next few months. We expect both these acquisitions to be funded by debt. Now, coming to our Q1 FY 2025 performance. We witnessed robust retail net operating income growth of 8% despite a soft market backdrop. On the back of strong financial performance, we are delighted to inform and announce distribution of INR 3,253 million, translating to INR 2.147 per unit, which is in line with our projections and represents 100% payout. During the quarter, we witnessed tenant sales of INR 30 billion, which is a growth of 3% year-on-year from the high base of last year.
April and May months were soft on account of the fact that we had general elections, prolonged heat wave, IPL and a lot of other things that impacted footfalls. However, in the month of June, we saw increased footfalls, and we saw revival in growth, and consumption growth was around 6% in the month of June. In terms of categories that have done well, I think a lot of growth has happened in electronics, jewelry, et cetera. There is still some way to go as far as fashion is concerned, which is still a bit slow. But I am pretty confident that in the second half of the year, as we are getting into new season, this will also turn around.
Going ahead, with clear emphasis on capital spending to generate growth and a strong focus on employment with some of the proposed tax amendments in the budget of 2024, which we saw recently, we expect stronger growth in consumption in the second half of FY 2025 with the onset of the festive season. Clearly, I think our take is that the second half of the year will be far stronger than the first half of the year. Talking of the budget, we would also like to thank the government of India for aligning the holding period of REITs to 12 months. I do not know if you have noticed it in the budget. It has been reduced to 12 months, like other listed entities, other listed equity shares, to qualify as long-term capital assets. You need to hold the REIT only for 12 months.
This strong stance by the government equals their commitment in REITs as an asset class and will definitely pave the way for long-term growth of this instrument. Let me share some category results with you that I spoke about earlier. Categories like electronics, jewelry, family entertainment, et cetera, have seen very strong growth this quarter and continues to do well. We have been allocating additional space to these categories, and will continue to do so as we go ahead. Most fashion retailers have seen arrival of new inventory, and with increased number of auspicious days in the second half of the year, we expect tenant sales to improve going ahead in fashion as well. Let me walk you through our leasing and marketing performance.
On leasing, with strong demand from tenants, both domestic and international, our leasing occupancy now stands at 97.4%, which is 70 basis points higher than last year. Most of our malls have reached 98%, 99%, and there is almost full occupancy in most of the malls. As we speak today, most of our malls, as I said, are almost 100% occupied. In quarter one, we have leased 0.23 million sq ft out of re-leased 0.18 million sq ft at an 18% re-leasing spread. So total was 2.3 lakh, and 1.8 lakh out of that was re-leasing at an 18% spread. YTD, we have leased almost 9.4 lakh sq ft, including 7.4 lakh sq ft re-leased at a 20% spread.
This is exactly what we had mentioned in our IPO document as well, that every year our malls will continue to have almost 10% coming up for re-leasing, and we will get a 20% spread. Our malls continue to be the first port of call, like I said, for Indian as well as international brands. We have signed brands like Foot Locker, YSL Beauty, and Gucci Beauty, which will be opening their first stores in India in Nexus Select Citywalk in Saket, Delhi. We have a stable lease expiry profile, and the average annual expiry of about 8 lakh sq ft or 10% of rentals will happen with a mark-to-market potential, like I said, of about 20-odd percent. We will continue to proactively churn and resize underperforming categories or brands. Coming now to the marketing performance. Our size and scale allows us to plan for pan-India promotions.
During the quarter, we kept our focus on summer activation, which attracted a lot of young kids who spent time at the mall with the families. We have onboarded Ayushmann Khurrana as our new brand ambassador, new Happyness Ambassador, and his exceptional entertaining skills will make him the perfect fit for Nexus' pursuit of happiness. May I also inform you that our marketing spends have been up 20%, so we're continuing to invest in the growth strategy as we feel that the mid to longer term consumption story is not just intact, but will get more robust from the second half of the year. We continue to invest in technology as well to drive sales growth, which will be important in the coming years. We spoke about the Nexus One app last time. We have now extended it to nine malls.
During the quarter, we added 52,000 new users, with 45,000 signing up for the loyalty program. This brings our total app downloads to 2 lakh 85,000 and our loyalty program sign-ups to 2 lakh 10,000, translating to an impressive conversion rate of around 74%, which is perhaps the best in the industry. This will not only give us very rich consumer data, but will also help consumers in terms of both figuring out where they are, store locations, et cetera, which is wayfinding, and we will also have a very strong loyalty program on this. Technology, as we go forward, will indeed be the backbone of our growth. Let me take a couple of minutes to talk about our growth strategy for the next five years.
We have set a target for ourselves to double our retail portfolio NOI through a combination of organic and inorganic growth over the next five years, which will translate to roughly a CAGR of about 16-odd percent. Our first eight years of business is what we call Nexus 1.0. Where we created a unified structure as we kept acquiring assets, build a platform with best-in-class team, improved overall asset quality by incurring strategic CapEx, attracted shoppers traffic by focusing on marketing, created and leveraged strong tenant relationships, which helped introduce newer brands and lease up the portfolio. This focus created a better playbook overall by integrating processes, which resulted in better rentals and yields.
We will now be embarking on the next phase of growth, which is what we've termed as Nexus 2.0, where we are creating a five-year roadmap by building relevant, differentiated positionings for each of our assets to accelerate growth by, A, adding relevant premium and power brands to each of these assets and working with retailers to bring latest store designs and merchandise into our malls. Two, introduction of technology with Nexus One app to get better insights into consumer habits. Three, improved focus on marketing with better engagement, big-ticketed events, focus on digital and anamorphic displays across the malls. Four, CapEx thrust to increase wow element across our malls. Five, improving further our ESG roadmap. And finally, creating a future-ready organization structure to support all the above.
Basis the above, we expect that our retail NOI, which is currently around INR 14.4 billion today would grow at a CAGR of 8.5%- 9% over the next five years. This will mean we organically will add INR 7.5 billion to this retail NOI over the next five years. So organically, we expect the current retail NOI of INR 14.4 billion would grow to INR 22 billion by the end of five years. So that's on the organic side. Coming to the inorganic part, keeping up with our past track record on acquisitions, we intend to acquire 1.5 million sq ft, which is roughly two to three malls every year. Through these acquisitions, we'll be able to generate an additional NOI of INR 1,500 million every year, which we expect to also grow at 8.5%, 9% CAGR.
This will also add incrementally about INR 9 billion to the organic retail NOI over the next five years, taking us to INR 31 billion retail NOI in five years. Considering the fact that our LTV is still low at 14%, majority of these new acquisitions, as we have said, will be funded by debt. Now, coming on to ESG, which is a very important part of our agenda. We are continuing to focus on it. During this quarter, we have successfully commissioned the 3.3 MW captive windmill in Tuticorin, Tamil Nadu, which will meet 50% of our energy requirements of our mall in Chennai, Nexus Vijaya, at a 20% YOC. Finally, to end, let me just summarize the performance. Our retail NOI growth was 8% in quarter one FY 2025, and we expect to achieve our projections for FY 2025 that we had discussed and disclosed last quarter.
Leasing demand for our assets continues to remain robust with favorable demand supply dynamics, with new brands asking for space, both domestic as well as international. While consumption growth was soft in the first couple of months of the quarter, we are seeing recovery in June and expect this recovery to continue. We announced our fourth distribution of INR 3.253 billion today. This is in line with our FY 2025 guidance. Also, there are no changes in our full year projections. We continue to remain on track to achieve our FY 2025 projections. Lastly, we look forward to closing the acquisitions of five assets already announced. Our strategy for inorganic growth in the portfolio remains robust with ongoing discussions for another five assets. With this, let's now move on to the Q&A. 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 and one on their touchtone phone. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use handsets while asking a question. Ladies and gentlemen, we will wait for a moment while the question queues are announced. Our first question is from the line of Kunal Tayal from Bank of America. Please go ahead.
Sure. Thank you. A couple of questions from my side. Firstly, I just wanted to understand what would have been the variable component of rentals this time around, and I'm just trying to get a quick sense as to how that stood at 3% consumption growth versus last year when the consumption growth was about 16%-18% YoY. Then the associated question here is, despite sort of 3% growth and you say that the NOI growth was sort of in line with your expectations, why would that be? Is it because the softer consumption patterns were in segments where you don't have variable exposure, or was there a different dynamic at play?
Okay, Kunal, thank you for your question. Let me take it one by one. The first question you asked was about the revenue share, the variable component. Typically, in our business, which is between 12% and 13%. In quarter one, it has been around 11% because of the lower top-line growth of 3% versus what we had last year. That answers your first question. Number two, how has the growth been 8% in NOI? Please remember, we did take a bit of a hit on revenue share, but we made it up by very strong performance on, like I said, re-leasing, where we got an 18% spread on almost 10% of our rentals. Number two, I think apart from rentals, we also had a very strong performance coming in from space on higher revenue, which grew at almost 50%.
And three, I think our cost controls have been extremely good, adding a substantial amount to our contribution as well. Just to give you a sense, about 90% comes from rentals, 10% comes from the rest of the revenue streams, including car parking, et cetera. That 10% has actually done extremely well. So out of all four or five components, minimum guarantee was in line with our estimates. Non-rental incomes were ahead of estimates, and only revenue share was about 2%-3% lower, primarily on account of the lower top-line growth. Like I said, it was about 11% of the total rental. So that's in a nutshell the answer to your question.
Understood. Very helpful, [inaudible]. Thank you. If I could sort of ask a couple of questions around the five-year outlook that you've provided. The first one around that is, as we look at this 8.5%-9% organic growth, it seems like it should be assuming an uptrend in the occupancy cost ratio because typically, I think the math here is that you might get 5% average growth from rented escalations, about 1%-2% growth from MTM catch-up. Then I'm assuming, therefore, the rest of it comes from consumption growth. So firstly, would that be right?
The sort of second question on the inorganic side is, again, I think the presentation shows 8.5%-9% growth. Could be theoretical obviously, because I understand you are just providing the broad contours. But should we not think of the growth in acquired assets to be higher? Because I think in the past, your communication has been that when you acquire the assets that could be underperforming and therefore, as you turn them around, they tend to sort of yield better than the organic assets.
Sure. I think both the questions are good questions. I think on the first one, which is really about the 8.5%, I think you've said it yourself. You've answered it yourself. There's a 5% contractual increase that happens every year. There's a mark to market that happens on 10% of the rentals, which is 20% increase. So that gives you 2%. So that's about 7%, h alf to 1% incremental depending on growth. The final half to 1% is on account of cost savings, hotels, et cetera, smaller components. So you're absolutely right. I think 8.5%, 9% is absolutely correct. As far as the second part which you picked up, I think that's a fair question, which is to say, will the acquisitions bring in only 8.5%? I think this is a stabilized 8.5% that we are quoting. Let me ask Pratik to elaborate a bit more on this.
Hi, Kunal. So Kunal, this is more linear in that sense. As you said, it's more linear over five years. A lot of the assets that we acquire will be under-managed, under-leased, and therefore, as we ramp up occupancy, the NOI CAGR in the initial first two years will be higher. I think from a conservative standpoint, we've taken 8.5%, 9%, but yeah, we agree with you that it should be higher. But again, this is a vision, so we kind of keep it at that. We may acquire a couple of assets lower than what we've anticipated. So I think broadly it will take care from an absolute number perspective.
On a stabilized basis, the new assets, as we have seen even in the current portfolio, will give us between 8.5% and 9%. That is stabilized rate. But you're absolutely right to say that post-acquisition, the first two years, the growth rates will be significantly higher. You're absolutely right, Kunal.
Right. Got it. All right. Thank you so much.
Thanks, Kunal.
Thank you. The next question is from the line of Adhidev Chattopadhyay from ICICI Securities. Please go ahead.
Yeah. Good evening, everyone. Thanks for the opportunity. I have a couple of questions. First, could you break the consumption growth for the quarter down into footfall growth and the realization growth so it help us better understand what is the sort of impact, as you said, of the various factors on the people visiting the malls? That is the first question.
Okay. Can I answer that? Okay. So last year, if you remember, we had a 7% increase in footfalls. This quarter, we have seen a drop of 2% in the footfalls. So the 3% increase in consumption that you see is despite a 2% drop in footfalls. The drop in footfalls, like I said, happened on account of three reasons. One, the fact that there was elections, and I think a lot of the polling happened over weekends. Malls were opened only late in the day, if at all. There were dry days, et cetera, impacted F&B.
Secondly, heat wave. I think particularly in the first two months, the weather was extremely hot, and people perhaps did not come out as they would. Then there was, of course, cricket and IPL happening on weekends. So actually, footfalls were lower by about 2%. There is a 3% growth as far as the consumption is concerned. You can now figure out that overall, the underlying growth on the same footfall basis may have been around 5% or 6%.
Adhidev, just to add to what Dalip is saying, like we've indicated, April and May was where we had maximum impact. We've actually bounced back in June on the consumption trend.
Yeah. We grew at around 6% and footfalls also came back. I think the first two months were not great, and these were the reasons, I think. If you ask me, I think the trend seems to be positive starting last month. We hope that this will continue as we go forward because inherently, at a macroeconomic level, I think the assumptions that we would have made a year ago at the time of the IPO, those hold very strongly even now. Both in terms of the growth in GDP is still holding. Inflation is by and large under control.
Three, the fact that there is still more demand than supply in our markets. I think these are all factors that we had spoken about, and those still hold valid. That gives us the confidence to put in 20% more marketing investment in this quarter, despite seeing softness in the first two months.
Sure. So second question, I think this is on the NDCF distribution. So there is again, a working capital gain, I think of INR 53 crore. Could you just please elaborate on the nature of this? Is it one time, or could we see a similar trajectory for the rest of the year? Thank you.
Yeah. So we are required to distribute at least 90% of the NDCF on a six-monthly basis. Our endeavor is to distribute 100% on a quarterly basis. You are right. I think we have had some opening cash that we are carrying, and we have made those distributions to the extent of INR 38 crore at third quarter, and this is as planned during the IPO listing.
My question was on the working capital portion in the NDCF, the INR 53 crore this quarter, which you have shown.
Out of that INR 53 crore, INR 38 crore is what we have used opening cash to distribute, and the balance is the momentary working capital.
Okay. For the rest of the year, how would this trend? I mean, the number would be lower going forward, this working capital gain, or there are some other levers which would help us have a negative working capital for the rest of the year. Just want to understand the trajectory for the rest of the year on that line item.
Adhidev, it will be broadly similar in the sense that there will be some working capital squeeze that we will obviously have. But at the same time, like we have said, like we have guided on a full year basis, INR 8.7- INR 8.8 per unit is what we have guided for, and I think we are on track to achieve that.
Okay. Sure. Okay. Thank you. That's it from my side. All the best. Yeah.
Thank you.
Thank you. The next question is from the line of Mohit Agarwal from IIFL. Please go ahead.
Hi, Mohit.
Hi. Yeah, thanks for the opportunity. So a few questions. Firstly, on consumption, you mentioned that June was better. Is the trend continuing in July as well? Do you see that number improving further? The second part is, if you could also elaborate on, in the first quarter, if you have done 3%, have you still outperformed the industry? Could the industry be flattish? If you could give some color on that.
Sure. So, see, as far as the second part of the question is concerned, which is industry, I think you will have to conclude yourself. I can only talk about some of the results that have come out, which is basically from our tenants. I think the fashion companies have actually reported by and large negative same-store sales. Even in QSR, I think Westlife has declared a negative on same store. If you look at the overall numbers that have come out so far, and I am sure we are still awaiting some of the other guys to report. By and large, it seems to be a flattish kind of a quarter, and in some cases, in fact, negative. Have we outperformed? We will be able to give you a firmer answer maybe in a couple of weeks down the road when we have a little more data.
But overall, our sense on the ground is that I think in most of our key markets, we have probably done better than competition. But that is, in a sense, like I said, a qualitative comment. We will wait for all the numbers to come in. As far as your first question was concerned, which is that will we continue at 3% and how do we see that happening? And since June was better, is that a trend that will continue? Our sense is that the trend has continued into July, and I think the quarter itself should be in line with what we have projected so far. I think the worst perhaps is behind us in the sense that I get. But the real uptake and let us say the graph moving up a few steps will probably happen around September, October, is the sense we have.
Okay, understood. On your acquisition strategy, it is a pretty aggressive target that you have given. Just trying to understand, what do you see as the key risk to achieving these numbers in terms of acquisitions? Is it the availability of assets? Is it the valuation expectation of the seller? Or do you think it could be regulatory issues also? In that context, if you could update on the timelines on the Hyderabad acquisition also, it has been a couple of quarters. So what do you see as a key risk to achieving this number?
I think in any acquisition strategy, some of the things that you have mentioned are there. But remember, we have in the last six, seven years, actually acquired 17 malls and turned them around. So the fact is that all the risk factors are already there. It is not they won't. As of today, as we speak, on the table, we have 1 million in Hyderabad, another 0.8 million in the north and in the south. So we have 1.8 million on the table. Most of it will fructify. There will always be issues. In any country, there will always be regulatory issues, and the whole idea is to overcome them. We are pretty confident that it is a timing issue, and we will be able to overcome that. But I think you are absolutely right in saying that there will be some challenges as we go forward.
So two or three things that I want to bring upfront. One is that I think given our past track record and the fact that there are still 50, 60 assets, A-grade assets which are owned by people who have one or two malls and may not be interested, I think we have another five, maybe even seven assets which are in the pipeline. I think the number will really happen is my sense. We are also looking at greenfield to look at certain markets where we may not have, like you said, no asset may be available. It is possible. And there are some good cities metro where it may not be possible to acquire an asset because there is none. Or if there are one or two and people don't want to sell, that is possible.
So we are also looking at greenfield for the first time. While that is not core to the strategy, but wherever we feel that there is a positive upside that may happen, we will look at doing a couple of greenfield assets as well. So I think, in short, to answer your question, does it look daunting? I think it does. But when you break it down by years and you break it down by the assets that are there on the table and the ones that we are talking to, I think it is doable.
Mohit , just to add, I think while it looks daunting, it looks daunting because unlike other REITs, there is not a sponsor pipeline that actually comes in. So we are actually cultivating transactions as the management team at Nexus. And I think that is the task at hand, to try and cultivate it consistently over the next few years so that the pipeline remains healthy and strong.
Yeah. Without getting into, we have spoken about this in the past as well, as to why a REIT is a great instrument for people who want to sell their assets, given the fact that they don't have to pay capital gains, the fact that 65% of the distribution or dividend is tax-free, and the fact that there are various options that they can opt for, which is exchange of units, debt, et cetera. I think all those benefits of having a REIT are still equally valid as they were when we spoke. Like everything else, I think acquisitions happen when they close, and we are hopeful that some of these will close pretty quickly.
Dalip, you made an interesting comment on greenfield. I'm just trying to understand your thoughts here. You can do about greenfield or brownfield up to 20% of your GAV, right? What kind of stops you, is it, and what are your expectations on return? My question is that, what kind of IRRs do you expect from greenfield developments or brownfield developments versus the acquisition model? Is it the return expectations which is different, or is it the limitation of 20% which is kind of held back so far? Yeah.
Not at all. I think start first with the fact that our strategy has been, what are we good at? We're good at acquiring and fixing the assets and getting incremental value out of fixing those assets. That's been our core strategies. That's part one. Part two, from what you're saying, is the IRR better? I think last time we had discussed this. The IRRs by and large between build and buy seem to be more or less similar, and you can probably ask Pratik to take you through the working. That's probably one reason why we've stayed with acquisitions. They are very similar.
The third thing is that, why would we do greenfield when at the core we still are talking about acquisition? I think there are markets, without naming any cities particularly. There are markets where there may be just one asset or two assets, and there may be a plethora of people who own those assets, don't want to sell. There are lot kinds of implications and complications that may happen. In those kind of markets, if we believe that, look, this is a very strong future potential market for us, we would certainly look to do a greenfield with a strong partner. We obviously would not do it on our own. We would do it with a strong partner.
Okay, great. Thank you, and all the best.
Thank you. Thanks so much.
Thank you. The next question is from the line of Murtuza Arsiwalla from Kotak Securities. Please go ahead.
Yeah. Hi, thank you, sir. Just elaborating on the acquisition strategy. What would that entail? INR 1.5 billion would be, what, about an INR 18 billion-INR 20 billion of acquisition every year. In terms of funding, what you talked about, 100% debt funding. Could there be a combination of debt plus some unit exchange? Or even, is there a consideration that maybe the distributions could be utilized towards acquisition? How does that stack up? That is my first question.
The second one, with due respect to the film personalities, but generally, we have not seen other sort of mall owners use such brand ambassadors, unless I have missed that data point. What is the cost-benefit analysis of having someone like that? I mean, we have seen specific retailers use it, and we understand that part. But, as a mall owner, how is the cost benefit of getting we previously had Mr. Bachchan as well. So if you could address these two.
Okay. Let me answer the second one-
Sure.
first, and then I will ask Pratik to answer your first question. I think as far as use of either film personalities or any endorsement, by and large, is used for, as you said, building the brand. So I do not see any reason why other brands We are a brand. Nexus now is a brand. In fact, let me give you one example. When we took over the Forum portfolio of eight brands, I think the key question at that point in time was that by September, we had to rebrand the entire thing in Nexus. How do we get awareness? We think there are brands, there are malls, like Koramangala, which were 20 years old and had been called Forum from that period, from 20 years.
So we took a call to get Mr. Bachchan on board to say, can he bring in the trust, the robustness, and the saliency for the new brand? Happy to report. You said, how do you measure it? See, marketing impact measure everything 100%, but what we did measure was that within three to four months of the rebranding exercise with Mr. Bachchan as the brand ambassador in Bangalore, which was one of our key markets, 73%-74% of the consumers unaided called Koramangala Nexus and not Forum. Now that is a big change, because over the years understanding brands, you cannot do that very quickly. So clearly, Mr. Bachchan helped us to get the consumers to understand that there was a change, and that the new brand was Nexus, and they were calling it Nexus.
I have even seen that happen with a lot of friends as well in Bengaluru, who now actually refer it to as Nexus. There will still be some people who will refer to it as Forum. To answer your question, there is no reason why malls, because we are brands, we are not real estate. I keep saying this, we are not brick and mortar. We are a house of brands. We have got almost 1,000 brands on our premises, 3,000 stores. So we are a house of brands and Nexus is a brand. I do believe that we must invest in it, just as we would in other brands.
Our experience so far has been extremely good with both Mr. Bachchan and earlier with Mr. Khurrana. That is the reason why we got him back, because he has that kind of an image. He is a singer. Pre-COVID, we did a concert with him at Elante. It was amazing the kind of response we got and the upside that we saw in sales subsequently. We do believe that these investments are certainly worth it. Let me now hand over to Pratik to take on your first question.
Hi, Murtuza.
Hi.
Murtuza, I think as a part of our strategy, we are looking to add about 7 million-8 million sq ft over the next five years, right? Assuming we acquire these at a spread of 150-200 basis points to where we are trading, we probably will need about INR 8,500 crore over the next five years. We would like to be in that zip code of 28%-20% LTVs. Therefore, we anticipate 70% of these acquisitions to actually be funded through debt. The balance is open. We probably will look at either a swap or a QIP, as the case may be. But that is how we were thinking about funding the acquisition.
I think as a philosophy, we were looking at acquisitions which do not impact distribution. So we are looking at acquisitions which will be accretive to the NAV and to the DPU. Obviously, some of these are under-managed assets, so by the time we integrate them, it may take 6- 12 months. But I think these will be accretive on a stabilized basis.
Okay. So you would generally not want to use internal accruals or cash generation for equity funding of acquisitions. Is that fair?
Yes.
The regulations, but allow you to do that, right? The definition of NDCF does allow you to make investments from it, right? NDCF is supposed. Just as a clarification.
It does.
It does allow you, right? You don't want to go down that path. You'd rather-
Sir, this is Rajesh here. Just to add what Pratik mentioned. We are required to distribute 90% of the NDCF on a six-monthly basis. For the full year, you accrue only 10% of NDCF for acquisition. That's not quite great to keep using for acquisition. In terms of what's on the table is this 1.8 million sq ft that we're talking about. We have an LTV of around 14% now at INR 4,300 crore. As this all can be funded through there, LTV will go up to 18%.
Yeah. Fair enough. Sure. Thank you. Thank you, gentlemen.
Thanks, Murtuza.
Thank you. The next question is from the line of Praveen Choudhary from Morgan Stanley. Please go ahead. Mr. Choudhary, your line is unmuted. Yes, please proceed with your question.
Yeah, hi. Thank you so much for taking my call.
Yeah, hi.
Hi, Dalip. Hi, Rajesh. Hi, Pratik. Quick couple of questions. The first one is on DPU growth. You mentioned over the next five years, both organic and inorganic, you could get a 14% CAGR. As you rightly pointed out, you will use some debt that will reduce the DPU growth, right? Or NDCF growth, we should say. What would that CAGR be on your math? Is it 9%, 8%, et cetera? The first question. The second question I have was, you mentioned the GDP in India is very good, inflation is very good, and yet all the brands are suggesting or showing negative SSG growth. It is a question on consumption, to be honest. What is plaguing them, and why cannot it be a concern for the overall India consumption?
Okay.
Because everybody is so bullish on that point.
Sure.
I have one last question, third question, if you do not mind.
Yeah, go on.
Hospitality, I saw that the EBITDA declined year-over-year. Just wanted to understand it's, again, one-off or there is some concern on the very small part of your business, but just any trends that we should be watching. Thank you so much.
Okay, great. Thanks. I think just a couple of points. I think what we have said is over the next five years, an NOI CAGR of 16%, not 14%, just to put the number right. Secondly, I think the question that you asked that, look, if macros are good, why is consumption down? Please understand, there is also base effect. If you go back into history and look at the same quarter last year, that quarter, the growth was 18%. Traditionally, if you average out pre-COVID, the growth in consumption was about 8.5%, right? The fact is that even today, if I now look at a CAGR, including the two bad years, right? Then an 18%, 20%, 22% growth, the CAGR comes back to 8%, 8.5%.
So the fact is that there is c learly, there was a spike that happened because of it, there is a base effect as well. I think not many people understand that or recognize it. The fact that if there is 3%- 5% same-stores declining, there are reasons for it. Some of them are short-term, one-off. For example, whatever happened in this quarter in the first two months, I think, was a one-off. I don't think people have stopped buying pizza or have stopped buying. But the fact is movies are bad, so footfalls are low, et cetera.
Without getting into too many details, I think the fact is that as long as your macros are good and inflation is still under control, the pressure on the household budget to that extent is a little limited. There may be periods where, for example, food inflation may be a little higher because of the heat that we had, vegetable prices went up, and so on and so forth. That can happen. But is that a longer-term trend? The answer is no. Equally, was 18%, 20% growth that we saw same quarter last year a trend and that would continue? The answer is no. The average out is around 7.5% to 8.5%, and I think that's what we should be looking at as a reasonable CAGR for consumption growth.
Thank you. I did have two other questions. First of all, thank you for correcting me, 16% NOI growth. I was asking if you debt fund it, the NDCF will grow slower, right? Is there a number that you want to highlight for the next five years?
We aren't specifically giving any guidance on the NDCF for the next five years. That is for the next couple of years. Organically, we'll follow the numbers that we had disclosed in the prospectus. I think just on the acquisition bit, there will be a spread on the cap to where we trade. That would result in an accretive transaction. At the same time, acquisitions that we do will be at a cap rate which will be higher than the interest cost that we have to pay. I think that should result in an accretive transaction. Third thing that probably isn't factored in is the benefit that one gets because of the structuring of transactions. We structure transactions into entities such that we get tax benefits in that entity, it results in lower tax outflow as we acquire assets. I think these three pieces make the transaction accretive for us, and therefore DPU accretive as well.
Got it.
On the hospitality front, like we said, we have two hotels, one in Chandigarh and one in Bangalore, 354 keys. Doing pretty well coming off a very high base in FY 2024. What we saw is a gap of only INR 1.5 crore at the NOI level, and the contribution of hospitality is only 3%. That was one-off occupancy issues in Oakwood, which we see gearing up in the coming quarter.
Oakwood, as you perhaps know, is a long-stay hotel. It's not like a normal one-day, two-day. It's a long stay. People, when they come on a transfer, especially expats, instead of hiring or staying in a hotel, they would stay in a suite which has cooking and eating facilities. That's the kind of hotel it is. I think we did see a bit of a slowdown happening in terms of expat arrivals for the IT business. That we did see, and hopefully that will correct itself. Like we also said, I think it's too small a part of our business really. We do manage it as well as we can.
Thank you so much. That's super clear. Again, congratulations on this quarter as well as the outlook that you have provided. It looks very good.
Thank you so much.
Thank you.
Thank you for your time.
Thank you. The next question is from the line of Parvez Qazi from Nuvama Group. Please go ahead.
Hi, good evening, and thanks for taking my question.
Yes.
The first question is regarding the NOI growth for this quarter. Is it possible to kind of break it up into rental increase, CAM margin, et cetera?
Yeah. I did that. I think in one of my earlier answers, I had said that. Basically, 90% of our NOI comes from rental, and the balance 10% comes from all the other revenue streams. If you look at the growth, rental growth has been around 7% odd, and overall growth is 8%, which means that the balance 10% has grown faster. Yeah. That's roughly what it is.
Okay.
All the other, this is marketing, there is parking, CAM. There are lots of other revenue streams, smaller revenue streams. They all add up. The fact is that we took a hit on the revenue share, otherwise it would have been around 8.5%-9%, because the growth was lower. That's why we ended it around 8% for the retail business.
Sure. And you mentioned that apart from the assets which are at the due diligence phase, we also have five other assets which are in the pipeline.
Yes.
Possible to get some color on the total cumulative area of the five pipeline assets?
Won't want to do that just now, Parvez, primarily because of the fact that it is still at a stage where we don't want to get into specifics. Unlike the first five assets that we've spoken about, where we are particularly happy to share that data to some extent, here, I think it is still at a preliminary stage, but these are assets that we are seriously looking at.
Sure. For the five assets which are in the due diligence stage, cumulative area is about 1.8 million sq ft, which suggests average size of about 0.3, 0.4 million square feet. Is that our sweet spot, or are we okay at looking larger malls also?
We're looking at larger malls as well, depending on market, et cetera, as to how big it is. If you look at Select Citywalk, which is our best performing mall, it is only half a million sq ft, 500,000 sq ft. Bhubaneswar, which is again one of our best performing malls, is only 450,000 sq ft. I think there are horses for courses. We have to see what works, what doesn't work. At times, what also happens is that you may get, let's say, a basket of assets. Some of them will be brilliant, some of them will be mediocre, and there'll be a couple of laggards as well. Because you're buying it as a basket, that's the way it could happen.
But by and large, our philosophy has been to look at assets which are, A, reasonable size, B, have been under-managed, C, are under-leveraged, both in terms of investment on the physical asset as well as marketing, and last but not the least, is to improve the brand composition of that mall. So how do we get in better brands? And a classic example is Vega City Mall, which we acquired in the south, in Bangalore. When we acquired, I think the occupancy was around 72%. Today it is 92%.
And we've got some of the best brands to be there. H&M opened, Starbucks has opened, and a lot of new brands, first time in the city, brands have opened there. And the mall is doing extremely well. And people would say, "Oh, is that asset small or big for that market?" I think it really depends on what is our ability to turn around some of these assets. So that's really, in short, what I would say.
Sure. Thanks, and all the best.
Thank you so much. Thank you for your time.
Thank you. Participants, you may press star and one to ask a question. The next question is from the line of Sarvesh Gupta from Maximal Capital. Please go ahead.
Good evening, sir, and congratulations on a good set of numbers. Sir, firstly on this NOI pipeline of five years, where you are budgeting a 16% CAGR. Given the spread that you will be getting, and these are probably not so well-run malls, my guess is that the DPU or the NDCF should also increase at least in double digits. Is that right sort of an assumption?
Sarvesh, we probably, at this point of time, won't get into specific DPU guidance. We'll take it on a case-by-case basis as we keep announcing transactions. Therefore, for now, if we can leave it at the broader strategy that we're aiming for.
Understood. Sir, in general, where I was coming from was, if I look at last decade, I think in general, real estate was down in the dumps, and there were a lot of problems at the promoter levels, and that would have helped you sort of acquire some of these assets at reasonably better prices. Even in the pipeline, I see at least seven malls were acquired during the COVID year where, of course, players like you who had the liquidity had a big advantage over other offline mall owners, et cetera. Right?
Now, apart from that, we have done maybe one asset per year. Going forward, this cycle has now changed, number one. Secondly, the liquidity situation has also considerably improved for many of these players in other sectors who might be promoters of such malls, including mostly real estate players. In that sort of a situation, how do we see this sort of an acquisition pipeline working out at attractive sort of a yield for us?
Sarvesh, I think what we continue to see in the market is that a lot of these assets and the owners that come to us are coming in because assets are non-core to them. It's the fourth or the fifth class of asset that they own, and they probably want to get rid of that so that they can focus on the core business. The second kind of seller that we are getting is a large kind of families with multiple owners of the asset, with multiple generations actually owning the asset, and therefore, as they look at future ownership and lineage within their families, they think about divestments, and therefore looking at selling some of these assets. The third kind of people that we are getting are the guys who actually want to swap for the tax benefits. They own standalone malls.
They aren't able to attract the best tenants. They aren't able to get the best advertising, leasing, and even some of the CapEx that is spent isn't as prudent. So they believe that instead of owning one or two assets, it's best to own it as part of a larger, professionally managed portfolio. That's what Select did. I think we are getting a lot of queries wherein people really want to swap in. They may not need cash today, but it creates a lot of liquidity, especially when there are multiple owners to the asset, and each owner has a separate exit in mind.
Understood. Since there will be a sort of a cap on the number of acceptable properties like such, which maybe we will be able to run through them over the next five years. But beyond that, I think greenfield would be the way to go. But land prices in cities are also at crazy prices in general. So if you were to go for greenfield, then at least the yields in the first several years would be considerably depressed. So how does one solve for that? Are you guys also working on that front? Are you getting some sort of a satellite, sort of a model in place, which will probably help at the overall trust level? So how should we think about that?
Like Dalip indicated earlier, when we do greenfield, first of all, it will be very selective in select markets where we feel that there isn't any supply of good malls available or there's somewhere demand is great, but someone's not willing to sell. These are the markets that we'll target, again, on a very selective basis. As we look at greenfield, et cetera, we probably with the regulations around REIT, we may not be able to do all of it at a REIT level from day one. So we'll have to structure it appropriately, wherein things are built to your specs and you get ownership of the asset in the future. We look at forward purchases so that the outflow initially is minimal and you are able to still participate in designing the mall, getting it up as per your specs, and then leasing it out from day one, which has been historically our strength.
And you expect that even in those forward purchases, in the initial years, they would not be lesser than, let's say, the DPU yield or something like that?
That's for greenfield. Like I said, if it's structured appropriately, it shouldn't be dilutive.
Understood. Finally, one question on your data strategy. A large part of it is floating. What is the thought process behind it and how do we look into it? Because that also possesses a risk for us. Why are we not going for more longer tenure fixed, or are we taking an interest rate call here?
Sarvesh, it's Rajesh here. I think good question. What we are seeing is interest rates peaking throughout FY 2024. There was some guidance that last quarter it might soften, but hasn't happened. These are good times to have a floating rate, and we are waiting for the right time to take this opportunity. Because doing a fix now is locking yourself for a three year or a four year in CD or a debt. We will see as we go ahead. As and when the right opportunity comes, we will take that benefit.
Understood. This 1.8 million sq ft that is under due diligence, this should add at least a double-digit number to your NOI itself, right? Given that these would not be probably as productive in the initial years, but still they should add at least a double-digit number to your NOI.
Hello, ladies and gentlemen. The line for the chairperson has been dropped. Please stay connected while we connect the line of the management back. Ladies and gentlemen, the line for the management has been reconnected. Mr. Gupta, can you please ask the question once again?
Yeah. So this 1.8 million sq ft, which is under due diligence, which is around 18% odd growth to our existing sq ft of retail space. That should at least add a double-digit growth to our NOI. That itself should add double-digit growth to NOI next year?
It depends on where it is consummated and how fast we integrate it, because like I said, especially the Hyderabad one, is an unleased asset, so integration is important there. But yeah, on a stabilized basis, we should add the kind of growth that you indicated.
Okay. Thank you and all the best.
Yeah.
Thank you. Participants, you may press star and one to ask a question. Thank you, ladies and gentlemen. As there are no further questions, on behalf of Nexus Select Trust, that concludes this conference. Thank you for joining us, and you may now disconnect your line.