Ladies and gentlemen, good day, and welcome to the Earning Conference Call of Nexus Select Trust for Q4 FY 2024 and FY 2024. 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 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. Pratik Dantara, Head, Investor Relations and Strategy from Nexus Select Trust. Thank you, and over to you, sir.
Good evening, everyone, and thank you for joining the earnings call of Nexus Select Trust. At this point, we 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 and pro forma information that we will provide on this call are management estimates based on certain assumptions and have not been subjected to any audit review examination procedure. You are cautioned not to place undue reliance on such information, and there can be no assurance that we will be able to achieve the same.
Joining me today are Dalip Sehgal, Executive Director and CEO. Our CFO, Mr. Rajesh Deo. Our COO, Jayen Naik, and Chief Leasing Officer, Mr. Nirzar Jain. We will start off with brief remarks on our business and financial performance and then open the floor to questions. Over to you, Dalip.
Thank you, Pratik. Good evening, everybody, and thanks for taking the time out. My pleasure to welcome you all to the earnings update call for the fourth quarter of financial year 2024 for the Nexus Select Trust, India's first retail REIT. Before we delve into the performance, I wanted to spend a couple of minutes on the emerging macro trends in the retail real estate landscape in India. I think this would be useful as a backdrop. To start with, I would state that the longer-term fundamentals continue to be very robust due to favorable demand-supply dynamics driven by essentially four things, and let me take you through each one of them.
Number one, within the 14 cities that we operate in, the Grade A demand-supply dynamics remains extremely favorable for us, with virtually no Grade A space supply of new space coming into any of our markets in the next three odd years. That's one. Number two, our retail portfolio today stands up at 97.6% leased, which is about 480 basis points above the market. This is on the back of high-quality mall infrastructure, in-field city center locations, and best in class, if I may say so myself, management team. Three, international brands continue to expand their presence in India, with 25 new brands expected to enter in the calendar year 2024. India remains on top of the radar of international brands like Zara Home, Foot Locker, Galeries Lafayette, D&G, Sandro, et cetera, Dockers, YSL, Gucci Beauty, and I could go on and on.
Some of them are in discussion with us to open their first store in the country. Recently, a brand called NARS, which is from the Shiseido stable from Japan, opened their first store in Select Citywalk and is doing extremely well. The fourth one is about D2C brands like Nykaa, Lenskart, et cetera, which were basically online players, have gone and opened stores and continue to do so quite substantially. Nykaa, for example, has more than 170 stores, physical stores, Mamaearth, in a very short period of time has done more than 170 stores, and so has Lenskart, CaratLane, and all of that. And we're also seeing some of the smaller, these are the known D2C brands. Some of the smaller D2C brands are also now going into an omni-channel kind of a model.
That's the fourth area why we believe that the future short to mid-term is still very strong. Now, getting into our performance for the full year, financial year 2024, it's been an excellent year for us, with strong operating and financial performance. We have achieved our projections for FY 2024, as were disclosed in our final offer document, and have ended the year with strong sales growth of 13% and a net operating income growth of 16%. Let me just reiterate, strong sales growth of 13% and very strong NOI growth of 16%. Our footfall growth during the year has been 7%, which, if you remember, in FY 2023, there was hardly any footfall growth in any of the mall businesses. This year, the footfall increases happened again through multiple marketing initiatives, festival celebrations, category-specific promotions, and so on and so forth.
This is important because the whole year, like I said, FY 2024, three-way sales were good. Footfall growth had been almost negligible. On the back of this strong operating financial performance, we are delighted to announce a third distribution of INR 3,168 million, translating into INR 2.09 per unit. Let me reiterate, third distribution of INR 3,168 million, translating into INR 2.09 per unit, which is ahead of our guidance and represents a 100% payout, as we had indeed said at the time of the IPO. Our total distribution for the period from the date of listing to 31st March 2024 now stands at INR 1,072 crores, translating into an INR 7.08 per unit. The NAV of our portfolio has increased to INR 145 per unit. Our total unit base since quarter one FY 2024 is also up 50%, and we have been included in the key global indices as MSCI and FTSE.
Let me share some category trends with you which we are witnessing across our malls. This would be of interest to you, I am sure. Categories like jewelry, electronics, beauty, personal care, family entertainment centers continue to do well. We have been allocating additional space to these categories, and we will continue to do so going ahead. In line with couple of quarters, we are witnessing moderate growth in certain value fashion brands. I think all of us are aware of the fact that that is where there is some pressure in terms of growth. I am sure that as we go into FY 2025 second half, this also will improve substantially. Let me now take you through some details of our performance in the fourth quarter. We closed the fourth quarter with tenant sales of INR 28 billion and clocked a growth of 9% year-on-year.
Remember, this is coming on a very high base of the previous same quarter. In our key markets of Mumbai, Bangalore, Chennai, we have witnessed growth much ahead of the market. In these markets, we have witnessed very strong double-digit growth versus the market, which is growing in mid to single high digits. Occupancy and demand continues to remain strong with most of our malls having a healthy wait list of brands, like I had mentioned earlier. At a consolidated level, our net operating income stood at INR 4.2 billion, reflecting a 13% year-on-year growth. So 9% growth on top line and a 13% profit growth. Let me now walk you through two very critical parts of our business, which is leasing and marketing.
On leasing, what is our strategy? With strong demand from tenants, our leasing occupancy now stands, like I said earlier, at an all-time high of 97.6%, which is 130 basis higher than where we were last year, same time. We ensure timely openings of our stores and our trading occupancy now stands at excess of 96%. In FY 2024, we have leased 1.1 million sq ft, out of which 0.6 million sq ft is area re-leased on expiry, 0.2 million sq ft is area re-leased before expiry through active tenant discussions, and the balance is fresh leasing. We have achieved 21% re-leasing spread in FY 2024 on 0.8 million of re-leased space, which is in line with what we had indicated in our projection. If you remember, in our prospectus, we had said we will get a re-leasing spread of about 20%. We have done better than that.
We have a stable leasing expiry profile with average annual expiry of about 0.8 million sq ft over the next three years, and roughly about 10% of our rentals come up for renewal every year. Hence we are fairly confident of achieving more than the 20% re-leasing spread that we had indicated at the time of the final offer document. We will continue to proactively churn and resize underperforming categories through grants ahead of this expiry. On slide 20 of our presentation, which has been circulated to you, we have presented a few cases where we have achieved significant re-leasing spreads through active lease management during contract tenures. This was on leasing. Coming to marketing and our activation strategy, which is very critical. Remember, we have 130 million footfalls across our assets. Our size and scale allows us now to plan for pan-India promotions.
In FY 2024, we have published more than 1,000 print ads because as part of our acquisition strategy, we actually invest behind not just upgrading the assets, but also in terms of marketing to bring in better quality and more footfalls. We also launched multiple digital campaigns, reaching 600 million eyeballs. During this year, we kept our focus on promoting several categories through initiatives like Gloss Box, Tech Station, Denim Fest, Sneaker Fest, et cetera. We also, if you remember, had Mr. Bachchan as our brand ambassador till recently, and that also helped us in our growth strategy for last year. We also organized multiple ticketed events in FY 2024. All this, like I said, resulted in more than a 7% growth compared to last year. We are now thrilled to reintroduce Ayushmann Khurrana, who used to be our Happyness Ambassador.
He is back with us, and his captivating persona not only adds credibility to Nexus, but also resonates a commitment to spreading joy and happiness. As you know, Ayushmann has exceptional entertainment skills, making him the perfect fit for Nexus' pursuit of happiness. Join us in embracing this infectious energy as we set out to regale our customers with his performances across our malls, and we embark on a journey filled with smiles and positivity. Also, I think one very important technology initiative that we have extended to eight malls in total is the Nexus One app. I think we spoke about it last time as well. We do believe that technology will be a big differentiator for our business as we go into FY 2025 and beyond.
We have received very good traction on the app with more than 2 lakh, 30,000 downloads, 1 lakh 65,000 sign-ups, and consumers who have contributed 7.4% of tenant sales in these malls in very early time. We will expand this to all our malls in FY 2025. This will give us not only very rich consumer insight and data, but will also help consumers in terms of both figuring out way finding. So if you are in a million-square-feet mall and you want to know where Viva is, the app actually directs you like Google Maps does to where the store is. We also have a loyalty program in the app. So if consumers can update their bills, and then they can, over a period of time, build points and then redeem them. Coming to part two of my speech, this is about the business model. As you are aware, our business model is unique and different.
We acquire assets that have been either under-invested and/or under-managed. With our capability to invest in upgrading assets, bringing in relevant brands, investing in appropriate marketing, reducing costs, given scale, we are able to significantly enhance the value of the acquired assets. The acquisition of three malls in South India, which is now, as we all know, in Hyderabad, that we have been indicating is now in the advanced stages and expected to close soon post obtaining regulatory approvals. Considering the low LTV of 14%, the acquisition would be fully funded by debt without any equity dilution. We intend to leverage our in-house expertise and skills to turn around these three malls. We have already started planning for the integration, and the strategic initiatives have been identified. We expect the acquisition to be DPU accretive from FY 2026 onwards.
Talking about our robust balance sheet, we are armed with a war chest of close to $1 billion for acquisitions on the back of a low LTV of 14%, something that we had mentioned at the time of the IPO as well. We have recently refinanced debt of about INR 9.5 billion at a debt cost of 8.1%, resulting in an annual saving of INR 40 million. With this, our in-place average debt cost has reduced by 10 bps to 8.1% with dual AAA stable credit rating. That's a big achievement. We also recently strengthened our management team and inducted Mr. Gautam Vaswani, who joins us as Head of Business Development and Expansion. He's a veteran in the retail real estate sector with experience of over 28 years and has been involved in 20 retail-centric assets at various stages of development. Welcome to Gautam.
ESG continues to be an area of focus. Currently, we have over 38 MW of renewable energy capacity installed. During the last year, we commissioned a 4.2 MW hybrid solar and wind power energy plant to generate over 75% of renewable energy consumed at Nexus Ahmedabad One. Further, our 3.3 MW wind energy plant in Chennai has also been completed, which will result in cost saving of approximately INR 70 million per annum, and will give a yield of over 20% on our investment. The project commissioning will go live in this quarter. To summarize now and to end, our FY 2024 performance has been excellent, and the outlook for FY 2025 looks good. Leasing demand for our assets continues to remain robust, with both international and domestic tenants expanding their footprints and favorable demand-supply dynamics. Consumption growth in FY 2024 has been resilient at 13%.
Our NOI growth was 16%, in line with our guidance, and we expect to achieve our numbers for FY 2025 as were disclosed in the final offer document filed at the time of listing. We have now announced our third distribution of INR 2.09 per unit, taking our full year distribution to INR 7.08 per unit, outperforming our guidance. For FY 2025, we expect distribution growth to be 9%-10% over the full year FY 2024 number mentioned in the final offer document at the time of listing. Lastly, our strategy for inorganic growth in the portfolio is active with a healthy acquisition pipeline and a strong management team, which gets further strengthened with the joining of Gautam. We look forward to closing Hyderabad's acquisition post obtaining regulatory approval. Once again, I thank you all for your continued support and belief in our path of growth and value creation.
With this, let's now move on to the Q&A. Pratik.
Thank you very much. We will now begin the question and answer session. Anyone who wishes to ask questions may press star and one on their touchtone telephone. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use handsets while asking questions. Ladies and gentlemen, we will wait for a moment while the question queue assembles. To ask questions, please press star and one. Ladies and gentlemen, to ask questions, you may press star and one on your touchtone telephone. The first question is from the line of Akshay Kothari from JHP. Please go ahead.
Yeah, thanks for the opportunity and congratulations on meeting all the guidance, sir. Sir, what would be our LTV post-acquisition?
Post the Hyderabad acquisition?
Yeah.
Okay, let me hand it over to Pratik.
Hi, Akshay. It would be around 17%, 18%.
Okay, so still we would be having a lot of headroom.
Yeah. We currently are at 14, so even at 18, we have enough headroom.
Yeah.
Okay. Sir, pardon me for my ignorance. I am pretty new to this sector. But in a scenario wherein interest cost goes up and rising interest rate scenario, our borrowings would be going up, but since we are having pretty less borrowings, so we would be pretty much insulated, right? The dividend DPU won't be dropping, right?
In a rising interest scenario, the interest cost, debt cost obviously goes up, which impacts the absolute distribution. But like we've said, we have budgeted for interest cost. When we did our IPO, we had budgeted for interest cost at 8.5%. We've ended FY 2024 with interest cost of 8.1%. We are already ahead in terms of our interest cost savings.
Okay.
Nexus, another question. Is there some element of seasonality? Because in last quarter, our trading density was around INR 1,800, and this quarter it's around INR 1,500.
Very good question. Yes, it is indeed there, because if you know, quarter three is when we have all the festivals in India, Dussehra, Diwali. We also have Christmas, New Year. Yes, that is typically the best quarter in terms of absolute values and trading density for the retail industry. Yeah, absolutely right. That's a great.
We can expect that quarter three, the distributions also could be much more than the rest of the quarters.
That would be speculative. We do not want to get into that. All that we are saying is that as far as FY 2025 is concerned, whatever we had put down in our FOD, final offer document, we should be able to meet that.
And sir, I was just reading the DRHP as well, and we have mentioned that UCCs have a lot of advantages compared to high street and other Grade B, Grade C malls. What is generally the premium which our Nexus or Grade A malls would be trading compared to high street?
Okay. This is the last question, then we need to move on. Nirzar, can you take this question now, please?
Sure. Hi, this is Nirzar. In terms of trading, I think different high streets represent differently. But at the overall scenario, I think malls trade better. There may be individual examples of some high street or some locations doing better. But generally, the malls bring a different experience to the fold and trade at least 15%-20% better.
Okay. Thanks a lot, and all the best.
Thank you so much. Thank you for your question.
Thank you. Before we take the next question, we would like to request participants to please limit your questions to two to three questions per person. Should you have a follow-up question, we request you to rejoin the queue. We take the next question from the line of Jatin from Bank of America. Please go ahead.
Hi, Jatin.
Thanks for the opportunity. Hi, sir. My first question, could you please help us revisit the breakup of NOI growth that you saw in FY 2024 of 16%? Say, in terms of vacant de-lease up, new rent commencements that were due, MTM incremental revenue share. Similarly for FY 2025 guidance, if you could help break that as well into these components.
Okay. I am going to ask Mr. Rajesh-
Yeah.
to take this up.
Out of the 16%, basically 12% is coming from increase in minimum guarantee. If you look at the MG, that has three, four components, escalation, renewal, occupancy ramp-up, and some vacancy. Out of this 12%, escalation is around 4%. Your renewal is 3%, seven, and the balance is coming from occupancy ramp-up. So 12% on the rental income growth. Revenue share is around 2%. CAM margin, what we kind of recover for maintenance expenses, we earn a margin there that contributes to about 3%. So 12% + 3% is 15%. Another 1% comes from all other activities between marketing, parking, and other revenues.
Jatin, just for the projection, I would say that it is about 9% NOI growth for us. I think like we have indicated in the past, about 5% will come from contractual escalations. 10% of our rentals expire every year. If you see our expiry schedule that we have disclosed, we earn a 20% mark to market on that. So you get a 2% there. So 5% + 2% is 7%. The balance 2% comes in from a combination of rev share and other initiatives plus other assets. So that gives you another 2%. So that is the 9% breakup for FY 2025 guidance.
Understood. Thanks a lot. That was really helpful. Second question. Do you think consumption growth bottomed out for you last quarter at 8-odd percent, and it could accelerate from here on? Some of your malls are growing consumption at double digit, and you would be expecting some of the remaining malls to play catch-up as well. I am guessing some of those are the Bengaluru ones. So could the consumption growth accelerate from here on?
Let me answer this in two parts. The first one, obviously, is the fact that I think our overall consumption growth has been very healthy, both in FY full year as well as in quarter four. In terms of, is it bottomed out? I honestly not very clear what would we mean by that. If I look at the fundamentals of how consumption operates, as long as the GDP growth is upwards of 6%, inflation is below 6%, there is no reason why you would not see in India a consumption growth of high single digits. There is no reason at all, whichever be the category.
My sense is that, first of all, I do not know bottoming out, but the fact is that I think the macros all indicate that the growth in FY 2025 should be good. There may be some amount of variance that happens between months and quarters, depending on various scenarios. But overall, like we have said, I think we will more than meet our projections for FY 2025 as far as consumption is concerned.
Understood. Great. That's really helpful, and thank you a lot.
Thank you. Thank you so much for your question. Thank you.
Thank you. Before we take the next question, a reminder to participants that you may press star and one to join the question queue. The next question is from Parvez Qazi from Nuvama Group. Please go ahead.
Hi, good afternoon and thanks for taking my question.
Good afternoon.
First question is, I missed the number for the footfall growth that you had given for FY 2024.
7%.
Sure. Secondly, beyond the Hyderabad mall, what is our outlook towards future acquisition? Would we continue to target, let's say, a 1 million square foot number every year, or we can aim higher also?
Sure. Let me just take this on. I think at the time of the listing, we had basically indicated that over the last six, seven years, we've added roughly 1.5 million sq ft to our portfolio every year. And we do think that's possible as we go forward into the next three to five years as well. As far as apart from the three Hyderabad malls are concerned, yes, I think we have interest from other developers as well. Just to reiterate, India has about 110 odd A-grade malls, out of which 45, 50 are with the bigger guys, which is the DLF, Phoenix Mills, et cetera. And the rest, which is about 60 odd, are with people who have a single, or maybe a couple of assets, and for them, as you know, the mall business is not core to what they do.
It is possible that they would look to sell. So that is our catchment really in terms of from where we acquire. And I think we have fairly good traction. Also, I think for a single mall owner to be part of a much larger, let's say, portfolio is beneficial because you're de-risking your business from being a single mall owner to being part of a much larger group. I think our management skills and capability, because we have size and scale, is also very good. And REIT as an instrument allows people to convert their physical asset into financial assets without any implication as far as capital gains tax is concerned. Also, the distribution is almost two-thirds tax-free.
From all perspectives, I think REIT is a good instrument for people to roll in, and we do hope and expect that over a period of time they will continue to do so.
Sure. Lastly, any thoughts about greenfield retail development?
We are not averse to it. I think we must recognize the fact that our core model is still acquisition, but there could be markets or there could be opportunities where it makes a lot of sense for us to at least evaluate greenfield projects or brownfield projects, and we would certainly do that.
Sure. Thanks and all the best for future.
Thank you so much for your question. Thank you, Parvez.
Thank you. Participants who wish to ask questions, please press star and one. Ladies and gentlemen, to ask questions, you may press star and one on your touch-tone telephone. The next question is from Praveen Choudhary from Morgan Stanley. Please go ahead.
Hi. Thank you so much for taking my question.
Hi, Praveen. Hi.
Hi. Thank you so much for taking my question and also great presentation.
Praveen, you are not clear. You are not audible, Praveen. There is something wrong with the line or with your mic.
Praveen, if you are on a hands-free, request you to use the handset.
Okay, let me try. One second. Can you hear me now?
It's a little muffled, Praveen, your voice, but-
Let's try. It's okay. Let's try. We'll try and hear you.
Okay. Thank you so much. I apologize if the line is not clear. I just wanted to congratulate you for good results and also thank you for taking my question. I have two questions. The first one is related to the DPU guidance for FY 2025. If I look at the fourth quarter number and annualize it, from that point to FY 2025 growth, I just wanted to get what will that be to the midpoint of your guidance. And it sounds like you can beat that based on the trajectory of consumption. So I just wanted to see if low expectation and the actual reality could be better. So that's why FY 2025 DPU growth. And the second question I have is, there have been some consumption downgrade in certain areas. I understand in malls things are better. I just wanted to understand how do you see overall consumption trends in India and the impact on your business. Thank you so much.
Okay, let me take the second question first, and then I will pass it on to Pratik to answer your first question. As far as consumption is concerned, you have seen the numbers. I think at 13-odd percent, it is pretty decent. Even last quarter at 9% was pretty good. Like I mentioned earlier in answer to some question, as long as the macro indicators in India are good, you have GDP growth in excess of 6% and you have inflation below 6%, fiscal deficit at 4% or 5%, I think we are in for a very good consumption period in the years to come. There will always be some variances that may happen from month to month or quarter to quarter. But I think mid to long term, the outlook on consumption is still very strong.
You do a simple number and you say if inflation for our kind of product is between 5% and 6% and real GDP growth is at least 6%, then you are looking at high single-digit growth, at least as far as consumption is concerned. So to answer your question, I think we will still see a pretty strong growth as we go forward.
Okay. Pratik?
Praveen, let me try and answer this in two parts on the DPU front. We have distributed about INR 2 per unit every quarter. That would mean about INR 8 annually. Our INR 8.7, INR 8.8 guidance would mean a 9%, 10% growth over that. The other way to cut data would be if you take it from the period of listing and you analyze the number INR 7.08 per unit and you analyze that, you get to a number of about INR 8.15. An INR 8.7, INR 8.8 on an INR 8.15 would mean a 7%, 8% growth. That is how we would probably try and cut data on the DPU front.
This is all organic growth.
Thank you so much, Pratik.
Yes, this is all organic growth. This is no bolt on, no acquisition. This is all organic.
Thank you for that. Can I follow up on that acquisition then? You did mention that there are 60 malls out there-
Yes.
that can be a candidate for your very robust balance sheet.
Yes.
How do you understand the urgency and the timeline on an annual basis, if that is where the growth is coming from in terms of acquisition?
Praveen, I think your voice is not. Praveen, if you could just repeat what t he last bit. We didn't understand about greenfield.
Yeah, let me repeat. I was asking the question about acquisitions.
Yes.
Because you said you have 60 malls out there who you can acquire.
Yes.
I just want to understand the speed at which you want to do that. Obviously, pricing is very important, but given the pricing is better, would you be doing it one mall a year, 1 million sq ft a year? What is your steady state growth through acquisition in your-
So, I have understood your question. I think if you reflect back on what we said same time last year at the time of the final offer document, we had basically indicated that over the last six, seven years, Nexus as a platform has added 1.5 million sq ft a year. And we do hope to, there is no guidance or anything, we do hope, because we do not know on the acquisition front, we would hope to add at least a similar number as we go forward into the next three to five years. So that is part one. On your greenfield question, like I said earlier, I think in some cases where there may not be anything up for acquisition and still it is a very important market for us, we may look to do greenfield as well.
Okay. That is very clear. Thank you. Thank you very much for completing the question and-
Thanks so much. Thanks, Praveen. Thank you.
Thank you very much. That was the last question in queue.
Thank you.
We would now like to hand the conference back to the management team for any closing comments.
Thank you everyone for joining. If you have any further questions, do reach out to us. We will be happy to answer. Thank you.
Thank you very much.
Thank you.
On behalf of Nexus Select Trust, that concludes the conference. Thank you for joining us, ladies and gentlemen. You may now disconnect your lines.