Ladies and gentlemen, good day and welcome to the Earning Conference Call of Nexus Select Trust for Q3 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 touchtone 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 this third quarter 2024 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 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 are management estimates based on certain assumptions and have not been subjected to audit, review, or examination procedures. 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, Mr. Jayen Naik, and our Chief Leasing Officer, Mr. Nirzar Jain. We will start off with a brief remark on our business and financial performance and then open the floor to questions. Over to you, Dalip.
Thank you, Pratik. Good evening, everyone. It is my pleasure to welcome you to the earnings update call for quarter three FY 2024 results for the Nexus Select Trust, India's first retail REIT. Before we delve into our quarterly performance, I wanted to spend a couple of minutes on the emerging macro trends in the retail real estate landscape in India. To start with, I would state that the fundamentals continue to be very robust due to favorable demand-supply dynamics driven by essentially four things. One, demand in retail for graded space remains extremely strong at 10 million sq ft per annum. This compares to a modest graded supply of 3 million-5 million sq ft. Number two, India remains on top of the radar of international brands like Tiffany & Co., Apple, H&M, Tim Hortons, Pret A Manger, et cetera. Similarly, domestic brands continue to expand their footprint in India.
As per recent leasing market sentiment survey done by CBRE Asia, more than 80% of retailers are looking to add more stores. Three, increasing mix of demand from luxury brands contributing to 9% of total absorption compared to 4% or 5% a couple of years ago. Finally, pivot towards omni-channel is gaining momentum with several digital-first brands like Neeman, The Souled Store, The Sleep Company, Mokobara, Snitch, Tira, et cetera, setting up offline stores. Let me now share some category trends with you that we are witnessing across our malls. Categories like electronics, jewelry, multiplexes, and family entertainment centers continue to do well. We have been allocating additional space to these categories, and will continue to do so going ahead. Growth within the hypermarket category continues to be moderate, and we are actively discussing with the brands that are operating in this category to resize and repurpose their space.
In categories like fashion and accessories, we have witnessed some moderation in growth, primarily on account of a few factors. Number one, high base impact, where last year, post-COVID, these categories witnessed huge surge in consumer spends. Number two, emergence of new competition. For example, within the value segment, we have witnessed increased competition from new brands like Intune, Yousta, StyleUp, Style Union, EasyBuy, et cetera. Legacy brands are seeing lower growth, while newer brands like Zudio are doing well. Number two, for example, the beauty segment, existing brands are also facing competition from brands like Tira, SS Beauty, Tata CLiQ, et cetera. New international brands like Pret A Manger, Tim Hortons, and Paul have increased competition within the F&B space. Three, excessive expansion of brands post-COVID, wherein they have substantially increased their store counts.
Coming to the Q3 performance, I am happy to report that we have witnessed our highest-ever quarterly tenant sales and highest-ever occupancy. During the month of December 2023, nine out of our 17 malls achieved their highest-ever tenant sales. During the quarter, we have also been included in the FTSE Global Equity Index Series, which takes our total tally to four key global indices across MSCI and FTSE. Let me now take you through some details on our performance in this quarter, which is in line with the projections as mentioned in our prospectus. We closed the third quarter with tenant sales of INR 33 billion and clocked a robust 8% year-on-year growth. Remember, this is coming in on a very high base of last year, which had grown, that same quarter, grown at 28-odd percent, and 14% year-on-year tenant sales growth.
The nine-month growth is 14%, quarter growth is 8%. This is significantly higher than the market, almost twice as much as the market. In the last nine months, footfalls across our malls have grown at 8% on a year-to-year basis. In our key markets of Mumbai, Bangalore, and Chennai, we have witnessed growth much ahead of the market as per whatever data is available. Occupancy and demand continues to remain extremely strong with most of our malls having healthy wait list of brands. Number four, at a consolidated level, our NOI stood at INR 4.2 billion, reflecting a 14% year-on-year NOI growth. YTD, which is nine months, the NOI growth is 17%. Overall, we are on track to achieve our NOI projections for FY 2024. Number five, we are pleased to announce our second distribution of INR 303 crore, translating to INR 2 per unit.
Please note, these regulations require us to distribute 90% of the cash flows. However, we are distributing 100% for the period 1st October to 31st December. Number six, the acquisition of three malls in Southern India that we had indicated last time is on track to close post obtaining regulatory approvals. Let me now take you through some of the reasons for our good performance. Number one, our strong retailer relationships. We spoke about this earlier as well. Over the last seven years, we have built very deep relationships with close to 1,000 domestic and international brands through a key account management program. We opened 88 new stores across our malls in this quarter with brands like H&M, Simon Carter, Popeyes, et cetera, to name a few.
We conduct periodic retailer satisfaction surveys to build stronger and more productive relationships with our partners, and have consistently scored in the high 90% on this parameter. Number two, our strategy of leasing. With strong demand from tenants, our leasing occupancy now stands at an all-time high of 97.3%, which is 110 bps higher than last year same period. We ensure timely openings of new stores, and our trading occupancy now stands at 96%. We have leased 250,000 sq ft during the quarter, out of which 210,000 was on account of re-leasing at a spread of 26%. If you remember, we had indicated a 20-odd percent spread in our prospectus. We have done better than that.
We have a stable leasing expiry profile with average annual expiry of about 0.8 million sq ft, roughly about 10%, over the next three years, and we do hope to get 20% re-leasing spread as we had indicated earlier. We continue to churn and resize underperforming brands. Number three is the technology initiatives, very important. As you are aware, we get data from 90% of our retail partners on a daily basis through the automated daily sales report. Using this data, we can regularly evaluate the performance of every store, which enables us to make real-time changes in our decision-making across marketing, leasing, and our ability to introduce new brands, et cetera, helping us to drive better tenant sales growth and footfall. So these are the three things, strong retailer relationships, our differentiated strategy of leasing, and our strong technology initiatives.
Also, I think one very important technology initiative that we have now extended to five more malls is the NexusONE app, which was piloted in Nexus Elante in Chandigarh, and now we have gone to another five malls. By March of this year, we hope to take it to 10 malls. We have received very good traction to the app with more than 180,000 downloads, 120,000 sign-ups by consumers who now contribute between 5% and 7% of tenant sales in these malls. Coming to part two of my speech, this is about the business model. As you are aware, our business model is unique. We acquire assets that have been either underinvested and/or undermanaged. 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.
This can be evidenced by our performance of the last acquired portfolio of eight malls in South India, which is now leased close to 97%. We have invested time in identifying the gaps in the brand mix based on consumer research and insights, thus making it a more relevant and attractive proposition for that specific cash flow. Our focus is also on identifying underperforming brands and churning and resizing them. Our leasing efforts were backed with a series of marketing and promotional activities. The occupancy of these eight malls when we acquired them was 88%, and now, like I said, it's 97-odd percent. Corresponding growth in tenant sales is 50%, and the growth in NOI is 33%. That's classically how our business model works, which is that we acquire and we fix and we make sure that the assets are growing better than before.
Going ahead, for the three malls that we have indicated that we will acquire in South India post all the formalities getting over, we intend to leverage this in-house expertise and skill to turn around these three malls as well. Another trend that we are witnessing pertains to growth in Tier 2 cities in India. I think a lot has been said and written about it. The relatively smaller markets have fast emerged as catalysts for economic growth and employment, leading to a rise in disposable incomes. What has followed is a change in the consumption patterns, resulting in the change of retail dynamics of these cities. A striking example of evolving consumer patterns, consumption patterns in these cities is our Esplanade Mall in Bhubaneswar. In Esplanade, in the last nine months, we have witnessed tenant sales growth of 24%, and the occupancy now stands at 98%+ .
Talking about our robust balance sheet, armed with a war chest of close to $1 billion for acquisitions on the back of a still low LTV of 14%. 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 115 million. With this, our implied debt cost has reduced by 10 bps to 8.2%, with dual AAA stable credit rating and no near-term debt maturity. Finally, ESG continues to be an area of focus. We currently have 35 million renewable energy capacity installed, and in the current year, we have commenced construction of a 3.3 MW wind power plant, which will meet 60% energy requirements of a mall in Chennai. This project is expected to deliver savings of about INR 60 million EBITDA every year and will give a 20% yield on the investment.
Just to summarize, number one, leasing demand for our assets continues to remain robust with both international and domestic tenants expanding their footprints, and we are at 97.3%. Consumption growth in the nine-month period was resilient at 14-odd percent. Our NOI growth was 17% in the last nine months, in line with our guidance. We have now announced our second distribution of INR 2 per unit, and we remain on track to deliver full-year distribution. This takes the cumulative distribution since listing to INR 5 per unit. Finally, our strategy for inorganic growth in the portfolio is active with a healthy acquisition pipeline, and we look forward to closing the first acquisition post obtaining regulatory approvals. 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 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 touch-tone telephone. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use handsets while asking questions. Ladies and gentlemen, we will wait for a moment while the question queue assembles. To ask questions, please press star and one. The first question is from the line of Adhidev Chattopadhyay from ICICI Securities. Please go ahead.
Yeah. Good evening, everyone. Thank you for the opportunity. My first question is on our consumption now. Obviously, from a high double digit, we have now gone to a high base where we are at high single digit in this quarter at around 8%. Going forward, do you think that this is going to be the normalized trend as we head into next year? That is the first part of the thing. Second question is on our planned acquisitions in South India. Would these assets directly come into the REIT, or would you like to first spend some time doing some upgrades and maybe looking to change the tenant mix before integrating it into the REIT so that they start delivering better numbers from the get-go itself? Yeah. Those are my two questions.
Okay, great. Thank you for your question. Let me answer your first question on the consumption pattern. I think the fact is that after a very strong growth in Q3 last year, some moderation was expected. I think there is, like I said, some slowdown that may have happened in the fashion category, but we will just have to wait and see. One quarter does not make a year, so we just have to wait and see what happens. Going forward, please remember that in our projections as well in the IPO document, we have given a CAGR of high single digits in terms of consumption growth. So we are well on track to achieving this. I think clearly in the first half, we were way ahead, and even today at 8%, we are twice of the market growth.
In that sense, if you look at how our tenant sales have gone, companies that have reported sales so far, and some of the other players in our markets, clearly, we have done significantly better. To your second question, the malls that we acquire will all be acquired within the REIT itself. All the upgrades, tenant mix changes, et cetera, will happen within the REIT.
Okay. Fine, sir. That was all from my side, and wish you all the best.
Thank you so much.
Thank you. The next question is from Mohit Agrawal from IIFL. Please go ahead.
Yeah. Thanks for the opportunity. My question is actually similar to what was asked earlier, just a little more details I want to go into. Could you share as to between the consumption moderation that you have seen between premium and value? You mentioned about value seeing some moderation, legacy brands kind of reporting lower growth. Could you comment on the premium versus value? Where have you seen higher moderation, and does premium continue to do well, or you have seen moderation in premium as well? That is first. Secondly, could you also share what has been the footfall growth? Earlier what we had seen is that despite low footfall growth, the consumption was doing well. Basically, the people were spending more. Has that trend now reversed, and is the footfall growth now in line with the consumption growth?
Okay. I think both questions are good. Let me take your second question first. If you take the nine-month period, and the reason why I'm taking nine months is, there can be aberrations in a quarter, and ideally, I think we should look at slightly longer term trends. In the nine-month period, footfall growth has been 8%, whereas the sales growth has been 14%. That will give you a sense of what's happening on footfall as well as trend per footfall. Both have grown. 8% growth in number of footfalls and 14% increase in sales, which means that trend per footfall has also increased. That's your second question. Your first question was about premium brands versus, let's say, value brands. I think there's no short answer to this, Mohit. Have I got your name right? Yeah.
Yes, sir.
Yeah. Mohit, I think what has happened is that if you look at the premium brands, they've all done well. I think if you take electronics, if you take consumer durables, large screen televisions, mobile phones, the whole category has grown 20%+. If you look at jewelry, and despite the higher gold prices, jewelry has done well. All the premium brands in a sense, even watches to that extent, have done well. I think there is a set of consumers who continue to spend the way they were spending, in fact, perhaps even more. That's also getting reflected in categories that are outside the mall. For example, if you see travel, if you see airlines, if you see international excursions, holidays, et cetera, and real estate as well, the number of units that have got sold.
I think there is a set of people who are spending what they're spending. At the value end of the market, typically, that's how most markets behave. It is the value end of the market that does get squeezed to some extent. Like I said, fashion, which is now almost 40%-45% of our business, the value part of it is the one that has got squeezed, both from an overall consumption perspective and also from a competition perspective. To give you a sense, fashion overall grew at roughly 5% in the nine-month period and grew nothing, zero, flat in this quarter. But in the same quarter last year, fashion had grown 21%. We are coming off some very, very high numbers in terms of post-COVID growth.
And some of it, I guess, was projected, estimated, et cetera, because you cannot sustain in any category a 25%, 28% growth. So that had to be moderated. But I think basically what's happened is that in fashion, especially the mid and the lower segment, have not done as well as we thought they would. The top end of fashion is still doing well. I think all the brands in that segment have still done well. So that's roughly the short answer to your question.
Sure. Understood, sir. It is very clear. Sir, on the acquisitions, typically, on the Prestige acquisition, if I may ask, is it fair to say that now the entire turnaround and the reorganization that you had to do, is it now complete and it is there in the base?
Yeah. So the turnaround is complete, the growth is not. I think we continue to see very strong growth even in this quarter in the south, and it has been our best performing region even in this quarter. So to your question, yes, the answer is that whatever had to be done in terms of investment, we put in more than INR 100 odd crore, upgrading the assets. We put in a lot of money into marketing. We put in a lot of money into processes, technology, IT systems, et cetera. All that is done and dusted. And that is the reason why we're seeing a 50% growth in top line and a 33% growth in NOI. But going forward, I still think that those assets will still continue to grow quite well as we go forward.
Okay. And sir, just one last question on Select City, Delhi. The in-place rentals have been kind of flattish over the last year or so. So any thoughts on that? Is that how that market behaves, or is it particularly right now that the rentals have been flattish, and what is the outlook there?
Let me ask Nirzar, our Head of Leasing, to take that on.
Hi. I think in Select as well, we are witnessing good rental growth. Obviously, the rentals there are in the zone of between INR 800 and INR 900 on carpet, which is one of the best kind of rentals South Delhi kind of gets. We are seeing the demand for space continuing to be high. A lot of actually lease-up happened in the last year with the additional area. So there is not much activity in terms of new lease-up that has happened. It involved the flagship Apple store getting launched there, for which they had to relocate and create spaces. Some anchor movement that happened. As you see more vanilla stores coming up in the coming year and a half, we will see similar demand and traction in terms of growth.
Yeah, I think the demand.
So fair to.
The demand in Select continues to be very strong. In fact, there is a long list of brands that want to come in, both international as well as domestic. I think on the demand side, there is nothing. It is probably the timing of it, as Nirzar explained, which is probably the issue.
Fair to assume, sir, a mid to high single digits like- to- like rental growth there?
The rent growth will overall be in line in terms of high double digits.
Okay, perfect. Thanks a lot. Those were my questions, and all the best.
Thank you. Next question is from Puneet Gulati from HSBC. Please go ahead.
Yeah, thank you so much. My first question is on your acquisition. If you can comment upon how big is the acquisition likely to be, and then what kind of debt/equity mix are you likely to undertake for that?
Okay. It's a 1 million sq ft acquisition. As you know, our current total portfolio is about 10 million. So it would add about 10% to our portfolio. We are currently 17 malls, three more. So we'll be 20 odd malls post the acquisition. In terms of debt and equity, I think it is not clear as of now because the deal has still not got ratified, and as soon as it does, we will let you know.
Thank you.
Pratik, you want to add something? Pratik or Rajesh, you want to add something? Yeah, Pratik?
No. Puneet, I think from a deals standpoint, we are still under D&D with the sellers. At this point, we might not be able to comment on the value. But like Dalip mentioned, it is a 10% addition to the area that these assets give us.
He is asking about debt and equity.
Okay, understood. On your Prestige assets, you said that there is still room for it to grow above normalized run rate. How long do you think it will take for these assets to normalize and then go to a more regular run rate? Do we have a one year or two year kind of runway here?
I think what is important for us to understand is that what is normal, and in which kind of markets are we operating. If you take the portfolio, it is in Hyderabad, Bangalore, it is in Chennai. All these markets, in a sense, the economy is doing very well, thanks to the IT growth, et cetera, younger people, lots of families.
Yes.
All these markets are growing well, right? There is no one-size-fits-all. If overall we grow at 8% or 9%, south will also grow at 8% or 9%. In fact, even in the non-south portfolio, there will be markets like I said, Bhubaneswar, which is growing at 28%. There is Seawoods, which is growing at 20%, Navi Mumbai. One of the fastest growing malls in Mumbai metropolitan region. It depends entirely on the micro market and the growth that is happening in consumption over there, which is obviously dependent on how per capita incomes are moving, how a new set of families are moving into those areas, et cetera. At an overall level, I think there is still growth left in the portfolio, and certainly for the next couple of years.
For your big assets, which is Select City, Elante, do you think there is enough room for footfall to grow as well? The physical infrastructure may not necessarily be a constraint in terms of parking, et cetera?
I think two questions. You said, is there enough potential for growth in footfalls or not?
Yes.
Obviously, the Select City growth, as you would have seen in the numbers of [inaudible] , has been pretty robust. I think the whole strategy of having brands like Apple coming in, larger stores for Nike and Adidas, new restaurants, bigger F&B, and a lot of new international F&B brands, I think that's helping. It's clearly a fast growth market for us. As for the second question, is parking, is it?
Yes.
Yeah, parking is a bit of a challenge. I think in most of our malls, I think we have adequate parking. But yeah, in some cases it can be a bit of an issue.
For the larger ones, Select CityWalk, Elante, Seawoods.
There is no issue. Seawoods has lots and lots of parking space. So does Elante. I think Elante also there is no. But I think the only question is that, look, even to ease that whole process, one of the things of parking, which is a pain point for before you go to malls. The key is that with the app, you can now actually pre-book your space. We have fast tag everywhere and all. So the entry/exit is much faster than what it used to be. So the churn of vehicles is much faster. Queuing is less. Also, the app allows you to figure out where your car is parked, so you don't have to waste a lot of time. So in whatever way we can, we are also trying to help the customer to enter and exit more comfortably than before with using whatever technology.
As we go forward, I am sure there is so much happening in this whole area of parking that we will find new ways of easing this pain.
Puneet, just to add, going back to your previous question on growth. I think in the Prestige acquisition, now that we are 97% occupied. I think the whole Trust is now to talk to underperforming brands, trying and churning them out, trying to get better performing brands, trying to get more premium brands in. These are the trends that we are seeing in the market, right? The whole thing around filling up space is now behind us. Now it is about just getting the quality of tenants in, the tenants that will get you growth, the tenants that will get you better rentals. I think that is the area that we will focus on in the Prestige portfolio.
Yeah.
Okay.
The consumption growth continues to be a key priority for the business. We will continue to focus on making sure that the consumption growth continues at a reasonable clip.
Understood. That is very useful. Thank you so much, and all the best.
Thank you.
Thanks.
Thank you. The next question is from Praveen Choudhary from Morgan Stanley. Please go ahead.
Yeah, hi. Thank you. Hi, Dalip. How are you? I have a couple of questions. Thank you for taking my question. Let me just open quickly. Sorry. My computer froze. I will have to use my memory. I had a simple question about turnover rent, if you can share for 3Q or nine months, if that's easy to share. The second question was, like other REITs, you don't have that long a history. I want to understand, imagine next year you have the NOI growth of 10%. Would it all translate into dividend growth, or there would be things that could challenge it? I see that interest expense is actually declining rather than going up as you are refinancing. That should not be a problem. That was another question I had. The last question I had about the acquisition.
In case of Hyderabad, a lot of data is available in the media. You can take a hypothetical case to explain us. When you do these kind of deals, how does it become accretive? What numbers you look for, either from a return perspective or being accretive. Just we understand that what kind of accretion that you have done to bottom line to us. Thank you so much.
Okay. Maybe I can ask Pratik to take these.
I think, Praveen , there are three questions. I will just try and answer each one of them. On the NOI growth, let us say you set the example of 10% and what kind of dividend growth or distribution growth that you see. Typically, you should see the distribution growth also in that range of 9%-10%. That should kind of flow down. On the turnover rentals, turnover rentals would be approximately 11%-12% of our total rentals. That is the saliency of turnover rentals to our total rentals. Coming to the acquisition point, I think we typically would look at, because these are assets that are under-managed, under-leased, we would look at turning them around, and over a period of 12- 18 months, trying to make these accretive.
Now, some of the factors that we kind of look at when we are even acquiring the assets is, and as we are doing diligence, is the kind of value add that we can do in some of these assets, how we can ramp up the portfolio. A classic example of that is in our presentation itself, which is the mall in Mangalore, which is Fiza. You have seen that we have got the occupancy ramped up, we have got the NOI up. We try and follow a similar template across. From an accretion standpoint, obviously, at what cap rate you do the deal versus what cap rate you are trading at, that is something on the back of our head when we value some of these assets.
Thank you very much. One last question for me. The mark-to-market you mentioned is more than 20% for this quarter. I think 26% you said. How does it look going forward? Let us assume you want to take a fourth quarter or FY 2025 in general. Finally, in terms of the growth rate transmission from tenant sales growth, consumption growth to rental growth, do you think that transmission mechanism will also be linear or similar, or there would be some things that we should consider? Thank you. That is all from me. By the way, very good results, of course. Congratulations.
Thank you.
Thank you.
Hi. This is Nirzar. In terms of mark-to-market trends for this quarter, we are on track. We are at 22% overall, and I think that's how we see the trend going. That's part one of the question.
And part two, I think over a longer period of time, Praveen, I think when you see consumption growth, let's say hypothetically in the range of 10%-11%, you should see NOI growth lag consumption growth by about 200 bps. So it should be in that range of about 9%-10%. That's what we feel longer-term trend on consumption and NOI growth would be.
Thank you. Thank you very much. Very clear.
Thanks. Thank you. Thank you for your questions. Thanks.
Thank you. The next question is from Kunal Tayal from Bank of America. Please go ahead.
Great. Thank you. My first question is also going back to the mark-to-market value of about 20%. Could you remind us over what time frame are you expecting this to convert into growth for you, or over what time frame do you realize this?
Hi, this is Nirzar. In terms of if you see our leased versus trading occupancy, the gap is just about 100, 150 bps. The conversion is pretty immediate. The lag is only when you churn or when you renew and there is some cut-out period loss. The conversion is within a period of three to four months itself. There's hardly any lag. In terms of the way ahead, in terms of what is coming up in the next 12- 15 months, we have 1 million sq ft coming up in terms of expiry, and we would look at a similar spread for the next 12- 15 months of achieving between 20%- 22% in terms of MTM spreads.
Kunal, this is in line with what we've actually achieved in the past. Over the past six years, if you see our average trend, the MTMs put me in that range of 20%.
Okay, got it. I think on a go-forward basis, we should basically forecast this to follow the renewal pipeline that you have. Would that be a fair assumption?
Yeah. As Mr. Sehgal mentioned, I think over an average, 0.8 million sq ft comes up for renewal every year.
Understood. My next question was, if one were to make the assumption that the consumption growth going ahead is sort of back to the high single-digit range that it was sort of the base case for you as well, does it slow down your prospects to achieve a higher rent to sales, or would it be independent of that?
I think over a period, the rents catch up with the consumption growth. There is generally a lag of 100-200 bps in terms of the catch-up. As the consumption grows, 90%, 93% of our tenants are now on turnover rents. It kind of catches up in terms of translating into higher rents as well. The general lag up is between 100-200 bps in terms of how consumption grows and the rents catch up in event with that.
Kunal, actually, what happens is when you have this consumption growth consistently kicking in, when some of these contracts come up for renewal, you try and subsume the revenue share fees into the minimum guaranteed rental. Therefore, for a defined timeframe, let us say 15-18 months after that renewal process, you really do not get any revenue share in, because that is all subsumed under the minimum guarantee rental. As Nirzar was saying, it is a process. It keeps subsuming itself as we keep growing consumption.
Understood. Okay, just to confirm that because, Pratik, I was really on the lookout for what it could mean for your revenue share part. It seems like the answer here is that if consumption growth goes down, maybe it sort of delays a little bit the capture into a rental conversion. Instead of direct share, it now gets contracted in the next escalation and it would flow, but the lag would be higher than, let's say, if consumption growth was at a higher percentage.
It doesn't make a very big difference. If you look at traditionally, revenue share has been around 13% or 14% of our rentals. This quarter, despite a slightly moderated growth, I think it will probably be in the vicinity of 11%-12%. It's not a very steep change that happens. But yeah, as long as we continue to grow at high single digits, I think we're reasonably okay to get about 11%, 12%, which is what we had projected of our rentals coming in from sales-linked incentives or tenant sales linked.
Kunal, just to add, if you recollect our sensitivity analysis that we had done in the prospectus, a reduction or increase of sales by 5% impacts 1% of NOI.
Yeah. That's roughly what it is. But the fact is that I think there's no question that, yes, there will be some short-term impact that can happen. Yeah.
Got it. Okay. The final one, just looking at your asset-wise performance, anything much to read into what is going on into the Ahmedabad mall? Could it just be some local factors here and there with respect to competition?
Yeah. In Ahmedabad, clearly there is a new mall, a very large mall that has opened up, as you know. It has now been operating, I think, for some time because it opened in February of last year. So it is almost a year. What we have seen is that, yes, in a market where there was actually just one mall, now there are two malls. To some extent, yes, there is some impact that has happened. Also as a city, I think what has happened is that the high street also has become very active. The phenomenon that has happened across a large number of cities is that because the stock available for rental in malls was limited, there is only that much that malls would offer, and if they are at 97%, 98% leased. People started obviously going out to high street as well.
A brand which has, let us say, two stores in a city like Ahmedabad now has five. To that extent, there is some impact that will happen. I think we are coming back to almost 100% recovery now in Ahmedabad, and my sense is that once that correction has happened, we will hopefully see a growth from here onwards.
Perfect. Thank you so much.
Thank you. The next question is from Parvez Qazi from Nuvama Group. Please go ahead.
Hi, good evening, and congratulations for a great set of numbers. The question from my side is, if one looks at media reports regarding your proposed acquisition, it says that some of the malls might be of, let's say, 0.2 million- 0.3 million sq ft size, and the lease occupancy could be around 84%. Without going into the nitty-gritty of the asset details, the broad question about your acquisition philosophy is, in general, would we want to acquire malls only with, let's say, 80%, 84%, 85% of occupancy so that we get the benefit of a turnaround? Or are we okay with acquiring malls even with higher occupancy levels?
The second is regarding the size of the malls. While we have acquired large size malls in the past, going ahead, do we have a certain size in mind that we would want to acquire, maybe 0.3 million, 0.5 million sq ft malls? Or are we okay with even 1 million sq ft malls that we have acquired in the past? Thanks.
Okay. Parvez, two or three questions I think you've raised over there. The first one is in terms of a specific question, which obviously I cannot answer directly, but suffice it to say that it's not just the size that matters when you're looking at acquisition. Of course, it does to some extent. I think, what is the value add that we can bring around? Let's assume that a mall is like in the case of Fiza, which was in Mangalore, a 700,000 sq ft mall, too large for that market. Already one existing mall doing very well. I think our leasing when we acquired was in the 70s. Today, it is almost 90%. So it's a question of, in that micro market, you could have argued that, look, what will a 700,000 sq ft large mall do? So it can work both ways, small as well as big.
I think the way we look at it is what is the value that we can add. These three malls we have looked at in great detail. Our sense is that not just on the leasing side, I think in terms of business, and that is very important. How do you improve footfalls? How do you improve sales? In the Prestige portfolio, we have increased sales by 50%. That is what leads to better business. That is what leads to better rentals, and so on, so forth. The fact that whether it is now 88% or 84% leased and can go up to 94% or 95% is just one part of the entire equation.
I think the larger part of the equation is how do we improve business both by increased leasing, better brands, maybe some of the brands are not appropriate for that micro market, and we can leverage our strength. For example, again, going back to Fiza in Mangalore, H&M. We got H&M to open over there. We got Starbucks to open over there. So we got some of the very marquee brands to go to Mangalore because of our connect with them and so on and so forth. I think that is really what it is.
If you ask me on a thumb rule basis, would we want to acquire standalone assets of anything which is very, very small? The answer is no. That obviously we would not. But if we were acquiring three and let us say out of that, one was slightly smaller, as long as it is in a micro market which offers a potential, I think we would do that.
Sure. Thanks and all the best with it.
Thank you.
Thank you. Next question is from Saurabh Kumar from JPMorgan. Please go ahead.
Hi. Just two questions. One is, what will be the like-for-like consumption growth if we strip out this Saket, because that was the stamping of last year? So what will be the like-for-like? And second is, when you acquire these malls, do you also take over the leasing deal or what happens to that? Thank you.
Sorry, just repeat the second question, please.
Sir, when you basically buy the new malls out, the existing, let's say, the leasing team and the management services, there will be management services contract, let's say, of them. Do you replace that or do you also kind of take over that?
Sure.
Saurabh, hi, Pratik here. Taking the second question first, I think when we acquire malls, our typical kind of going in strategy is that we take over people, we kind of integrate them in. Again, some of these strategies differ depending on the market that we are acquiring. If it's an existing market, you obviously try and sweat it out and try and leverage the manpower that you have within the team. Therefore, you get synergies in. But if it's a new market, you definitely want to take over the team, integrate them in, and then take it up. That's what we've done over the years when we've entered new markets. On the first point around like-for-like consumption growth, excluding Saket, probably it's a percentage, 0.5% to a percentage lower when we kind of strip out the additional area that we got in Select City.
Okay, got it. Just one last question. When you take these malls, there will be an additional CapEx to, let's say, for refurbishment. That strips out from your NDCF or that adds to debt and over time, with higher NOI, that kind of-
We normally fund it through debt because it's a one-time upgrade, keeping material, and that is how we have kind of modeled in the prospectus also.
Oh, perfect. Thank you.
Saurabh, actually, when we even acquire assets, the way we look at cap rate, et cetera, is including the additional CapEx that we need to upgrade some of these assets. When we talk about cap rate, it's an all-inclusive cap rate for us.
Yeah. The evaluation is done keeping in mind how much of investment we need to make, not just in upgrading the asset, but also in terms of additional marketing, et cetera.
Yeah, but I guess the logic is that the consumption under you is much higher, so that cap rate-
Yeah. That's right. Okay, great. Thanks, Saurabh.
Thank you.
I think we're done.
Thank you. Participants who wish to ask questions may press star and one. Thank you. That was actually the last question of our question and answer session. As there are no further questions, on behalf of Nexus Select Trust, that concludes this conference. Thank you for joining us, ladies and gentlemen. You may now disconnect your lines.