Ladies and gentlemen, good day and welcome to First Earning Conference Call of Nexus Select Trust for Q1 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 conference, 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.
Thanks, Aman. Good evening, everyone, and thank you for joining this first quarter financial year 2024 earnings call of Nexus Select Trust. 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. Before we start, a couple of important disclaimers. The management may make certain statements that may constitute forward-looking statements. Please be advised that our actual results may differ materially from those 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, 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. With this, 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, everyone. It is my pleasure to welcome all of you to the first earnings call of the Nexus Select Trust, India's first retail REIT for Q1 FY 2024 results. As you all perhaps know, Nexus Select Trust is India's number one mall platform with completed area of almost 10 million sq ft and has a pan-India presence with 17 malls across 14 cities in both metros and mini metros like Delhi, Mumbai, Bangalore, Hyderabad, Chennai, Ahmedabad, Chandigarh, and Pune. In each of the markets that we operated, we are either the number one or a very strong number two player. Let me now look at our performance in the quarter and give you specific operational updates.
Number one, I am happy to inform you that we closed the first quarter with retail tenant sales of INR 29.3 billion and clocked 18% year-on-year tenant sales growth on a like-to-like basis. I think that is important. It is for the same set of malls. Our overall performance is ahead of our projections. At a consolidated level, our net operating income stood at INR 3.9 billion, up 18% year-on-year, and NOI margin stands at 74%, up 360 bps. Some of our top-performing categories in this quarter were jewelry, beauty, personal care, footwear, and athleisure. Number two, in our key markets, our tenant sales growth has been significantly ahead of the market. In cities like Mumbai and Bangalore, we are around 1,000 bps higher than the market. In other cities like Pune and Chennai, we are 400 bps and 200 bps higher respectively.
Let me now talk a bit about some of the reasons for our strong performance. The number one is our strong retailer relationships. Over the last seven years, we have built very deep relationships with close to 1,000 brands through our key account management program. Our malls are typically the first port of call for several national and international brands which are looking at India to expand their footprint. For example, brands like H&M, Zara, Massimo Dutti, Tim Hortons, Burger King, Sephora, to name a few. All of them opened their first in-country stores at our mall. Recently, Apple also launched one of India's only two flagship stores at Select Citywalk, Delhi. With the recent trend of growth in omni-channel, D2C brands like Nykaa and Lenskart have opened their first physical stores with us and are now present in 80% of our malls.
We opened 110 new stores in our malls during the quarter, and some of the marquee brands that have opened the stores are H&M, H&M Home, GANT, Armani Exchange, Hugo Boss, Timezone, just to name a few. So that is the first one, which is strong retailer relationships. Number two is our strategy of leasing and repurposing. First, with strong demand from tenants for our properties, our occupancy has now gone up to 97%, which is 300 bps higher than last year. Today, most of our malls have a healthy wait list of brands looking for space. We are now ensuring timely new store openings, and our trading occupancy grew by 500 basis points year-on-year and now stands at 94%. We have leased 0.4 million sq ft during the quarter across 186 deals, out of which 0.3 million sq ft was on account of re-leasing.
Our re-leasing spread stood at 21%, in line with what we had projected. We have a stable lease expiry profile with average annual expiry of about 0.7 million sq ft every year over the next four years. Secondly, we have adapted to the changing consumer shopping behaviors and actively repurposed areas within our portfolio, taking back area from hypermarkets and department stores and replacing them with growing categories like beauty, personal care, electronics, footwear, fitness, F&B, and entertainment. For example, we recently made space for Apple at Select Citywalk by relocating some brands to a higher floor. Similarly, at Nexus Vijaya Chennai, we have repurposed the area occupied by a major department store and hypermarket to introduce brands like Decathlon and Shoppers Stop. This has contributed to better tenant sales and resulted in higher re-leasing spreads. The third reason is our real-time tenant sales data.
As you are perhaps aware, we get sales data from over 90% of our retail partners on a daily basis via what we call automated daily sales report, i.e., ADSR. Using this data, we regularly evaluate the performance of every single store, which enables us to make real-time changes in our decision-making across marketing and leasing to enable us to drive tenant sales growth and footfalls. For example, seeing the strong athleisure demand, we curated specific campaigns called Sneaker Fest and Denim Fest to capitalize on this trend, and both these did extremely well. The fourth one is really appropriate marketing and activation. Our scale allows us to invest in large marketing campaigns, like the signing of Bollywood superstar Amitabh Bachchan as our Pan-India Happyness Ambassador.
The uniqueness of our marketing innovation helps us to draw more footfalls, and happy to tell you that we have seen a 10% increase in footfalls in this quarter. Families are spending more time not only for shopping, but also dining at our restaurants, watching movies, and children are having a lot of fun at the family entertainment centers. Coming to part two of my speech, this is about the business model. As we have said earlier, our business model is unique and based on acquisitions. We acquire assets that have been underinvested and/or under-managed. With our capability to invest in upgrading the asset, bringing in better and newer premium brands, investing in appropriate advertising, standardization of costs, we are able to significantly enhance the value of the acquired assets. One such example is our first acquisition in the year 2016, which was Mall of Amritsar.
We increased leased occupancy from 65% at the time of acquisition to 98% now. We brought in brands like H&M, Starbucks, et cetera, and improved the business performance by a factor of 2x. Another good example of this is our acquisition of eight malls in South India in March 2021, in the midst of COVID, which helped us to expand our footprint. We invested time in identifying the gaps in the brand mix based on consumer research and insight, thus making it more relevant and attractive proposition for that specific catchment. We focused on leasing efforts, were backed with a series of marketing activities. We also successfully executed one of perhaps the largest rebranding campaigns in Indian retail by bringing all the malls onto the Nexus platform.
The occupancy of these eight malls that were acquired in March 2021 went up from 88% at the time of acquisition to 95% currently. Their NOI is on track to grow by 18% in financial year 2024. Another example is that of our mall in Mangalore, which had a leased occupancy of only 72% when we acquired. Today, it's at 85%. We did all this by improving the brand mix and leveraging our deep tenant relationships. Finally, part three, which is really talking about the strong balance sheet that we have. We have a robust balance sheet with active capital management capabilities and are armed with a war chest of close to $1 billion for acquisitions on the back of a low LTV of 15%, which is what we had projected. Our team continues to be in discussion with few leading developers in the country to evaluate possible acquisitions.
We will announce these at an appropriate time. We have also recently raised debt of INR 22.5 billion at an average cost of 8.2% versus 8.5% included in the projections, resulting in an annualized interest cost saving of close to INR 110 million. Our in-place debt cost is 8.3% with a dual AAA/stock stable credit rating. A quick word on our hospitality and office business, which accounts for only 9% of our NOI. Both these businesses have performed in line with our projections. As you are aware, we had a strong response to our IPO from both domestic and international investors and was oversubscribed 6.6x . In the IPO, we saw a strong performance from 24,000 investors. We continue to work along with other industry participants to improve awareness of REIT among retail investors. As updated above, we are on track to achieve our projections as mentioned in our offered document.
Before I end, let me take you to three important updates. First, while the key business indicators included in the presentation are for the period April 1, 2023, to June 30, 2023, it is important to note that the formation transaction, wherein the REIT acquires all the portfolio SPVs, has been completed only on May 12, 2023. Accordingly, the statutory consolidated financial statements have been prepared from May 13, 2023, to June 30, 2023. This is an important one. Secondly, I want to reiterate a point that we had already covered in the annual meet held on July 27, 2023, pertaining to quarter one FY 2024 distributions. Our first distribution shall be made post Q2 FY 2024, and will cover the entire period from the date of listing, which is May 19, 2023, to September 30, 2023.
Further, as of June 30, 2023, we have generated adequate cash to effect this distribution, and going ahead, we will endeavor to distribute on a quarterly basis. The last point before I close, we have continued our consumption growth momentum right through the month of July, despite heavy rains across the country. I thank you all for your continued support and belief in our path of growth and value creation. With this, let us now move on to the Q&A. Pratik, over to 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 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 a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. 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. Sir, you alluded in your opening remarks to a 10% increase in footfalls, implying an 8% increase in the average spend per visitor. Could you also help us understand among the categories, which categories would have outperformed and what would be the laggards in terms of percentage terms, if you can share on the consumption growth number? That is the first question.
Okay. Sure. I think that's a good question. In terms of our top performing categories, jewelry grew at 28%, electronics grew at 32%, beauty and personal care at 19%, and footwear and athleisure at 16%. The categories that did not do so well is, first of all, the hypermarkets, because as you know, over a period of time, a lot of grocery shopping has actually moved online, et cetera. So that's one category that did not do too well. Apart from that, most of the other categories have actually done well. The ones that I spoke about, the top five, have all done higher than the average of 18 odd percent.
Okay. Sir, could you share the number for multiplexes and overall for that? Because I think that would see a bump up from this quarter compared to the last one.
Yeah.
Which would give us the-
Yeah.
Okay.
I think, in cinema, the recovery was more than 100%, especially towards June where you know we had some good releases. I think what's more important is that going ahead into July, because of the number of titles that we saw, both international as well as domestic, I think cinemas have come back very strongly in the last seven to eight weeks. And we see this trend continuing into August as well.
Sure. Sir, second question is on- Hello?
Hello?
Yeah. Sorry.
Yeah, we can hear you.
Yeah. The second question is on NOI margin. Obviously, we have seen quite a bit of improvement from the 2023 numbers in the first quarter. Sir, when do you think we are likely to cross a 75%+ NOI margin at a portfolio level during the year?
I won't speculate on that. All that I can tell you is that we now have an NOI margin at the end of the quarter at 74%, which is up 360 basis points, and this is actually ahead of the projections that we had done earlier. I don't know, maybe about 75%, but we're very close to that number.
Okay. Sure, sir. Yeah. Thank you. I'll come back to you if I have more questions. All the best.
Thank you.
Thank you. The next question is from the line of Kunal Tayal from Bank of America. Please go ahead.
Great. Thank you, and congratulations. For my first question, I just wanted to sort of understand better this number of 18% consumption growth. Could you give us some context where does this lie, versus the prior two or three quarters? How would you generally think about what could be a sustainable number or a trend over the next few quarters on this metric?
Yeah. Sure, Kunal, I think that's a very good question. First of all, I think two or three things that I want to point out. One is that I think we all will make FY 2023 four quarters as a base and as a reflection of what the growth was. Clearly, FY 2023 was the first year, first four quarters post-COVID, and the growth across categories was significantly higher than it had been in the last two years. As far as this quarter is concerned, that 18% is like-for-like. I just want to clarify it. It's like-for-like. So, we have taken all the malls that existed earlier as well, may be with us, may not be with us, but we've taken that entire base of Q1 last year, and we've taken Q1 this year. So it's a like-for-like comparison. I think that's important for you to understand.
So it's an 18% like-for-like comparison. Where do we see this going? I think if you look at over- And sure there are enough research reports which do indicate that the market growth, perhaps consumption growth, is perhaps between 8% and 10-odd percent. That is a trend that's, I think, likely to continue. Our endeavor obviously would be to do better than the market and meet the projections that we had set for ourselves in the FOD.
Got that. Thank you. My second question is on the inorganic pipeline. I heard you say in the opening comments that you are evaluating a few. I just want to check if we could consider something as imminent for FY 2024. I seem to recall a media interview where you said that the pipeline is quite active at this point in time.
Yes. I think I will repeat that. The pipeline is active. We are in touch and in talks with, like I said, a few developers and at an appropriate stage, we will let you know.
Awesome. Thank you so much.
Thanks. Thank you, Kunal.
Thank you. The next question is from the line of Mohit Agrawal from IIFL. Please go ahead.
Hi, Mohit.
Yeah. Hi. Sir, thanks, and congratulations on your listing and for reporting strong consumption growth. My first question is actually in continuation of the earlier question on consumption. Now that you're saying that consumption growth against 8%-10% industry growth, you'll be outperforming, how should we look at rental growth, going forward as well? Sir, do we think that you could maintain at an 18% consumption growth, could you see that kind of a rental growth as well? The second part to that question will be that, in your DRHP, your rent to sales ratio was 11.8%. Your only listed peer is tracking numbers which are higher than that. How do you see that moving, and what was that number this quarter?
Okay. May I request Nirzar to take that on? Nirzar, incidentally, is Head of Leasing for Nexus Select.
In terms of rental growth, our portfolio is now at 94% in terms of lease up. We have seen strong re-leasing spreads at 21% in terms of activity that we have done. Our rental growth is in line with our past performance. I think in the FOD, we had conservatively projected about 7.5% CAGR, and we are likely to exceed that.
To your question about competitively, how do we compare? I think, do remember a couple of things. One is that our model is an acquisition model, right? So we do acquisitions, and as part of the acquisition, we also inherit a certain rent-to-sales ratio, as you will appreciate. As we go forward, and I gave you the example of a few assets where that has moved up significantly, I think it takes a little bit of time for it to come back. Please remember, the last acquisition of eight malls was done only in March of 2021, so that is going to take a little bit of time. So, that is really our perspective in terms of saying what is affordable, and our endeavor obviously would be to bring rents in line with what is affordable at the tenant level. Yeah.
Sir, on the-
Yeah, Pratik, go ahead.
Sorry. Just to add to what Dalip was saying, if you just see there is enough headroom to kind of take rentals up. As the consumption increases, your obviously rent to sales starts coming down, and that gives you enough headroom to increase rentals and get that mark to market every time the lease comes up for renewal. When you kind of compare it with the market, there is delta as well there of at least 200 bps.
Yeah. I think just to reiterate, and I am sure you are aware of this, about 10% of our rentals come up for renewal every year. That is what you can influence, right? You cannot influence 100% of your tenant rents every year, right? That is really what is important, that every time we re-lease, and I think Nirzar spoke about this, we are getting consistently now, 21% re-leasing spreads. Over a period of time, I think the point that you made is valid. I think it will come back to a normative level. Yeah.
Okay.
Okay.
Okay. My second question is, again, on the business development [inaudible]. You said that the pipeline is healthy. In your initial remarks, you mentioned that you would be targeting underinvested or undermanaged assets. Any sort of-
Yes.
cap rate or anything that you have in mind, just trying to understand that what kind of gain can the minority shareholders get? Also, if you can clarify if these acquisitions would be done, all the acquisitions will be done on the Nexus balance sheet directly, or will it be routed through the sponsor?
Okay. Let me take it in two parts. The first part of the question in terms of what is out there, which is undermanaged or underinvested in. There are about 100 A-grade malls in this country. The top five owners or developers own 40, 45 of them. So there are another 50, 55 malls which are owned by people who have either one or two malls, and clearly that is not their core business. That's really the segment that we look at in terms of saying that is where we can add value, both in terms of upgrading of asset, providing better management, cost effectiveness, and using our size and scale and ability to bring in brands, good quality brands into those assets. So that's the first bit in terms of what is on the table, in a sense, from where we would be hopefully acquiring assets as we go forward. Part two of your question, let me ask Pratik to take that on.
Yeah. Hi, Mohit. Mohit, on the cap rate piece, we wouldn't want to specifically comment on it, but we're looking at longer-term accretive deals for the trust. That's how we look at it from an NAV and a DPU perspective. Our acquisition strategy remains very focused, where we are buying assets in specific markets, be it our existing markets or state capital. Then focusing on really adding value by turning around undermanaged malls with the strong team that we have. We've done that in the past. We're pretty confident of turning around assets. So that's the basis of lookout for us.
Yeah. I think over-focus on cap rates is a little risky in the sense that when your model is an acquisition model, you also need to focus on what is it that you can do with it. Cap rate is what you buy at, but what's also equally important is what are you going to do with the asset? Where is the value addition? Can you create value through asset upgrade, through better brands, et cetera? I think that's been our strategy, which is that, over a period of two to three years, and in some cases even earlier, we are able to turn around the assets. For example, I quoted the south example, where we have significantly increased our leasing occupancies and our operational occupancies, and we are looking at 18%-20% increase in NOI this year. So that's really our value creation model. Does that answer your question?
Sir, it does. The last bit is on whether you will be acquiring it on your own balance sheet directly or through the sponsor.
It would primarily depend on, I think the way we look at assets is it accretive to the Nexus Select Trust balance sheets? If it is, then we would buy it on that balance sheet. We have, as you know, almost a billion dollars worth of ability to add in terms of credit. So we have a war chest which is large enough. So the balance sheet is strong, the war chest is big, and there is no reason why we cannot acquire on the Nexus Select Trust balance sheet. Yeah. Okay.
I think, Mohit, I think we will do it on the trust balance sheet. Just looking at the
Yeah.
headroom that we have here.
Yeah.
It should be the trust balance sheet that we acquire assets.
Okay. All right.
Okay. Thanks a lot, sir. That answers my questions. All the best.
Thanks, Mohit. Thank you for your questions. Thank you.
Thank you. The next question is from the line of Vivek Ramakrishnan from DSP Mutual Fund. Please go ahead.
Hi. I am sorry, I am in a noisy area. I hope this comes through. You mentioned the $1 billion headroom that you have. In terms of keeping-
Yeah.
a strong credit profile and your AAA rating, what would the peak be, is the first question. The second question is, the earlier question was on the cap rate. From a market perspective, it becomes very important because that is where people measure it, and I understand where you are coming from. When you buy, would you say that investors should look at a one to two-year timeframe for turnaround, or would it be longer? Those are my two questions. Thank you.
Let me answer the second question first, Vivek. The answer is that, yes, if you look at the south portfolio, I think despite COVID, et cetera, the turnaround, at least a large part of it, happened in the first 12-1 8 months, and that essentially is the kind of timeframe that we look at. Beyond that, let's say in a two to three year perspective, you would be able to optimize whatever you have acquired and take it to a level where it will then be at par with some of the assets that we've acquired earlier. In terms of LTV, I think let me ask Rajesh to answer this. Rajesh is our CFO.
Yeah, Vivek. If you look at the financials, we have a net debt of around INR 3,500 crore, which converts to LTV of around 15%. If you, again, have a look at other REITs, which are at about 28%- 30%, that's around the thing that we are planning to, in terms of our LTV, 28%- 30%. So between a 15% and a 28%, we'll have around INR 3,500 crore of war chest, like Mr. Sehgal mentioned. The REIT regulations allows you to go up to 49%. So between a 15% and a 49% is that $1 billion that Mr. Sehgal quoted.
Yeah. I don't think we would finally go to 49%. I think like Rajesh is saying, I think a fairly stable number would be high 20s and around 30%. Yeah. So that's what you should look at. But potentially you could, I'm saying, borrow up to a billion.
And Vivek, just to add, because REIT as an instrument, when the developers kind of swap in, the transaction of transferring the assets to the REIT is tax-free for them. So most of the developers that we are interacting are wanting to swap for units. So we have a fair play in terms of choosing whether we want to go the debt mode or we want to swap against units.
Or a combination of both, depending on how the deal gets structured. Thanks, Vivek. Thank you for your question.
Thank you very much, and wish you luck.
Thank you so much.
Thank you. The next question is from the line of Sri Karthik from Investec. Please go ahead.
Hi, Sri. Go ahead, please.
Thanks for the opportunity. Could you provide us the mix of your rental between minimum guarantee and performance links? I guess the earlier number was close to around 13 odd percent. How did that move during the quarter?
Yeah. It's around 12 odd percent, because what happens is that as you re-lease, a large part of what is your revenue share gets subsumed into your minimum guarantee. So with every renewal that happens, it gets subsumed. So there will be a period where that 13% has now become 12%, but will hopefully come back. Rajesh, you want to add to that?
I think it's in line, like Mr. Sehgal was saying. I think we've seen, we've bumped up rents. Last year, we did a strong line of re-leasing activity, and we bumped up rentals by 21%. So there's a lag effect for between 12- 18 months while sales catch up and it adds. But it's stable in that zone.
Okay.
Understood.
Any other questions, Sri?
Yeah, I have two more. One is in terms of the market rentals and the potential mark-to-market upside. I guess the numbers across peers and yourselves seem to be indicating in prime markets, the occupancy numbers are touching 98%, 97%. What do you see as the rental trends at a market level, in the prime markets, of course, the top four or five places that you are present in? Secondly, if you could speak a bit about the occupancy levels and how do you see that moving in the Bangalore office space? Those two. Thank you.
Bangalore office?
Sri, I don't think we have much offices in Bangalore. We have no offices at all in Bangalore.
No office.
In terms of your first question in terms of rental trends in top markets, our key assets, I think, like you rightly said, we are more than 98%, 99% in terms of leased up. A bunch of that leasing happened post-COVID. We are fully leased up. What we are actually trying to do is now differentiate and choose the right brands to bring in, which add more value to the mall. We hope to continue with the same rental momentum that we've displayed in the past, further pushing the rents, as well as the revenue shares, going ahead.
Yeah. I think both are important, Sri. One is, of course, pushing rentals. The other is that at the end of the day, as a shopper, I'm sure you also realize it, people go to a mall to find the right mix of brands. One of the key things as we go forward is to figure out that in each micro market, in Bangalore, for example, we have three malls. All three have very different micro markets. How do we make sure that we have a brand mix which is appropriate and will bring in greater value both to the shopper and to us. Yeah?
Got it. Sorry. I got confused a bit. I was referring to the western office space.
Okay, Pune?
Yeah.
Yeah. Pune, the overall occupancy is 72%, and this is ahead of our projection that we had made for FY 2024. There is an active pipeline, and we should be able to update you in the next quarter in terms of the progress that we are making.
Just to put it in perspective, the office and hotel business both put together is around 9% of our NOI. It is a very small component of our total business. Yeah.
Sounds good.
Thanks.
Thank you.
Sri, thank you so much. All the best. Thanks.
Thank you. The next question is from the line of Shirish Vaze from Moneylife Advisory Services. Please go ahead.
Thank you, sir, for the opportunity. My first question is regarding how do you see the supply situation in the key micro markets that we operate in over the next few years?
Okay. I spoke earlier about these A-grade malls that is the segment that we look at. That's about 60-65 million sq ft. What gets added to that stock every year, Shirish, is about anywhere between 3.5 million and 4 million. If you look at FY 2024 as well, we have line of sight because anything that's going to open this year is already at a stage where fit outs have started or construction has got completed, et cetera. Our understanding is that on the supply side, it will probably be around 3.5 million-4 million. On the demand side, clearly, if you look at the larger brands and companies, both international and Indian, we are looking at perhaps a demand side of about 10 million-12 million sq ft at a conservative level.
Got it. Thank you so much. Second question is regarding two of our malls. Nexus Vijaya and Nexus Shantiniketan. Here I just wanted to understand that although we own 100% of the asset SPV, we own only part of the economic interest. Just wanted to understand why that was the case here.
Yeah. Rajesh?
This was a joint development agreement where an X percentage, is around 30%, belongs to the landowner, and the economic interest that we have is only around 70%, and are different for both the different malls. That's the reason.
Okay, got it, sir.
To answer your question, it is structured in that fashion when we acquired.
Yeah. Okay. Do we have a ROFR on these assets?
No, we don't have a ROFR.
Oh, got it.
There is nothing. Meaning it is fully constructed. Yes. So these are what you inherit in the sense that these were JVs that performed at some point in time with the landowner. Rajesh said, this is about the 30% economic interest of the landowner.
Got it, sir. My last question is regarding one mall.
Sorry. Just one second.
Just another point is we control those assets. Yes. Right? So management control is with us.
For all assets, yes. The control is with the manager. Yes.
Got it, sir. My third question is regarding one mall. Pavillion mall in Pune. It is part of the platform, but not of the REIT. Do you see this mall coming into the REIT anytime in the near future?
No, we do not see that because it is a technical reason. There is nothing else. I do not think there is a business reason. There is a land parcel on which the mall stands, which has a convention center, a hotel, and offices. All of that is a single land parcel, and there can be no demarcation, and hence that was kept out of. It is a small asset, but it has been kept out of the REIT.
Got it, sir. Thank you.
It is only a technical reason. There is no other reason.
Yeah.
Okay. Great. Thanks so much. Thank you.
Thank you. The next question is from the line of Biplab Debbarma from Antique Stock Broking. Please go ahead.
Hi, Biplab.
Good evening, everyone. Thanks for taking my call. Sir, I have just one question. So, consumption growth of 18% year-on-year that we-
Yes.
saw. And, sir, is the consumption growth ballpark uniform across assets?
No, it does tend to vary across malls. The reason for that is fairly simple, which is that each micro market behaves a little differently from time to time. If you look at, let's say, malls like Select, which is a marquee asset, one of the highest performing malls in the country, the growth has been 27%+ right . It is a mall which has been there for some time. So on an average it is 18%. There will be some malls in any portfolio which will perform lower than 18% and some which will perform above 18%.
So what would be the consumption growth in your set of five, six assets? Ballpark.
All the top five have all been in the ballpark of 18%+ . So it is some of the smaller malls where the growth has been a little less. Also depends on the city and so on and so forth. What has been the macroeconomic growth in that state, in that city. So it depends also on that. Where is population growth happening, where are new people coming in, where are the settlements, where are new developers building new apartments, et cetera. All that makes a big difference in terms of how a particular market would operate. But just to give you a sense, and I think I alluded to this earlier as well. If you look at our key markets, and we took three examples over here. If you take Mumbai and Bangalore, we are 1,000 bps higher than the market in terms of growth, consumption growth.
In Pune, we are 400 basis points higher, and in Chennai we are 200 basis points higher than the market. The benchmark is both. There is a benchmark which is external, which is how is the market doing. And of course there is a benchmark that you set, which is our internal benchmark. That look, while the average is 18, some will grow higher, some will grow lower. So it is a combination of both. And our benchmark typically tends to be, we should be ahead of the market growth.
Okay, sir. Thank you, sir. And all the best.
Thank you so much. Thanks.
Thanks.
Thank you. The next question is from the line of Ankit Patel from HSBC Mutual Fund. Please go ahead.
Yeah. Hi, Ankit.
Yeah, hi. Thank you for taking the question. In terms of our clarity, wanted to understand the revenue from operations, about INR 525 crore, and the consumption amount is about INR 2,900 crore. We passed through the COVID period where consumption would have declined significantly. From our understanding now, we would have a variable upside to, in case this consumption next year jumps by a similar 18% or so. If it was like- for- like, assuming no revisions would happen, on a percentage basis, could you give us an idea what would be the upside potential simply because of higher consumption on your revenue? What is that based on? Because you would have a fixed and variable component on the rental, and the variable would give you a-
Understood. I think that's a fair question. I think the first thing is that, please remember, this is the comparison of 18% is versus quarter one of FY 2023, which was a normal quarter. If you remember, February of last year is when COVID-
Right.
came to an end and March was a normal month. It was also a quarter which had very high growth. So the 18% growth that we're showing here was on the back of a very high growth quarter, which was quarter one last year. That's one. Number two, in terms of saying how much is fixed, how much is variable. Roughly 87% is fixed and about 13 odd percent is variable, which is the revenue-linked upside that we get. So as long as the business is growing at this healthy rate, that component of revenue will continue to grow.
Just to add, I think while we filed the offer document, we had mentioned that, and we had predicted sales to grow at about 8.5%. I think the sensitivity we had done at that point of time suggested that a 5% movement in your sales gives a 1% movement in your NOI. Consequently, 10% movement gives a 2% delta in your NOI. So that's the sensitivity that we've disclosed in our offer document as well.
Your basic premise saying that as long as consumption's growing, revenue would grow primarily because of the revenue share that we have, the linkage that we have to sales. I think this is absolutely valid. Nirzar, you wanted to say something?
Right.
Yes, sir.
The other part- Sorry.
Go ahead, please, Ankit.
Yeah. The other part of the question, actually, I was trying to link it up with COVID because wanted to understand what happens in a downside scenario in terms of your ability to. The variable component would probably get hit significantly. But would there be an impact on your fixed? Basically, how did you manage that period where there were completely zero footfalls, significant impact on that. So variable would have got impacted, but how did you go through that time in terms of your fixed part as well?
Okay. I think that's a fair question. Two things. One is that obviously during COVID, malls were shut. Forget about having a variable component, obviously fixed rents also, meaning we would be not very sensible in asking tenants who have no business to be paying fixed rents. So what we did, obviously, like most other people in the industry, was to give waivers. I think the one big difference that we did in terms of giving or deciding on waivers was to do it on a tenant-to-tenant basis, a store-by-store, key account by key account, to understand where the pain point was. To take an extreme example, multiplexes were the first to be shut and the last to open, and hence required the maximum waiver as a category.
Then within multiplexes, there were some which required more and some which required less, and so on and so forth. We did not have a carte blanche across the board saying, "We're giving 50% off," or whatever. As a result of this, I think in FY 2022, we recovered about 74% of our rentals, minimum guarantee. 74% is what we recovered. So if that gives you a sense as to what would happen, and I'm saying this is a black swan event, cannot plan for it, but that was the worst-case scenario. Because we did it, I think in a little more, let's say, organized manner and easing pain wherever we could, we were able to recover almost 74% of our rentals, even in a COVID year. Does that answer your question?
Yeah.
Okay, great. Thanks.
Just one last thing was, how would you compare it with the behavior of, say, a commercial real estate portfolio where there are larger corporations while there would be work from home possibilities, but some part of the offices would still continue to be utilized. Whereas in retail, I think such an event or anything event that happens in that locality or something can have a significant impact on rentals and-
Yeah.
sorry, footfalls and-
Yeah.
How do you compare the commercial portfolio to a retail port?
Yeah. I have understood your question. I think I am not going to hazard a comparison. These are two very different markets. I must confess, I do not know enough for me to be able to comment on the commercial side. I can only comment on the mall and the retail side. I think I have explained to you that in a very bad year, we were able to recover 74%. Number two, starting from 1st of April 2023, there have been no waivers in the business at all. You see the NOI growth that is happening, 18% this year, on a very strong growth last year as well. I think the key really is that is there a recovery that happens after that event? Like I said, it is a black swan event. Nobody can prepare for it.
All that you can do is to make sure that during those difficult days, you are also with your tenants. At the end of the day, our relationships are very strong. One of the reasons why I think we do well and have continued to do well this quarter as well is because of a very strong tenant relationships. I think they also understood, and we also understood that there was a bit of give and take that had to happen, and that has happened, and all of it is over. Yeah.
Right. Thank you.
All right. Thank you so much. Thanks.
Thank you. The next question is from the line of Siddhesh from Tusk Investments. Please go ahead.
Hi, Siddhesh.
Hi, good evening. Thank you for taking my question, and congratulations on the performance. I wanted to know. Sorry if this is a repeat question. I joined in a bit late. Just wanted to know how the M&A pipeline is on acquisition of new assets. Any sense you can give of what are the kind of assets which are there in the immediate pipeline? What the conversion would be in terms of timelines and size of assets?
Okay. I think, yeah, you missed out. This got discussed a little earlier. Let me just repeat. Number one, in terms of what is on the table, there are about 100 odd A-grade malls, which is really what we look at for acquisition. That's about 60 million- 65 million sq ft. Out of these hundred , 45 odd are owned by developers like us or operators like us, and there are another 50, 55 malls that are owned by people whose core business is not malls, and they may be owning maybe one, maybe two, at best three malls. That really is our source of acquisition. So in terms of what is available out there, I think it's about 30 odd million sq ft, and perhaps about 50, 55 A-grade malls. We don't look at B.
That's again a very large number, but typically those are status hold and not of great interest. In terms of fine-tuning markets, how do we look at acquisition? Let me pass it on to Pratik. Pratik, do you want to take that?
Yeah. So Siddhesh, I think the way we look at it and the playbook is this 50, 60 grade A assets that are available in the country. Our focus remains on our core markets or state capitals. We tend to acquire assets which are number one, number two in the market that they're operating. At the same time, we want to acquire assets where we are able to value-add. We've done that in the past. We've turned around malls. We've got exceptional growth in the assets that we've acquired. So value add is a big theme that we look at or evaluate when we are actually acquiring assets. Lastly, I think on a longer term basis, all of these need to make financial sense and therefore accretive. I think these are the parameters that we use.
We are in conversations with a few players, but we wouldn't be able to take names. Yep.
Okay.
Got it. Thank you. That's helpful.
Thank you, Siddhesh. Thanks for your question.
Thank you. The next question is from the line of Dax Fernandes from Darashaw and Company Private Limited. Please go ahead.
Yeah, hi.
Yeah, hi. Very good evening, everyone. Firstly, congratulations on the listing and a good set of Q1 numbers. I have a question on the gross debt. The gross debt here is INR 4,441 crore as given in the presentation, and we have a net debt of INR 3,500 crore. That would translate to cash of INR 940 crore, and it also says that this excludes the restricted cash. What would that figure be, the encumbered cash here?
Yeah. We are saying INR 4,311 is my gross debt. What we said is net debt of INR 3,500. That takes to INR 811 crore. Out of that INR 811 crore, we have some restricted debt of around INR 400 crore. That is how the net debt has been computed.
I think the buildup is about cash and cash equivalent of about INR 1,300 crore, and then you obviously adjust the restricted cash of about INR 370 crore from it, including the distributions. I mean, that we wanted to kind of keep it aside and call that as restricted cash as well. That gives you INR 3,500 crore of net debt.
Understood. Over this period, would this cash which is not restricted be distributed, or we plan to maintain a minimum cash balance at SPV unit level, considering the guideline by SEBI, of course? What would the strategy be around that?
The strategy is to maintain at least two months of working capital cash with us.
Then distribute the balance.
The REIT regulations require all that is upstream to the REIT, at least 90% has to be distributed.
But we intend to distribute 100%.
Okay. My last question is, do we have a guidance that we will be providing for FY 2024 in our investor presentation? Maybe, I do not think so it is covered here, but in the September presentation.
We have actually kind of given sort of qualitative guidance. If you see our investor deck on page 6, that is a summary thing. We basically are saying we are on track to achieve the FY 2024 numbers that we had disclosed in the DRHP.
Understood. But on a number in terms of INR per unit for FY 2024, will we be shelling out a guidance for this financial year? Like some of the other public REITs, in which they do so on those earnings.
I guess in our case, because this is the first year, we have just given, in a sense, projections, not guidance, projections for FY 2024. I think that is the basis that you should look at. As the performance and the results come in every quarter, you can update it accordingly.
Sure. Thank you.
The FOD also has the NDCF guidance, so we can compute that in terms of what that DPU will be.
Okay. All right.
Understood. Thank you.
Great.
Thank you. All the best.
Thank you.
Thanks.
Thank you. The next question is a follow-up question from the line of Siddhesh from Tusk Investments. Please go ahead.
Yeah, hi.
Yes, Siddhesh, go ahead with your question, please.
I just want to jump in with one more. Are we seeing more consumption growth in the Tier 2 cities in our portfolio? We see Select Citywalk 27%, but apart from that, largely, is it more in the Tier 2?
I think the good thing is that the India consumption growth story exists equally strongly in metros and mini metros. Some of our strongest performing markets are even markets like Bhubaneswar, which honestly is a state capital, but still not even a mini metro. Then there are markets like Mysuru, there are markets like Pune, which have done extremely well. I think the growth has been across, actually. It is not restricted to metros alone. I explained to you, even in Mumbai, we are almost 1,000 basis points higher than the market growth. The markets have grown across. Clearly, they couldn't have grown at the same rate as FY 2023. I think that is very important for everybody to understand. That was a post-COVID period, and hence there would have been a base effect as well because the base last year was very, very high.
But on that base, I think growing 18% like for like, I think is a reasonable set of numbers. Yeah.Okay. Thank you so much. Thanks.
Thank you.
Thanks.
Ladies and gentlemen, that was our last question for today. As there are no further questions, on behalf of Nexus Select Trust, that concludes this conference. Thank you all for joining us, and you may now disconnect your lines.
Thank you so much. Thank you.
Thank you.