Operator: Good morning, everyone. A very warm welcome to all for the Embassy REIT Q2 FY 2027 earnings conference call. Currently, all participants are in a listen-only mode. Our speakers will address your questions during the question and answer session at the end. Should you need assistance during this conference call, please signal an operator by pressing star then zero on your touch-tone phone. As a reminder, this conference is being recorded. I would now like to introduce your host for today's conference, Sakshi Garg, Head of Investor Relations and Strategy for Embassy REIT. Ma'am, you may begin.
Sakshi Garg: Thank you. Welcome to the Q2 FY 2027 earnings call for Embassy REIT. Embassy REIT released its financial results for the quarter and H1 ended 30 September, 2026 yesterday. As is our standard practice, we have placed our financial results, earnings presentation discussing our performance, and a supplemental financial and operating data book in the investor section of our website at www.embassyofficeparks.com. As always, we would like to inform you that management may make certain comments on this call that one could forward-looking statements.
Sakshi Garg: Please be advised that the REIT's actual results may differ from. Embassy REIT 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 provide on this call are management estimates based on certain assumptions, not be subjected to any audit or examination. We caution not to place undue reliance on such information and they take no assurance that we will be able to achieve the
Operator: I am sorry to interrupt. Ma'am, your voice is breaking every now and then. Could you come a little closer to the microphone, please?
Sakshi Garg: Yes, let me try again.
Operator: Yeah, sure.
Sakshi Garg: Joining me today are Amit Shetty, our CEO, and Abhishek Agrawal, our CFO. We will start off with brief remarks on our business and financial performance, and then open the floor to questions. To you, Amit.
Amit Shetty: Thank you, Sakshi. Good morning, and thank you all for joining us early today to discuss our quarterly results. This was our 30th quarter as a listed REIT, and yet another strong broad-based delivery. Four highlights that stand out. We pre-leased 0.5 million square feet full building in Bengaluru at a 15% premium to the current market rents.
Amit Shetty: We registered early signs of revival in our Pune portfolio, expanding the occupancy by 30 basis points quarter on quarter. We declared our highest ever quarterly distribution of INR 670 crores or INR 7.07 per unit, and we have delivered double-digit growth across our key metrics, growing our revenue by 16%, NOI by 15%, and our NAV by 18% year on year. Alongside this strong business performance, I am pleased to share that Embassy REIT is now part of the Nifty 500 and the Nifty Midcap 150, along with several other NSE and BSE indices.
Amit Shetty: This has brought in a meaningful passive inflows and broadened our investor base well beyond our 1.5 lakh direct retail unit holders, as many more investors now own us indirectly through index funds and ETFs. Coming back to our leasing performance this quarter, we leased 1.5 million square feet during Q2, with GCCs contributing to 85% of our total leasing. This 1.5 million square feet included 0.9 million square feet of new leases, 0.1 million square feet of renewals, and 0.5 million square feet of re-leasing. This re-lease deal was a standout transaction as we leased an entire 0.5 million square feet block at Embassy TechVillage, Bengaluru, to a global engineering company at 15% premium to the current market rents. One of the other encouraging trends this quarter has been the early green shoots emerging in our Pune portfolio with the metro connectivity as a key catalyst.
Amit Shetty: We leased over 0.2 million square feet across our three assets in Pune, contributing around 25% of new leasing in Q2. With this, our Pune occupancy grew by 300 basis points quarter-on-quarter. Turning to the rent growth, we continue to lease above market rents. New leases during the quarter were signed at an average 9% premium to the market rents. Also, our portfolio market rents have grown by 8% year-on-year to INR 106 per square feet. The blended market trend from Manyata and ETZ have reached INR 107 per square feet, but we are signing most of the deals in Embassy Manyata and Embassy TechVillage at between ₹115 to ₹130 per square feet now. Overall, as of 26 September, we have maintained our portfolio occupancy at 90% with all our cities except Pune at 94% or above occupancy level.
Amit Shetty: With a healthy leasing pipeline, we remain on track to close the financial year with an occupancy of approximately 92% to 93% by area. A few other updates. We have received the occupancy certificate for 0.6 million square feet Block-1 at Embassy Splendid TechZone in Chennai and have handed over the fully pre-leased building for setting up the GCCs of a leading US company. Our total development pipeline now stands at 5.6 million square feet across Bengaluru and Chennai. Of the 2.3 million square feet delivery scheduled over the next two years, 67% is already pre-leased, including expansion option. Next on our hotels. We remain on track to launch the 318-key five-star Hilton Hotel at Embassy TechVillage during the course of this year. The recent delivered Hilton Garden Inn Hotel in the same complex turned operating cash break even and clocked ADRs of over INR
Amit Shetty: 20,500 and an occupancy of 22% during the quarter. Overall, for our hotel portfolio, we recorded a 58% occupancy and INR 13,500 blended ADRs in Q2, resulting in a 22% revenue growth year-on-year. During this month, we have also concluded the acquisition of 8,048 square feet of fully leased retail area at FIFC, our flagship Mumbai asset, further consolidating the ownership in Mumbai. We will continue to pursue such selective value accretive opportunities that further strengthen our portfolio. Beyond our own performance, some of the macro tailwinds remain firmly in our favor. India's top seven cities recorded their highest ever office absorption in the first nine months of the year at 64 million square feet, up 10% year-on-year. With supply at 46 million square feet, pan-India vacancy fell 102 basis points year-on-year.
Amit Shetty: GCC and flex players drove around 70% of this demand, undeterred by the ongoing geopolitical uncertainties or AI-related narratives. I would like to refer to a recent macro study published by Embark named "India GCCs in the AI Era," which highlights a few structural trends that position our GCC-led portfolio well for the years ahead. One of the interesting points that was made is India's GCC occupied area is expected to reach 390 million square feet by FY31, growing at 11% CAGR, while BFSI and TMT sectors are expected to drive around 55% of this growth. What is interesting to note is that 80% of the headcount growth over the next five years is projected to come from brownfield expansion by the existing GCCs and the rest from the 120 plus new GCCs set up expected every year.
Amit Shetty: The study shows that 92% of the GCC leaders are beyond selective AI adoption in India, yet realized productivity gains stay below 15%. As AI mandates move from function-specific pilots to broader build-outs, India stands to gain significantly with its AI skill talent projected to grow three-folds to around 0.8 to 0.9 million by FY31. AI productivity and GCC expansion will clearly coexist. These trends play directly to our strengths. Our Bengaluru-anchored portfolio sits at the heart of India's AI talent ecosystem, making our campuses a natural choice for GCCs scaling their AI mandates. With this, I will now hand it over to Abhishek to present our financial updates.
Abhishek Agrawal: Thank you, Amit, and good morning, everyone. Let me take you through the financial highlights for Q2. We delivered another quarter of strong double-digit year-on-year growth, with revenue up 16% to INR 1,303 crores and NOI up 15% to INR 1,069 crores. This was driven by our continued leasing momentum, healthy rent growth, and the addition of new office and hotel buildings to our operating portfolio. We declared our highest ever quarterly distributions of INR 670 or INR 7.07 per unit for the quarter, representing a 9% year-on-year growth. This increase was driven by an uptick in our NOI, which was partially offset by higher interest expenses. During Q2, we raised INR 2,050 crores of debt at 7.14% per annum blended interest rate, which was 18 basis points lower than our Q1 in-place debt cost.
Abhishek Agrawal: This included INR 1,000 crores raised through a three-year floating rate NCD, fully subscribed by a leading multinational bank at an initial coupon of 6.97%. This is the first financing by a scheduled commercial bank to an Indian REIT at the trust level under the RBI's new framework, opening up an important new source of long-term capital for us and the wider REIT sector. With this, our net debt stood at INR 22,389 crores as of September end, implying a 30% leverage ratio at 7.33% in place cost. In addition, around 57% of our debt is locked in at fixed rates. While the rate environment has turned firmer following the RBI's recent rate hike, our strong credit profile and access to diverse capital pools position us well to manage our borrowing costs. Next on our portfolio valuation.
Abhishek Agrawal: As per the independent valuer's assessment as of 26 September, our portfolio GAV grew by 16% year on year to INR 73,990 crores and our NAV by 18% to INR 524.74 per unit. This impressive growth was mainly driven by an increase in our market rent, new building additions, as well as CapEx rate compression in some of our high-performing properties. Also, I am happy to report that due to the recent amendment in income tax laws, we have recognized MAT credits in our books amounting to INR 594 crores, which we believe can be utilized over the next few years. Also, as many of our SPVs will now move to a lower tax rate or will stop paying MAT, we expect to save cash taxes to the tune of around INR 120 to 130 crores per year going forward.
Abhishek Agrawal: Lastly, an update on our FY27 guidance. Based on our Q1 performance, we remain on track to achieve our annual guidance. We continue to expect our NOI to be in the range of INR 4,150 to INR 4,350 crores, and DPU to be in the range of INR 27 to INR 28.6 per unit. At midpoint, this guidance implies a 13% growth in NOI and a 10% growth in DPU on a YoY basis. We remain committed to delivering on our growth targets for this year and growing our DPU in the years ahead while optimizing our balance sheet and maintaining strong cash flows. With this, let's now move to Q&A, please.
Operator: Thank you very much. We will now begin the question and answer session. Anyone who wishes to ask a question may press star and 1 on their touchtone telephone. If you wish to remove yourself from the question queue, you may press star and 2. Participants are requested to use handsets while asking a question. We would also request participants to restrict their questions to 2 per participant. If you have a follow-up question, please rejoin the queue. Our first question comes from the line of Puneet with HSBC Bank. Please go ahead.
Puneet Gulati: Yeah. Thank you so much, and congratulations on great performance. My first question is on your guidance for 93% occupancy end of year. Does that include Pune as well, or are you counting it excluding Pune?
Amit Shetty: Hi, Puneet. Puneet, you want to ask all the questions, and then we'll probably answer this?
Puneet Gulati: Sure. Second, also is on the Embassy Splendid TechZone 0.6 million square feet. When does the cash rent start? Thirdly, on your guidance, are you factoring in any potential increase in interest rates, or does it factor current prevailing interest rates?
Amit Shetty: Okay. Let me begin with the first question. The 93% guidance is including the Pune portfolio as well.
Puneet Gulati: Okay.
Amit Shetty: Okay? The 0.6 million rent, it starts from next year sometime, Puneet.
Puneet Gulati: Okay.
Amit Shetty: Okay?
Abhishek Agrawal: The third question, Puneet, on the guidance for interest cost. See, if you look at the maturity which is coming in, even if there is, let us say, one or two interest rate hikes of 25 bps each, we think we will still be in the range which we had provided earlier, which is that this year's interest cost will be around 11% to 13% higher than previous year in total for the full year. I think we are comfortably within the range. The reason for that is, if you look at from here on, we have only around INR 4,000 crores of refi that is coming up. Out of that, INR 1,100 crores already refinanced from the money that we had borrowed, as per my prepared remark. That we utilized to refi. The balance INR 2,800 crores we have already tied in almost around 14.50.
Abhishek Agrawal: We are in active discussion and almost closing it at a very attractive rate because this is a deal where we were discussing even prior to the quarter close. It is coming to an end, so that INR 1,450 will be within, let us say, a week, it will be in our hands, and we will be able to refi. The balance is at the fag end of this year, which is 27 March. Even if there is a repo hike there, not much impact. That is the reason we think that we will still be in the range.
Puneet Gulati: Okay. For your next year also, there is some debt coming for maturity. Is that a fixed cost debt or is it floating cost debt?
Abhishek Agrawal: Total debt is coming is around INR 4,200 crores. Most of that is fixed cost. The average interest rate there is around 7.5%.
Puneet Gulati: Okay. That is good. That is all from my end. Thank you so much, and all the best.
Abhishek Agrawal: Thank you, Puneet.
Amit Shetty: Thank you.
Operator: The next question comes from the line of Girish Chaudhary with Avendus Spark. Please go ahead.
Girish Choudhary: Yeah. Hi. Good morning. Thanks for the opportunity. Just wanted to start with a broader demand environment. Obviously, we have seen leasing has been pretty strong for Embassy and in general, the Grade A office market, and GCC has driven a big part of that. When you look at the conversations you are having with some of these global companies, are they largely existing GCCs expanding operations, or are you also seeing meaningful pickup in new GCCs entering India? Just a follow-up to that, again, as per your discussions with AI and productivity, are these companies beginning to rethink their space requirements? Yeah.
Amit Shetty: Let me take these questions. Firstly, from a demand perspective in the market, we are seeing still strong demand drivers, like you rightly mentioned, largely from the GCC guys as well as from the flex operators in the market. I think this quarter has been a record quarter from an overall country perspective, absorption of about 21 million square feet. The first 9 months, we saw about 66 million square feet of leasing absorption across the country. We believe that there is about 20 odd million square feet of RFPs in the market, with about 85% of that actually towards Bengaluru. Across the country as well, the demand is strong. We have got a very strong pipeline of about 1.4 million square feet across the country, and we are very confident about this. Coming to the next question on AI productivity and therefore how it is impacting.
Amit Shetty: Our conversations have been very clear. We are seeing a lot of the existing GCCs take up space. I think in the last quarter, we declared that we spoke about Target Corporation as well, which actually took up space with us. Similarly, multiple of our existing clients are actually talking to us for growth. Similarly, we are seeing a lot of new incoming mid-market GCCs that are actually taking positions within our ecosystem. Overall, we feel very confident about the market at large.
Amit Shetty: In terms of AI productivity, very early days. What we have seen, and this is something which is echoed in the report that we referred to just a while ago as well. A lot of leaders are still saying that the AI productivity gains is less than 15%, and obviously, the cost of implementation of AI is very steep as well. It is a wait-and-watch game, but at least in the short term, we do not see that productivity gains leading to job losses.
Girish Choudhary: Got it. My next question is on the interest rates and also on NAV. We have seen a meaningful increase in NAV in the last 1 to 2 years, and supported both by the market rate rentals and also the interest rate. How do you see that going ahead in a rising interest rate? Do you see pressure on cap rates and property valuations?
Abhishek Agrawal: Girish, couple of things. Yes, I agree interest rates are going up, but what we are seeing in the market is that the cap rates are still not widening. The impact will start coming in once the cap rates see some widening, which we are not seeing as of now. We will have to wait and see how the markets react to this interest rate cycle, whether this is a sustained cycle. Because even the valuer doesn't take cognizance of any increase for the first one or 2 quarters, similar to what they had done when the interest rates went down.
Abhishek Agrawal: For 3, 4 quarters, they waited, then they saw that this is a sustained one, then they took that call. Similarly, when the interest rates are going up, they will see what is happening first on a sustained basis. If it sustains, let's say, for a couple of half years and the market sees that the cap rates are broadening, that is when the valuer will take an impact on that.
Girish Choudhary: Okay. From here on, how do you see the headroom on NAV purely led by the rental growth?
Abhishek Agrawal: Girish, there are couple of things. One is the disclosed MTM. We have disclosed around 10%, but the actual leasing that we are doing is far more than the 10%. We will have to wait and see how the market rents are growing, which we see that there are green shoots, that the market rents are still growing. If that happens, then the next valuation will take impact of that. Also, the leasing is happening. If you see now we are at 92. Amit said in his prepared remarks that now we are at 90, we are gunning for 92, 93. All those also will be taken. We think that there is still quite some headroom which is left for the NAV to grow.
Girish Choudhary: Thank you, and all the very best.
Abhishek Agrawal: Thank you.
Operator: The next question comes from the line of Kunal with Bank of America. Please go ahead.
Kunal Tayal: Okay. Thank you so much. A couple of questions from me, Amit. This GCC half a million deal sounds very interesting and a good one. Any additional color you could give as to, is this just one more typical case of what you have been describing as brownfield expansion, or is there something different about it, as in company wanting to shift an entirely new process to India, so on and so forth? The second question is, the survey you were referring, if you could just give a little bit more color around it as to who were the participants. Just very curious to know as to who the feedback is coming from. Thank you so much.
Amit Shetty: On the first question, the 0.5 million square feet, it happens to be an existing tenant of ours in our ecosystem who is actually expanding by keeping the existing footprint within our portfolio. This was an RFP that was out in the market that we won the RFP. Interestingly, like I said, it is 9% premium to the market and probably one of the highest ever rent in that micro market that we have achieved. Next, Sakshi, do you want to add color on the
Sakshi Garg: So this survey, Kunal, was done with about 100 GCCs in India. Also, there have been around 55 plus 20, around 80 conversations which were done by Embark with GCC leaders, which are either already in India or looking towards setting up bases in India. It is very widespread, actually, if you look at from a geography perspective, how they covered the regions, how they covered the designation-wise also, how they covered the people. I would say 50% to 60% were CXO or GCC India heads, which were interviewed. There is a lot of detail in the report as well. I can also send that around.
Kunal Tayal: Of course. Yeah. No, it is a pretty interesting outcome, so most curious. All right. Thank you so much.
Amit Shetty: Thank you.
Abhishek Agrawal: Thank you.
Operator: The next question comes from the line of Mohit Agrawal with IIFL Capital. Please go ahead.
Mohit Agrawal: Yeah. Good morning, everyone, and congratulations on a good quarter. Two questions. Firstly, on the Pune demand, and you've seen green shoots on that. Where is the mix of demand based on your discussions? Is it similar to what you are seeing in your Bengaluru markets? Is GCC and flex driving demand, or is it different kind of tenants that are talking to you? So some sub-color on that. Secondly, on the previous question around rent growth, where do you see broadly we are in terms of the cycle on the rental growth? Is there a big difference in, let us say, how a Mumbai market probably has seen a sharp rental growth? Do you see from a rental growth perspective, different markets being in different stages? Do you see that generally we have a fair bit of runway for rental growth increases going forward as well?
Amit Shetty: Okay, let me take the first question, the Pune demand. Interestingly, the Pune demand comes from GCCs, mostly from GCCs, given the fact that it is a Hinjewadi market. Obviously, if you see Pune as a whole overall market, both flex players, GCCs, as well as domestics have been contributing to the market. But Hinjewadi, we are seeing more traction from the GCC operators. Interestingly, we have done two deals, significant sizes, both of it, overall about 200,000 square feet, in Quadron as well as in ETZ. So, that gives us a lot of confidence because, with the metro that is being scheduled to be inaugurated by the Prime Minister, and it is finally announced in the media. We see a lot more traction and a lot more inquiries coming our way. The second on the rent growth runway.
Amit Shetty: Across the country, we are seeing the rental rates firming up anywhere between 5% to 10%, but key micro markets where activity is, I think we are seeing rental growth of about 10%. Like you rightly said, I think, two markets, one is Bombay, which has just been an outlier, and that is something that we have been reporting quarter on quarter, is that the premium to the market as well as the in-place market rents that have grown in Bombay has just been very healthy. Secondly, I think, also Hyderabad, just from one micro market, which is HITEC City. We have seen the rentals almost double in the last two years. Apart from that, Bengaluru is seeing very healthy rent and similar trends to Hyderabad is Outer Ring Road as well as the Whitefield market.
Mohit Agrawal: Okay. Just one clarification from Abhishek Agrawal on the leverage levels. For the last four to five quarters, we are seeing the LTV coming down from a peak of 33% to 30%. Obviously, this is driven by a very healthy NAV growth. How do you see this trending, let us say, over the next four quarters? Some color on that. Lastly, you mentioned INR 120, INR 130 crores of cash tax saving. You still maintain the 5% to 6% tax rate on revenue or will that meaningfully come down? Yeah, those were.
Abhishek Agrawal: Well, thanks for the second one first. So earlier I had said that it will be around 6%, but now we think that it will be closer to 5%.
Mohit Agrawal: Okay.
Abhishek Agrawal: Second point on the leverage levels, yes, we are around 30% now. So I think for the next couple of quarters, it will hover around 30% only because of all the CapEx spends on the 5.2 million square feet that we will be doing. Post this getting capitalized, this project 5.2 million getting capitalized, I think it will start coming down to around 28%, 29% levels.
Mohit Agrawal: Okay. So 28, 29 levels in about by end of FY28?
Abhishek Agrawal: Or 29, yeah. Somewhere around in FY29. Because see, we want to maintain it below 30%, so we think that 28, 29 is a healthy level of CapEx.
Mohit Agrawal: Perfect. Thanks a lot. Those were my questions. All the best.
Amit Shetty: Thank you.
Operator: The next question comes from the line of Pritesh Sheth with Axis Capital. Please go ahead.
Pritesh Sheth: Yeah, good morning and thanks for the opportunity. First is on Manyata occupancy outlook there. I think we have seen the bulk of the exits in the first 2 quarters and have been consistently leasing around 5 lakh square feet in last 2 quarters. Can we maintain same run rate going ahead in H2, which would mean that occupancy should climb to 95% plus kind of levels. Is the visibility suggesting that kind of increase there?
Amit Shetty: Definitely-
Pritesh Sheth: Sorry.
Amit Shetty: Go on.
Pritesh Sheth: I will just take the second question as well, and you can answer both together then.
Amit Shetty: Yeah.
Pritesh Sheth: It is with regards to the recent job cuts announcement from some of the larger corporations. What is your reading on that? Because they are also talking about some of those in India as well. What kind of processes, if you have had conversation, what kind of processes where we are seeing this job cuts, and how do you read that? Just two questions.
Amit Shetty: Yes. Firstly, on Manyata, we will continue to see this run rate simply because in Manyata, we are now moving to a rate strategy given the occupancy levels that we have and the rate that we are actually able to get. Some of the expiries that you see are front-loaded simply because we are moving on to the rate strategy there. Also, in terms of pipeline, I think we have got some very interesting pipeline there, a healthy mix of existing occupiers wanting to take up positions, and also a lot of new demand that is actually coming our way. For once, I can say it is a problem of plenty for us in Manyata. Moving on to the second question on the job cuts. Look, we have always maintained this. It is a city of two tales, actually.
Amit Shetty: Basically, there is one side where there has been a little bit of churn, especially on the ITeS sector, and now we are seeing this with corporations like you mentioned right now. But on the other hand, there is a lot of new entrants that are actually coming into the market, and the existing GCC world is also increasing their footprint by bringing more functions into the country.
Amit Shetty: Therefore, we are seeing these mixed, one side there is churn and one side there is growth. But the overall construct is that the pie has become larger, and therefore the volumes have increased. That is just purely on data. If you see 66 million square feet of absorption in the first 9 months is a record year compared to any time across the commercial real estate era in the country. We continue to see this in the form of RFPs that are there in the market and also the market activity. With that, we are very confident about the demand and the office story in the country.
Pritesh Sheth: Sure. Perfect. That is helpful. That is it from my side. All the best.
Amit Shetty: Thank you.
Operator: A reminder to all participants, you may press star and one to ask a question. The next question comes from the line of Abhinav Sinha with Jefferies Group. Please go ahead.
Abhinav Sinha: Hi. Abhishek, can you please help with the sensitivity of interest cost to 100 bps rise on a full year basis?
Abhishek Agrawal: Abhinav, the sensitivity that we prepared is in two parts. One is on the floating rate debt and one is on the fixed rate debt. If there is an increase of 25 basis points in interest cost, for the floating rate, the cost for the year increases by around INR 20 crores. For the fixed debt, what will happen for at least, let's say this year, is that we have INR 4,000 crores to be refinanced, so you can proportionate it to that, which comes to around INR 8 crores per annum. But then the time proportionate has to be done for every 25 basis points.
Abhinav Sinha: Okay.
Abhishek Agrawal: Does it answer the question?
Abhinav Sinha: Yeah. Basically INR 4,000, and you said next year also you have about INR 4,200, which is at fixed rate, which is retiring.
Abhishek Agrawal: Correct.
Abhinav Sinha: Similarly, we can assume that this 42 plus 4, so INR 8,200 should possibly see a 25 bps increase, more or less.
Abhishek Agrawal: No, I am saying that if there is a 25 basis point increase
Abhinav Sinha: Yeah
Abhishek Agrawal: in this, let's say INR 4,200, then per annum increase in cost is, let's say, INR 8 crores.
Abhinav Sinha: Okay. Per annum cost is INR 8. Okay. Got it.
Abhishek Agrawal: Yes.
Abhinav Sinha: On that, have you seen bond market, say, reacting more to the rate sensitivities than what is being done by the RBI, or that's not really the case?
Abhishek Agrawal: Two things. One is that the interest cost actually rose before even the RBI increased the rate. That is what you have seen in the market. For the bond market also, we are seeing that the interest rate actually has risen even more than what the interest rate actually increased in anticipation of a further increase. We are seeing already that kind of interest rate hike in the country. It is a full market which is disrupted as of now. The actual rate where we will land and all, that we can maybe comment on when we go closer to that. For now, we are seeing that there is an anticipation that there will be another one or two interest rate hike, and hence the bond market, the loan from banks, all have increased even higher.
Abhinav Sinha: Thanks. That is very helpful. Just another question. Amit, we have seen, I think one of the occupiers in Manyata now, which was a GCC occupier being acquired by an Indian ITeS firm. There are some GCC takeouts which are happening. What really happens here over the next two, three years? Does it become like these guys move out because the takeover is by an ITeS company? What is your experience?
Amit Shetty: Honestly, our contracts are long-term contracts with lock-ins in place. If I have read your question right, I think you are talking about GCC facilitator or a GCC incubator operator there. Therefore, these guys have incubated or put in place companies which want their microculture and therefore their own identity and their own signages, their own offices. Therefore, I do not think that they would be able to disrupt simply because of a lot of work that goes behind this on location analysis and employee retention and how they want to build this thing. In my experience, it just does not matter for us. Given the demand as well across Bengaluru and especially Manyata, we are really not worried about it.
Abhinav Sinha: Okay. Actually my question was more of this GCC being bought over by an Indian ITeS company.
Amit Shetty: Oh, that way.
Abhinav Sinha: Yeah.
Amit Shetty: Okay. See, at least in our ecosystem, these are high value engineering and R&D companies that are actually set up in our ecosystem in Manyata. Then Indian companies buying over those ecosystems because I think the trend, if you see, was earlier that these guys were established in Indian IT companies and then they chose to come out of it simply because of the reasons that I said, like culture, more productivity, higher value in the value chain of the job itself being executed,
Amit Shetty: and therefore direct control on hiring and global roles actually moving into these ecosystems. Having said that, we do not believe that those kind of organization and those roles will go. If Indian companies are able to buy, this will be in the lower value chain of the job being processed, and therefore, we do not see risk, at least in the immediate or the near future.
Abhinav Sinha: Thank you. That is helpful. That is all.
Amit Shetty: Thank you.
Operator: The next question comes from the line of Parvez Qazi with Nuvama Group. Please go ahead.
Parvez Qazi: Hi, good morning. Congrats for great set of numbers. Two questions from my side. I was looking at Four Seasons. Was the DPU negative this quarter, and what could be the reason behind it? Second, after all the recent tax changes, in future, what could be a reasonable cash tax rate for us? Thank you.
Abhishek Agrawal: Parvez, I will take the second question first. As I was mentioning for the previous question, you can expect around, let us say, 5% of revenue as the cash tax going forward for the next one or two years. On the first question, Four Seasons, EBITDA is down because of one-time fees that we had paid during this quarter. It is one time, and if you remove that, then it is still in line with the previous H1.
Parvez Qazi: With regards to the management contract there, you paid some fees there, would that be correct?
Abhishek Agrawal: Parvez, actually, you know what? You can actually read our financials. It is clearly listed out there, Parvez.
Sakshi Garg: Parvez, also these contracts are bilateral. No point giving more details on the call.
Parvez Qazi: Sure. Okay. Thank you. All the best.
Operator: The next question comes from the line of Vinay Agrawal with Kotak Alternate Asset Managers. Please go ahead.
Vinay Agrawal: Hi. Good morning, everyone. My question is, how much is the physical occupancy at the portfolio level? Is the absolute number of employees more than the number of seats?
Amit Shetty: The physical occupancy you mean to say by area is 90% as we have reported. In terms of seats, typically my sense, I would not be the right guy, but my typical sense is that the number of employees are more than the physical seats because of productivity gains of seats that most of these organization use.
Vinay Agrawal: Okay, great.
Operator: Do you have any more questions, Vinay?
Vinay Agrawal: Thanks.
Operator: The next question comes from the line of Puneet with HSBC Bank. Please go ahead.
Puneet Gulati: Yeah, thanks for the follow-up. Can you also talk about what you are seeing on the Business Hub part of the business that seems to be filling up a tad slower?
Amit Shetty: Puneet, we have pre-leased about 200,000 square feet in Business Hub. There are two fundamentals to this, Puneet. There is a metro that is getting developed right opposite Business Hub. We believe that we want to be aggressive probably the next financial year, simply because from a rate perspective, we believe that we will get significant upside once the metro is up and ready.
Amit Shetty: The stations are currently getting built, so I think in the next 6 months, we should have significant amount of works completed and therefore, more occupier confidence in that metro being up, and therefore we will get better rates. We are very confident about that location because we already have an anchor in the form of Philips who has taken about half a million square feet, and then we have already done pre-leasing. The balance is about 1 million square feet to lease. We don't see that being too much of a problem given the demand that is there in Bengaluru.
Puneet Gulati: Understood. What are the rentals you are experiencing there for your latest last transacted deal?
Amit Shetty: Puneet, too early to say, but in the ZIP code of, say, 75 to about 85, 90 is that ZIP code the rentals are getting traded there.
Puneet Gulati: Understood. Lastly, in your financials, the other OPEX seems to have gone up a bit from INR 22.5 crores first Q to almost INR 50.3 crores. What is driving this number?
Abhishek Agrawal: No, this is the same thing which we were talking about in the previous question, one-time fees that we have provided for.
Puneet Gulati: Okay.
Abhishek Agrawal: Yeah.
Puneet Gulati: That is the fee. Okay. Understood. The maintenance and other operating income trend also has gone up a bit. Should we attribute that to the hotel?
Abhishek Agrawal: Maintenance fees is the CAM fees, which has increased. Also some part is hotel. But largely, the CAM fees has increased because of the increase in cost. Everything gets passed on to the tenants with a margin.
Puneet Gulati: Okay. CAM fees has gone up. Understood. That is helpful. Thank you so much.
Operator: The next question comes from the line of Sumit Kumar with JM Financial. Please go ahead.
Sumit Kumar: Hi, good morning. Thanks for the opportunity. My question was on the growth. We have seen an area growth of about 10%. With the new hotel coming up, I think, growth of about 15% to 16% was probably on the lower side. So what explains that number? If you could explain and give more granular details.
Abhishek Agrawal: Sorry, could you just repeat once again, please? You just broke off in between.
Sumit Kumar: I am saying the area has increased by 10% on a YoY basis.
Abhishek Agrawal: Yeah.
Sumit Kumar: While the growth in revenues is about 15%. With the new hotel and growth in the hotel business as well as mark to market as rental escalations that are usual in business, the growth should have been higher. If you could give some granularity on what happened.
Abhishek Agrawal: Okay. Basically, what happens is that when there are exits in the portfolio, right? There are two components. You have a rent-free component, and then the cash actually starts kicking in after the rent-free period is exhausted. Therefore, you are going to see some of these things that will happen because of the high front load of exits that we had.
Sumit Kumar: Okay. This should normalize and H2 should be better. Is that reading correct?
Abhishek Agrawal: Yeah. Should be better.
Sumit Kumar: Okay. Thank you. That is all from my end.
Abhishek Agrawal: Thank you.
Operator: Thank you. As there are no further questions, on behalf of Embassy REIT, that concludes this conference. Thank you for joining us, and you may now disconnect your line.
