Embassy Office Parks REIT (EMBASSY) Earnings Call Transcript

Good evening, everyone. A warm welcome to all the -- a very warm welcome to all for the Embassy REIT's First Quarter FY 2023 Earnings Conference Calls. [Operator Instructions] As a reminder, this conference call is being recorded. I'd now like to introduce your host for today's conference, Mr. Abhishek Agarwal, Head of Investor Relations for Embassy REIT. Thank you and over to you, sir.

Thank you, operator Welcome to the first quarter FY 2023 earnings call for Embassy REIT. Embassy REIT released its financial results for the quarter ended June 30, 2022 a short while back, as is our standard practice, we have placed our financial statements, 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 deem forward-looking statements. Please be advised that the REIT's actual results may differ from these statements. Embassy REIT does not guarantee these statements or results and is not obliged to update them at any time. Specifically, the financial guidance and any 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 guidance and information, and there can be new assurance that we will be able to achieve the same. Further, there are risks and uncertainties relating to the COVID pandemic and its economic effects on Embassy REIT and on our occupiers. Joining me today are Vikaash Khdloya, the CEO; Abhishek S. Agarwal the Interim CFO; and Ritwik Bhattacharjee, the CIO. Vikaash will start off with business and industry overview, followed by Ritwik and Abhishek. We will then open the floor to questions. Over to you Vikaash.

Good evening, and thank you all for joining us on the call today. Let me start by once again thanking Mike Holland who retired earlier this month. On behalf of the entire team at Embassy REIT, I thank Mike for his contributions over the years and wish him well for the future. I'm excited and honored to lead to the next phase of growth after working with the management team and our sponsors for over a decade. Diving into our Q1 FY '23 results. We delivered a strong all round quarter with our record leasing's being the key highlight. We signed a total of 1.8 million square feet leases with healthy deal traction across new leases, pre-commitments in under development projects, as well as, end up tenure lease renewals accelerated development of our ongoing 4.6 million square feet office projects we successfully launched the 619 keys dual-branded Hilton Hotels at Embassy Manyata, and we are now proceeding with development of 518 key dual branded Hilton Hotels at Embassy Tech Village or ETV. On a financial performance we delivered a 9% year-on-year growth in our net operating income and announced healthy distributions of INR 5,052 million or INR 5.33 per unit marking a 13th consecutive quarter with 100% payout. Balance sheet remains conservative with low 27% gearing and given the rising interest rate environment. We are well positioned with 64% of our overall debt logged in at fixed rates of 6.7%. Record COVID vaccinations normalizing economic activity and steady rise in back to office, occupiers have now started planning for the space requirements, both to accommodate headcount increase over the last 2 years, as well as, their business growth. The physical occupancy in our properties reached 66,000 during last week, and over 20% increase compared to last quarter. So the pace of ramp up varies across our properties in micro-markets. The upward trajectory in the numbers is highly encouraging. And it's translating to increase in lease inquiries and deal closures. Let me now update you on a leasing performance. As you may recollect, during last quarter, we provided a total leasing guidance of 5 million square feet for FY '23. We are happy to report that during Q1 we achieved a record total leasing of 1.8 million square feet across 25 deals, making it the highest total leasing in a single quarter across the last 7 years. This 1.8 million square feet includes new leasing of 40 -- new leasing of 415k square feet at 31%, releasing spreads and at above market [ rents ]. It includes end-of-tenure renewals of 850,000 square feet, mainly by our IT services occupiers at Pune and Noida properties, and at 9% renewal spreads, and also 550,000 square feet pre commitment to JPMorgan in our under development Block 8 at ETV. Notably, we added 50 New occupiers during the quarter across multiple high growth sectors, and occupier base has now expanded to 214 compared to 165 at the time of our IPO in 2019. With this, we ended the quarter with a stable occupancy of 87% and a promising 1 million square feet new deal pipeline. Our 3.1 million square feet expires for FY '23. We have successfully renewed 850,000 square feet and expect a further 1 million square feet as likely renewables. The balance 1.2 million square feet unlikely exits for FY '23 including 453,000 square feet exits witnessed during Q1. These exits are in line with our previous guidance and are mainly due to relocation or consolidation of occupiers with legacy leases. We view this as positive churn, given the increased rents on these exits are significantly below market with over 50% mark to market opportunity. Additionally, we secured 15% rent escalations on 1.9 million square feet across 22 deals in Q1. As mentioned earlier, our mark to market rent potential and a contracted rental escalations are embedded growth drivers for our business. Leasing pipelines and conversations with occupiers support our view on key -- 3 key trends. First, there has been a clear acceleration in the number of new entrants looking to set up the offices in India. This is driven by India's talent availability at [ scale ], and the cost advantage that the India office market continues to provide. We signed a number of such deals this quarter with new occupiers, including players from growth sectors like cloud infrastructure, cybersecurity and e-commerce, sunrise sectors like renewals and healthcare tech and rebound sectors like media and automobile. With an average deal size of 25,000 square feet for our Q1 new leases, our strategy of focusing on high-growth occupiers in early stages of the India operations sets us in a strong position to capture future demand as they expand their India footprint. Second, given record hiring and increased offshoring, our on-ground interactions indicate that multiple corporates have onboarded more employees than the existing office capacities. Additionally, many corporate leaders have reiterated that physical offices will remain at the core of the business given the need for collaboration, culture and team building, thereby driving steady back to office. Both these factors together have led occupiers to activate request for proposal or RFPs for the immediate space needs, as well as, initiate planning for the medium-term requirements. This has also resulted in healthy pre commitment inquiries in under construction properties as occupiers look to lock in office space to meet the future business growth. Third, given employee attrition concerns across industries, hiring and retaining talent has become a top business priority. Employee wellness, health and safety have now become a core focus of RFP and occupiers today are seeking higher product standards for their employees. As a result, institutional grade, wellness-oriented and green-rated buildings have become the preferred choice, especially for Google -- especially for global corporates. With a high-quality portfolio, total business ecosystem offering and ESG focus, we are well placed to benefit from this secular trend. To sum up, these emerging trends provide significant tailwinds to our business. We are well positioned to benefit from the resurgent office demand given our best-in-class properties and our concentration to Bangalore, India's best-performing office market. Moving to update on our ESG program, which is core to our business strategy. In line with 19 defined ESG programs are INR 3 billion planned investments over the next 3 years are progressing satisfactorily. Our 75-25 renewable program, 20 megawatt solar rooftop project and USGBC LEED and British Safety Council Certifications, all of these are aimed to future-proof our properties as sustainability takes center stage. For more details on our significant initiatives and progress thereon, we encourage you to read through our latest annual ESG report, which is available on our website. So overall, a great start to FY '23 with strong leasing performance and promising growth prospects. Despite the external macro environment, our business continues to be resilient, backed by the growth -- backed by the strength of our growing occupier base, our on-ground teams and our fortress balance sheet. We remained focused to deliver on our guidance and to accelerate our business to the next growth phase. Ritwik will now expand further on our growth initiatives, and then Abhishek will provide details on our financial performance. Over to Ritwik.

Thanks, Vikaash. Good evening, everyone. An update on our key growth initiatives for the quarter. We've accelerated development on 4.6 million square feet of ongoing office projects. This includes 1.9 million square feet at ETV, of which we have successfully pre-committed 550,000 square feet to JPMorgan. We've successfully launched the 619 key Hilton Hotels at Embassy Manyata, and we've commenced development of the 518 key Hilton Hotel Complex at ETV. We funded INR 9.3 billion to GLSP, our joint venture entity to finance the Embassy GolfLinks, or EGL add-on acquisition. And we continue to evaluate the 5 million square foot Chennai ROFO opportunity we received from Embassy Sponsor. First, an update on the development portfolio and total business system -- ecosystem investments. We've accelerated development on our 4.6 million square feet on-campus projects, including the recently launched 1.9 million square foot office development at ETV. ETV is perhaps the best example of the growing market for office space that the ORR micro market in Bangalore is witnessing as demonstrated by the 550,000 square foot pre-commitment from JPMorgan. With limited upcoming supply in our micro markets, particularly in Bangalore, we are well positioned to benefit from the resurgent leasing demand and healthy pre-commitment activity. The 600,000 square foot M3 Block B at Embassy Manyata has been impacted by delays in obtaining preconstruction approvals, including the acquisition of necessary transferable development rights or TDRs. Other than this, we remain on track with our target delivery schedules across our 4.6 million square foot development pipeline. We continue to evaluate 1 million square feet of leasable area enhancements that comprises a 600,000 square foot additional redevelopment opportunity at Embassy Manyata, and a 400,000 square foot potential new block at ETV. We are in the process of updating regulatory approvals for these projects, and we will update you on the progress. We are continuously upgrading the efficiency, wellness and sustainability performance metrics of our existing properties. In aggregate, we have committed over INR 27 billion of investments in our development pipeline and in infrastructure updates. On costs, the commercial real estate industry, like several other sectors is currently experiencing cost inflation. While we're not completely insulated from this, we are largely tracking our previously disposed budgets with respect to the 4 million square feet of ongoing development. This is due to our agile procurement, existing vendor relationships and our record of timely project execution. Moving on to our hospitality business that has seen a remarkable turnaround post-pandemic. In May, we launched one of India's largest mixed-use hotel complexes at Embassy Manyata. This complex comprises 619 key dual-branded Hilton Hotels, a 60,000 square foot convention center and 85,000 square feet of retail and F&B. We're pleased to report that this Hilton complex achieved 47% occupancy and was EBITDA positive in its first operating quarter. We've secured over 150 corporate contracts, and we continue to witness healthy demand for the convention center. Our other 2 operating hotels, the Hilton EGL and the 4 Seasons are also experiencing improvements in operating performance and increasing occupancy. Our overall hotel EBITDA for Q1 was INR 145 million, which tracks ahead of our guidance. Given the rebound in business travel, we've accelerated the development of the 518 key dual-branded Hilton Hotels at ETV. The ORR micro market is a significantly underserved hospitality market, and we're confident that the hotels will mirror the success of the Embassy Manyata hotels. Excavation is currently underway on site, and we expect to deliver the hotels by 2025. Next, an update on our acquisitions. Our acquisition philosophy continues to be one of delivering growth to unitholders. We look for high-quality, large-scale business parks that mirror our existing portfolio. We also financed our acquisitions with a prudent mix of debt and equity to manage our cost of capital and to deliver accretive growth to unitholders. During the last financial year, our 50% owned investment entity, GLSP, acquired approximately 400,000 square feet of our area from strata owners. The acquisition consolidates GLSP's footprint to 3.1 million square feet at Embassy GolfLinks, which is unequivocally one of India's best office parks. GLSP also acquired the property management business for the entire 4.7 million square foot park. During the quarter, GLSP fully integrated this acquisition and the asset team did a terrific job in leasing up this newly acquired area, which is now 87% occupied. In addition, we continue to evaluate the right of first opportunity we received from Embassy Sponsor in January with respect to Embassy Splendid TechZone, a 26-acre business park in Chennai that totals around 5 million square feet when fully developed. Of this, 1.4 million square feet is fully complete and 85% occupied and an additional 1.6 million square feet is currently under development. As we've mentioned, we like Chennai as a growth market and the scale of this property and location of this micro market continues to draw interest from global occupiers. We will update you as we progress on our valuation. Additionally, we continue to evaluate numerous third-party opportunities, our robust governance framework, strong balance sheet and access to capital markets continue to be our key strengths as we pursue accretive growth. Over to Abhishek now for our financial updates.

Good evening, everybody. Key financial highlights of Q1. We grew income by 9% year-on-year to INR 6,773 million with operating margin of 82%. We announced distributions of INR 5,052 million or INR 5.33 per unit, with 88% as tax-fee to unitholders. We successfully raised INR 10 billion debt at 5-year fixed rate of 7.35%, taking our total fixed cost debt to 64%, and we continued to maintain our strong balance sheet with low leverage of 27% and pro forma debt headroom of INR 108 billion. Let me take you through the details. First, an update on our Q1 financial year '23 income performance. Revenue from operations grew by 12% year-on-year to INR 8,294 million, mainly driven by the delivery of our 1.1 million build-to-suit project at ETV. Launch of our 619 key Hilton Hotels at Embassy Manyata, as well as, business ramp-up in our existing hotel portfolio. Net operating income grew by 9% year-on-year to INR 6,773 million, mainly driven by increase in revenue from operations, partially offset by the increased hotel operating expenses corresponding to the revenue increase. Our NOI margins continued to be best-in-class at an impressive 82%, reflecting both the scale and efficiency of our business, as well as, our low fee structure. Our EBITDA also grew by 9% to INR 6,544 million, in line with the NOI increase. Net distributable cash flows stood at INR 5,056 million, down by 5% year-on-year, but up by 1% quarter-on-quarter. The year-on-year increase in our NOI and EBITDA contributed positively to our NDCF, which was offset by incremental interest costs on recently developed buildings, as well as, the INR 46 billion coupon bearing debt raised to finance our earlier zero coupon bond. Further, earlier today, the Board of Directors declared a distribution per unit of INR 5.33 for Q1, representing a 100% payout ratio. Notably, 88% of our Q1 distributions are tax-free to our unitholders, benefiting from the simplification of 2-tier structures at Embassy Manyata and ETV. Moving to our balance sheet updates and debt strategy. During Q1, we raised to INR 10 billion 5-year fixed rate debt at 7.35% and utilized INR 9.3 billion to provide debt financing to GLSP, REITs investment entity for its add-on acquisition at EGL. With this debt raise, 64% of our INR 134 billion debt stack now carries a fixed rate with an average maturity of 3 years, which insulates us to a large extent from the rising interest rate environment. The remaining 36% floating rate debt totaling INR 49 billion is exposed to interest rate movements, though impact during Q1 was minimal. However, of this INR 49 billion floating rate debt, we successfully moved INR 25.5 billion, constituting 19% of our total debt from a quarterly to a yearly reset schedule, thereby locking it in fixed interest rate for a 1-year period. While the rise in short-term market rates would impact our overall interest cost, this recent renegotiation helped us mitigate a pro forma INR 155 million rise in interest cost on an annualized basis. With this, 83% of our debt book is now locked in at a fixed cost for financial year '23, and we have less than 1% of our debt coming up for maturity during this fiscal. This helps us hedge our balance sheet and substantially mitigates the impact of rising interest rates. We remain focused on actively managing our debt book, and we will continue to explore additional refinancing opportunities. With AAA stable rated debt, our balance sheet remains robust and well positioned to finance future growth. Furthermore, our entire debt book is now fully coupon bearing, thereby simplifying the cash flow through for our distributions and diversifying participation from various debt investors, including banks, domestic mutual funds, corporate treasuries, insurers and FPIs. Lastly, an update on our financial year '23 guidance. As a recap, last quarter, we provided our detailed financial year '23 guidance with a midpoint NOI at INR 27,030 million, with a range of plus/minus 5% and a midpoint DPU at INR 21.7 per unit with a similar plus/minus 5% range, thereby implying a 9% year-on-year increase in NOI and in-line DPU at midpoint guidance. This guidance was based on certain key assumptions, including a total lease up of 5 million square feet, comprising 1.7 million square feet new deals, 1.2 million square feet pre-leases and 2.1 million square feet lease renewals, as well as, rent escalations of 14% on 8.2 million square feet leases and a positive EBITDA of INR 400 million from our 4 operating hotels. Along with this, we have also factored the impact of incremental interest cost of INR 2.3 billion relating to our recently delivered buildings, as well as, our ZCB refinance with a fully coupon bearing debt. As at Q1, we are on track with our leasing guidance and are tracking ahead of our estimates for performance of our operating hotels. However, we expect our interest costs to be higher due to the impact of rising interest rates on our floating rate debt. Overall, [ we've maintained ] our earlier financial year '23 guidance range. We continue to remain focused on delivering to our unitholders as demonstrated consistently since our listing. Over to Vikaash for his concluding remarks.

Thank you, Abhishek. In summary, FY '23 is off to a solid start with 1.8 million square feet leasing in the first quarter and the demand outlook for Indian office markets looking very encouraging. India's favorable demographics and abundant 10 talents continue to act as catalysts to offshoring demand by global corporates. With increased offshoring support expansion of tech and global captive customer base in India, thereby providing growth impetus to our business. Embassy REIT remains an ideal combination of yield, growth and stability. Our stock continues to be resilient even in a volatile global market. With 13 consecutive quarters of 100% distributions, we have now delivered total annualized returns of 13% to the benefit of 47,000 and growing unitholder base. Looking forward, our strategy remains unchanged, backed by a high-quality portfolio, favorable concentration in right markets and strong balance sheet, we continue to remain resilient as demonstrated during the COVID pandemic. We are now accelerating our growth investments and initiatives. Our quality occupier base, on-campus development and acquisitions pipeline all drive our growth and help us consolidate our market position. And significantly, the recent rebound in leasing activity, supported by continuing occupier expansion plan positions us well as we move forward. With this, let's now move to Q&A.

[Operator Instructions] We have a first question from the line of Kunal Tayal with Bank of America.

My first question is, given that you've had a good start to the year in terms of our new leases. How are you thinking about the target of 1.7 million that you had set out last quarter? And just a clarification if that target of 1.7 million would also include 550 million of pre-commitment that you've signed this quarter? And then I have a follow-up.

So the 1.7 million square feet is new leases on existing operating portfolio. This was the breakup of the guidance. Apart from this, we have also assumed 2.1 million square feet renewal and an additional 1.2 million square feet pre-commitments. So that's how the total of all of these 3 put together sums up to 5 million square feet. So 1.7 million square feet is only on the operating portfolio. On a like-to-like basis, that [ competes ] to the 400,000 or 450,000 square feet with in this quarter.

So I think -- so essentially, I think we should take 0.4 of 1.7 as basically done in Q1.

That is correct. And just to add to your earlier question, as of now, we are maintaining a 5 million square feet guidance with the split, but we do see markets especially Bangalore rebounding quite well. So we'll revisit this next quarter to see if that guidance need to be updated.

And then the follow-up, Vikaash is, I think couple of days back there was an update on the work from home policy for the SEZ, and you had a chance to think through what the implications could be for your assets?

There are couple of things here. One, obviously, as we mentioned earlier, the back to office trend has been gradual and encouraging, but within the numbers that we have laid out of about, let's say, 25% physical park population, the back to office actually differs significantly all considerably between cities and assets. So for example, Mumbai is already at 55%, 60%, as you know from last quarter. But interestingly, Embassy TechVillage with a large proportion of global captives, we saw the park population up to 45% or higher. So to answer your question, we have seen that the SEZ, primarily IT services companies, they have been slower on back to office compared to the global captives and also the tech product companies. We believe that as the current attrition concerns balance out, there will be more positive ramp-up on back to work by the IT services companies, and we'll see more demand. Combined with that associated with that is the SEZ work from home benefits, given cities like Pune and Noida had early extended that benefit up to December, we've seen very slow ramp-up of about 15% or less in Pune and Noida. However, we believe the new notification [ magnating ] at least 50% back to office and an additional compliances for those companies who want -- continued work from home. We believe that should be a positive for occupiers who occupy exited premises which are primarily IT services companies. So we'll have to wait and see, but we do think this will help the back to office ramp-up, especially in properties like Pune and Noida.

We have next question from the line of Puneet with HSBC.

My first question is, if you can give more color on what's happening on Manyata. We haven't seen material leases signed -- having signed there only 32,000 square feet got signed this quarter. How should one think about the ramp-up in Manyata, at what point do you think it will pick up materially?

And do you have a follow-on question -- second question?

Yes. The rest are more on financial front, if you look at NDCF or ETV, that seems to have fallen while NOI has gone up, anything to read there? And second is the distribution part for EGL, there are now 2 distribution one is dividend and second is the distribution number, which I presume is a composition of both interest and return of loan, if you can give the breakup between interest and return of loan and explain the policy behind that?

Sure, Puneet. Why don't I take your first question, and then I'll hand it over to Abhishek from our finance team to take your second question. So just to kind of lay out where we are today at Manyata, the last quarter occupancy was 88% and the occupancy of Manyata this quarter is 87%. This compares to around mid-90s pre-pandemics. While there's a lot that is now currently going on at Manyata, the one key reason for the drop in occupancy is because of one large exit of about 1 million square feet of a legacy lease, which has a mark-to-market of over 150%. Having said that, we have seen around 700,000 or 800,000 square feet of those exits already factored in as of now, 700,000. We also have an additional vacancy relating to the same leases coming up in the coming quarter. All in all, I'd say, in the coming quarter, we have about 400,000 square feet of additional exit, which has a mark to market of over 150%. And at the same time, we have a pipeline of around the same quantum. Just to give you a flavor of the kind of occupiers we're talking to today and Manyata has actually seen good incremental demand from a lot of existing and new occupiers, smaller in quantum to start with, to factor for the immediate growth, but we are now seeing it quickly translate into larger RFPs and pipelines as we think of future growth. So the guys we're talking to now for the 400,000 square feet pipeline, which I mentioned, which we're targeting for Q2 include an American listed healthcare infotech firm in setting up a new office when there's a -- there Fortune 10 healthcare and insurance company, an existing client was looking to take up the largest space at Manyata. We're also looking at an AI cloud data analytics player, which facilitate medical research and then also digital transformation firm, which does AI and automation. So if you see the kind of profile of occupiers that we have in Manyata over the last 2 years has moved from, let's say, 36% of global captives to today 50%. And our effort is to kind of see if we can take this higher. On a like-to-like basis, ETV, the global captive share will be significantly higher. So we remain pretty positive that Manyata is seeing good traction from the global captives who is really expanding. Manyata has already seen increase rent -- increase from FY '20 from the time of the pandemic to today from INR 61 to INR 66, so we are realizing the mark to market. And the market rent today is anywhere between INR 95 to INR 100. So there's a huge potential. The other trend I'd say EGL and ETV, both of them have seen a strong momentum on leasing and are now almost 100% up. So we believe that Manyata will now continue to see even more share of the traction, given that those other 2 micro markets of CBD and ORR are really full up on occupancy. Again, how does this translate into our numbers or into leasing? We are currently in advanced discussion with an existing -- with a global bank for 600,000 square feet pre-commitment on one of the under construction blocks. And apart from that, we are seeing quite a lot of activity from existing and newer occupiers. So we remain pretty encouraged on Manyata, and we estimate that by the end of this year, Manyata should move into early '90s in terms of occupancy. The reason I say -- the reason behind our enthusiasm on Manyata is because of the Hilton Hotels, it has really helped attract a lot of tenant attention and interest in Manyata. Of course, you're aware about the flyer. And also what will happen is as some of the older spaces come up, we are considering redevelopment of the existing 400,000, 450,000 square feet, which will incrementally result in 1.2 million square feet total lease of the area if we do go ahead with a 600,000 square feet to 700,000 square incremental [ SAR ]. So Manyata, we are focused more on NOI and how can we enhance overall value and NOI and, of course, distributions and not necessarily just the occupancy number. And the mark to markets we've already seen the way Manyata mark to markets have been delivered over the last 2 years. So I think that -- I hope that gives you a little bit flavor of how Manyata is moving.

Yes, so 2 clarifications here.

Yes, we're putting in effort to move it to more global captive kind of an occupier base.

Okay. So 2 captive, 2 questions related to this. So you talked about 90% occupancy -- early 90% by end of this year. So does that mean you capture number one, in your leasing guidance, some bit of occupancy happening in Manyata. And second, a deduction of 0.4 million square feet from the total leasable area are both points counted in the 90%?

That’s correct.

Okay. So the denominator also goes down to some extent. Got it.

200,000 square feet odd. That's correct. And with this, Abhishek, would you want to take the second question?

So Puneet, there were 2 questions for me. One was relating to ETV NOI increasing, but…

NOI and NDCF.

So I will tell you, actually, there are 3 large reasons for that. One is, because what has happened is this SIPL block, [ JPMC ] Block 9 that has got capitalized last year in March. So the interest is now not getting capitalized, and it is getting hit to the NDCF while it is not getting it to the NOI. Second major reason is that if you remember, last year, what we were getting is central support, which was directly going and increasing -- this year, but it did not have any impact on NOI, but from this year, it is getting routed through the revenue from operation, because enter support is over and rentals have started. So this is increasing the NOI without having any impact on the NDCF. The third reason is that, as this is the first quarter, we have paid all the property tax for the year. So that is taking the NDCF down while having no major impact on the NOI. So these are the largely 3 reasons. Other than that, there is normal movement in working capital, which also reduces the NDCF. Okay. The second part of your question was on GLSP, the loan that we had provided to GLSP, our investment entity for accretion of 300,000 odd square feet and CAM business for the entire EGL part. So what has happened is during this quarter, we have received actually 3 components. First one is a dividend of around INR 40 crores, second one is interest on the loan that we provided around INR 18.5 crores. And the third one is amortization of the debt that we have provided because there had some excess cash there, so which is a small number, INR 15 crores. So does it answer your question?

Yes. So on this amortization, is there a policy that you will continue to amortize INR 15 crores? Or do you think this was more one-off price?

Actually, Puneet, what will happen is, while interest will come every quarter, but this amortization of debt and dividend will depend on the cash flow and the profit that they have at their disposal. So it will be dependent on whatever cash they have.

We have next question from the line of Karan Khanna with Ambit Capital.

So Vikaash, my first question is when you look at the leasing pipeline across Quadron Pune, Oxygen Noida and Embassy One. Can you give us some sense as to how you're looking at these assets given occupancies are still below the portfolio occupancy, as far as, these assets are concerned?

Sure. And do you have second question, Karan.

Second, on the expansion of 1 million square feet, M3 Block A at Embassy Manyata. We note that this is now expected to be delivered in December '22 versus originally agreed to obtain the OC in December '19 by Embassy Property Development. Consequently, can you give us any sense on specific reasons for the delay while acknowledging that EPDPL is paying rental compensation of around 57 million per month, which is lower than what can actually be generated? So that's the second question.

Sure, Karan. Why don't I take the first, and I'll hand over to Ritwik for the second question. So Karan, on these 3 properties or Pune as a region, a couple of things. One -- and this would be true for both Pune and Oxygen, is that we have seen slower than average ramp-up of back to work, especially given both these properties -- all the 3 Pune properties, as well as, Oxygen they cater to IT services -- predominantly IT services players. So that's the reason while we see deal pipeline now kind of being generating -- generated, we've not seen it progressing to a stage where there are closures. We think -- just on Pune itself, we think Hinjewadi is not the most competitive office markets. It has got now good infrastructure in place at INR 50 and it's pretty compelling. And the quality that we've built both on existing and the new products in TechZone, we think it's a good market to have a ready product available. As and when the back to office ramp up speeds up, we think the IT services company will start activating the leasing requirement, especially given our ongoing conversation suggests that many of them have hired more people than they have office space for. I can kind of give you a flavor of 6 specific conversations we have had with our existing occupiers in Pune, where they said that if, factoring for all the people that they already have hired within the additional 400,000 square feet. So I think it's just that we don't see there's a trigger or an urgency for the occupiers, but as the back to office and, as well as, the recent [ exit ] work from home policy of 30%, we'll wait and see if that has to kick start or speed up the pipeline and the lease conversion. So that's on Pune. We admit and we agree that it has been slow. On oxygen, again, it's similar. The back to office has been slow in SEZ, specifically in Noida. Again, here, we're seeing around 15%-ish levels of back to office. While we have renewed with existing occupiers, we are seeing -- here, we are seeing again very slow momentum on lease pipeline converting into deals. Interestingly, both in Pune and in Noida, we have recently seen 350,000 square feet each of renewals with existing IT services players at premium to market rents of about 15%. So that's an interesting trend where pipeline is -- has been slow to convert into deals, but existing IT services companies, despite the 15% low occupancy -- physical occupancy, have renewed end of tenure leases with 5-year commitment and at premium to market. So we are hopeful that the pipeline will pick up, and we're having a lot of conversations on ground in favor of how occupiers are conducting the site possession thinking about space, but it's waiting for a trigger. Lastly, on Embassy One, the occupancy currently, we are hopeful to kind of move it higher next quarter for the simple reason that we are in advanced discussions for about 40,000 square feet with 3 firms, one is a legal firm, one is an electronic automotive firms front office, and one is a biotech firm, all of these leases lease discussions and advanced stages, and with 40,000 square feet additional that means Embassy One's occupancy to about 70%. That's our target for the coming quarter. Interestingly, a lot of the demand is right now in the north moving to Manyata. So we're seeing that interesting play of, again, occupiers trying to take up space in larger business parks with an expansion optionality. So I hope that answers your question before we move to the M3.

Sir, just a follow-up to that. So I wonder you've seen 367,000 square feet renewal at Embassy Quadron in Pune and 345,000 square feet renewal at Embassy Galaxy in Noida, which we believe the market rentals are or the in-place rentals are higher than the market rentals here. Despite that, you've managed to get the 9% renewal spread on the 850,000 square feet, which you've achieved in 1Q. Just curious to know what is the spreads.