Brookfield India Real Estate Trust REIT (NSE:BIRET) Q4 FY23 Earnings Concall dated May. 19, 2023.
Corporate Participants:
Rachit Kothari — Senior Vice President, Investments
Alok Aggarwal — Chief Executive Officer
Sanjeev Kumar Sharma — Chief Financial Officer
Pradyumna Choudhary — JM Financial Ltd. — Analyst
Ankur Gupta — Non-Executive Director, Managing Partner and Head of India and Middle East
Pawan Kakumanu — Senior Vice President, Strategic Finance
Analysts:
Pradyumna Choudhary — JM Financial Ltd. — Analyst
Sri Karthik Velamakanni — Investec India — Analyst
Atul Tiwari — Citigroup — Analyst
Pritesh Sheth — Motilal Oswal Financial Services Ltd. — Analyst
Adhidev Chattopadhyay — ICICI Securities — Analyst
Murtuza Arsiwalla — Kotak Securities — Analyst
Vikrant Gupta — Apricus Wealth Advisors — Analyst
Presentation:
Operator
Ladies and gentlemen, good day, and welcome to Brookfield India Real Estate Trust Earnings Call for Q4 FY ’23. [Operator Instructions]. Please note that this conference is being recorded.
On the call, we have the following persons: Mr. Ankur Gupta, Managing Partner, Brookfield Asset Management and Director, Brookprop Management Services Private Limited; Mr. Alok Aggarwal, Chief Executive Officer, Brookprop Management Services Private Limited; Mr. Sanjeev Kumar Sharma, Chief Financial Officer; Brookprop Management Services Private Limited; Mr. Pawan Kakumanu, Senior Vice President, Strategic Finance; and Mr. Shailendra Sabhnani from Brookfield.
I now hand the conference over to Mr. Rachit Kothari. Thank you, and over to you, sir.
Rachit Kothari — Senior Vice President, Investments
Thank you. Good afternoon, everyone, and welcome to the call. We are pleased to report to you the Q4 and full year results for financial year 2023. I’d start by saying that this has been a transformative quarter for our REIT. On one hand, we have made significant operating leap on our existing portfolio, and on the other, secured a large INR11,200 crore acquisition which will completely change the scale, diversity and the operating outlook of our business.
In that breadth, a couple of things to cover at the beginning. Firstly, great operating progress at two of our assets. Our early renewal of 900,000 square feet of space in Kensington with TCS secures over INR100 crores or 10% of portfolio’s operating income every year for the next 15 years with a five-year lock-in. Our asset N1 in Noida has also touched 96% occupancy with very limited lease-up left. Trends in both these properties are great testament to the confidence that our occupiers continue to show in us. We expect the other three assets to follow similar trends as return-to-work progresses and clarity on SEZ reforms comes through. We’re also very pleased to announce, with the approval of our independent board members, a transaction that is transformational to the inorganic growth story of our REIT and a big validation of Brookfield’s commitment towards growing this vehicle.
We have signed binding agreements to acquire Candor TechSpace G1 and Downtown Powai. These assets were on our pipeline for the last 12 months or so, a very high-quality irreplaceable portfolio of 6.5 million square feet. The deal is in an equal partnership with GIC, the sovereign wealth fund of Singapore, one of the largest investors in Indian real estate and is on the exact same terms, but majority both fees and management will continue to stay with the Brookfield India REIT. GIC has committed approximately INR3,300 crores in towards these transactions, and the REIT will look to raise a similar amount, both the unit-holder vote to conclude the transaction. The deal is priced to an INR11,225 crores enterprise value which implies a 6% discount to GAV and a 12% discount to our estimate of NAV based on the independent valuations. These properties have an income potential of over INR900 crores, which implies an 8.1% capital and a 4% to 5% DPU accretion. This deal will also take our consolidated assets to over INR28,000 crores making us the second largest REIT in the country, putting us on the path to be the largest as we add more assets and new cities.
I will now request Alok to walk through the business updates.
Alok Aggarwal — Chief Executive Officer
Thank you, Rachit. A very good afternoon to everyone. I’m pleased to announce that we have had a strong financial year and have delivered on our stated objectives for the year. With the announcement of a distribution of INR5 per unit, this quarter, we have met our NDCF guidance and have announced distribution of INR20.20 per unit for FY ’23. We have displayed strong organic growth during the year with our contracted NOI run rate crossing INR1,000 crores, growing almost 15% from the run rate in Q4 last year. We’re also delivering on our inorganic growth strategy and excited to announce the proposed acquisition of 6.5 million square feet of Grade A commercial office real estate in Mumbai and in Gurugram.
We’ll acquire Downtown Powai and Candor TechSpace G1 for a total consideration of INR11,225 Cr. The acquisition will be carried out through a unique 50/50 partnership with GIC, a renowned global institutional investor. GIC is one of the largest foreign investors in India real estate and has a 25-plus years of investment track record in India. The equal partnership between Brookfield India REIT and GIC for the acquisition of Downtown Powai and G1 will be extremely beneficial for both parties, with strong alignment of interest towards value creation. Under the management of our sponsor, Brookfield Group, both Downtown Powai and G1 have been established as dominant assets in their respective micro markets. These assets are highly complementary to our REIT and are being acquired at a discount of 5.8% to the average fair value assessed by two independent valuers.
Axis capital has provided our fairness opinion of the acquisition price of INR11,225 Cr. These acquisitions will significantly increase the scale of the REIT with the operating area increasing by 44% and the consolidated gross asset value by 73%. The top-five tenant consideration will reduce from 52% to 32%. The prominent BFSI tenants such as Deloitte, JPMorgan and Nomura being added to our top 10 roaster. This transaction will significantly improve our geographical diversification with Mumbai’s share of our JV increasing to 33%. The acquisition will enhance the pro forma effective economic occupancy by approximately 200 basis points to 91%. We anticipate a 4.5% increase in NDCF unit as a result of these acquisitions.
We propose to fund this transaction through our institutional capex of up to INR3,500 crores and has taken Board approval for the same. This institutional placement will significantly enhance the fee REIT unit and diversify our investor base. With the COVID-led disruption largely behind us, we are seeing an upsurge in the return to office trend with strong month-to-month growth in footfall at our assets. This trend, coupled with the quality of assets, has resulted in us achieving a gross leasing of 2.1 million square feet in FY ’23, which is approximately 1.8 times of our historical leasing average. We have added additionally — we have additionally signed 0.4 million square foot of expansion options during the financial year.
We are delighted to announce the renewal of 0.9 million square feet with TCS at Kensington, at a renewal [Phonetic] spread of approximately 35% signed during the quarter. The renewal would take place in two phases and will significantly derisk our income profile. The weighted average lease expiry of the overall portfolio has improved from 6.8 to 7.9 years and the expiries due to FY ’26 have reduced from 32% to 22%. During the financial year, we signed deals with marquee [Phonetic] tenants at all our assets suggest Aristocrat at N2, Accenture at G2, Baker Huges at Kensington, at N1 and Capgemini at K1. We renewed space with TCS at Kensington, British Telecom at G2, Mercer at N2 and GenPact at K1. The leasing success that we have seen during the year coupled with our robust leasing pipeline of 1.2 million square feet gives us confidence that FY ’24 will be a strong year.
Our effective economic occupancy has improved to 89% with our total leased area at 12 million square feet. Our existing leases have delivered a robust embedded growth with an 11% average escalation on 4.1 million square feet during the year. ESG continues to be a key component of our overall strategy, and we continue to work towards a sustainable future with our target to achieve a net zero by 2040. We have signed a power purchase agreement through the IEX platform to procure renewable energy up to 60% of the energy requirement at our assets in Noida. This will potentially reduce our greenhouse gas emissions by 7.5% for Noida assets. We’re also working on a long-term solution for the procurement of renewable energy for the REIT entities and a third-party open access agreement, which will potentially reduce our greenhouse gases emissions by 48%. We continue to take incremental measures to ensure that our assets are efficient, resilient and future-ready.
Now I would like to invite Sanjeev to provide our financial update. Thank you.
Sanjeev Kumar Sharma — Chief Financial Officer
Thanks, Alok. Good afternoon, everyone. I’m pleased to announce that we have achieved an NDCF of INR167 crores, means INR4.99 per unit in quarter four of financial year 2023, and we are able to deliver on our guidance. For 12 months of financial year 2023, we have achieved an NDCF of INR679 crores, means INR20.25 per unit. The Board has approved the distribution of INR168 crores means INR5 per unit this quarter. We have achieved a near 100% distribution of INR677 crores, means INR20.20 per unit for the full financial year 2023.
Final version of budget clarified the issues on the taxation of a component of distribution, which is in line with our expectations. Further, as commercial office business parks picks up, REITs are well positioned to provide capital appreciation from the underlying business in addition to distribution yields. We have witnessed a growth of 14% in our operating lease rentals to INR211 crores as compared to the same period last year. The adjusted NOI for this quarter, including income support from the sponsor group also witnessed a stellar growth of 15% to INR244 crores compared to quarter four of financial year 2022. The addition of Candor TechSpace N2 into the portfolio and a significant improvement in our CAM margins over financial year 2022 lifted our operating lease rentals by 28% to INR827 crores and adjusted NOI by 38% to INR961 crores over the same period last year.
We have witnessed an expansion in our NOI to ONR ratio by 4% to 107% in quarter four of financial year 2023 as compared to the same period last year. The improvement in our CAM margins was driven primarily by some of the occupiers moving to higher hours of operation and because of higher physical attendance we have seen at our assets. Our robust balance sheet with a 32% loan-to-value ratio has enabled us to see a limited increase in the average interest rates to 8.2% as on 31 March 2023. This is a 144-basis point increase in the interest rates during financial year 2023 compared to a 250-basis point increase in the repo rate during the same period. Additionally, our debt structure has ensured that we have limited amortization of only 5% over the next three years.
With this, I would request the moderator to open the floor for Q&A. Thanks to everyone.
Questions and Answers:
Operator
Thank you very much, sir. We will now begin the question-and-answer session. [Operators Instruction]. The first question is from the line of Pradyumna Choudhary from JM Financial.. Please go ahead.
Pradyumna Choudhary — JM Financial Ltd. — Analyst
Yeah. Hi, so a couple of questions. The first one being the assets that have been acquired, somewhere I read up the NDCF yields from those would be around 4.5%, and the discount to GAV is 5%. So, in that sense, has it been slightly expensive acquisition, would it be right to say that? Like how do you see it?
And second, on the same thing, would be that, from my understanding, we are even around INR35 billion and the asset would be 50/50 priced at INR112 billion. I think the debt-to-equity comes out to be, for the asset release, comes out to be 37.5% debt and 62.5% equity. So, is the debt a bit on a higher side for the acquisition? And second would be related to the current demand scenario, are you seeing any sort of weakness because of what’s happening more globally? So yeah, these two.
Ankur Gupta — Non-Executive Director, Managing Partner and Head of India and Middle East
This is Ankur. I’ll just start off about the transaction and my colleagues would take it forward. I just want to make sure that the understanding is correct. The NDCF accretion over the baseline is by 4% to 5%, which means we are enhancing the NDCF accretion, the implied yield on an asset value basis is in excess of 8%. So all in all, this is an accretive transaction. And it’s also at a discount to average of fair value of two assets. So I think — and lastly, in the context of the quality of the assets, assets of this scale are very, very hard to acquire to amass [Phonetic]. These are irreplaceable assets, if I may use that word. So on all accounts, this is a fantastic transaction, underlined by the fact that a strong institutional investor, with decades of experience in this space is coming in on the same basis as the REIT is coming in at. So that’s point number one.
And on point number two, we have stated, as a large owner of real estate assets across the world, that high-quality assets continue to be in top demand, both from an occupier perspective as well as from a capital perspective, which is also reflected in the strong performance that our REIT has had with the overhang of the COVID-led situation almost behind us. So I would say that on all accounts, this is a fantastic opportunity for the REIT to significantly increase its breadth and enterprise value.
Pradyumna Choudhary — JM Financial Ltd. — Analyst
Understood. [Speech Overlap]
Ankur Gupta — Non-Executive Director, Managing Partner and Head of India and Middle East
Lastly, on the question of LTV, sorry, I forgot to answer that. On a look-through basis, if you look at the value and not look at the costs, in the zone, about one-third or thereabouts that we think is prudent capital structure for high-quality income generating 90%-plus lease assets with long-term lease tenure. And as capital markets evolve, we’ve always stated that our LTV will toggle in the region of 25% to 35% because the value uplift that happens through income increases cannot always be captured on a static basis as far as debt stack is concerned.
Pradyumna Choudhary — JM Financial Ltd. — Analyst
Understood. And secondly, on the demand side. Can you just give us an idea, are you seeing any sort of weakness or are we still didn’t see larger deals happening, for now disposed of some ideas there.
Alok Aggarwal — Chief Executive Officer
Well. As I mentioned, we have completed the March large transactions in our portfolio and that is across our portfolio in the country. And as I mentioned, high-quality real estate needs to be separated for some of the commentary that’s happening on the media, that has always been the case, it is just announced right now. But our assets and the quality of our portfolio in India and worldwide continues to do very, very well.
Pradyumna Choudhary — JM Financial Ltd. — Analyst
All right. Thanks so much.
Operator
Thank you. The next question is from the line of Sri Karthik V from Investec. Please go ahead.
Sri Karthik Velamakanni — Investec India — Analyst
Hi. Thanks for the opportunity. My question again is to the transaction, and I’m referring to the Slide number 18 in the presentation on the acquisition. There is a INR2.6 billion working capital and debt financing drawdown against which the capex number is INR1.1 billion number. So the gap of INR1.5 billion, in fact, for the year in reference is being used to support the NDCF. If we were to adjust for that between NDCF, it looks much lower. How should we think about this bit? That is question one.
Second, again, I’m going to take this valuation question in a slightly different way. You announced, let’s say, a discount of approximately 5.86% on the GAV. However, our REIT assets today approximately traded at a 12% discount at the current market price. So — in fact, the acquisition discount seems to be much lower than where the REIT is currently trading, so how do we triangulate these two things? Thank you.
Pawan Kakumanu — Senior Vice President, Strategic Finance
Sure. Sri Karthik, Pawan here. I will take the first question. I think here, there is a representation, which has been made on a pro forma basis. But I think a better way to look at NDCF or to that extent, NDCF yield is that, we are doing this acquisition at 8.2% rental yield adjusted for one-third of that being through debt, which is coming at a cost of 8.5%, we get a NDCF field of 8% on the remaining two-thirds, which will be funded to equity is on the overall transaction level.
Now typically, with the lease-up, which is expected over the next two years, taking into account G1 as well as for the lease-up prevailing in Downtown Powai, we anticipate that there is INR100 crore of lease-up rental which will come up in G1 and approximately INR50-odd crores, which comes up in Downtown Powai and INR75 crore of security deposit inflows will come up in the next two years. Adding that into the fray as well, I think, there is north of 8% of NDCF yield, which is coming from these assets. And I think that’s the right way of looking at what value these assets are beginning in.
On the second question.
Alok Aggarwal — Chief Executive Officer
Yeah. So on your second question, Sri Karthik, look, again, I mean, the valuation of assets that you’re purchasing from private sellers, again, I mean, the stock trading at a certain level should not really impact valuation of assets when you look to purchase them. Our endeavor has been to, of course, get the best deal for the REIT. And the discount to NAV that I mentioned in my opening remarks, is still 12%, which is double-digit, which is, I would say, in line or maybe slightly short of where the discount to NAV of our current stock is. So what I would say is that is one way to look at it.
But the other way to look at it is the fact that you’re getting an asset at an early eight [Phonetic] cap rate with a 5% to 6% growth profile, so you’re looking at 14% asset-level IRR. And on top of it, if you add the 35% LTV, you look at about a 17% equity IRR on this transaction, which is going to be immensely beneficial for the existing unitholders as well as new unitholders who choose to participate in the fund base.
Sri Karthik Velamakanni — Investec India — Analyst
Okay. Thank you for that.
Ankur Gupta — Non-Executive Director, Managing Partner and Head of India and Middle East
I would also add that stock valuations are set by the large share that sold or bought, always using that as a representative of how private capital markets or transaction capital market prepared. Our endeavor in the REIT has always been to grow with high-quality assets, not take development risk, you can always purchase discounted assets which will not qualify for the quality or take undue development and operating risks. These assets check the box on every parameter, dominant assets almost no operating risk, certainly no development risk and fantastic income profile from current tenants and coming at a discount towards an independent view on valuation. So on all counts, we are very excited that it allows us to motor ahead on our business plan for the REIT.
Sri Karthik Velamakanni — Investec India — Analyst
Sure. Could I ask a couple of questions on the results also, if that’s okay?
Ankur Gupta — Non-Executive Director, Managing Partner and Head of India and Middle East
If that’s okay with you, maybe you can come back in the queue, if that’s okay because there’s a lot.
Sri Karthik Velamakanni — Investec India — Analyst
Yeah, yeah. Okay, no problem. Yeah, thanks.
Operator
Thank you. The next question is from the line of Atul Tiwari from Citigroup. Please go ahead.
Atul Tiwari — Citigroup — Analyst
Yes. Thanks a lot, and congratulations on acquisition. Just one question. So you mentioned that NDCF per unit, it is accretive by about 5%. In that calculation, you have assumed issuance of new units in the QIP?
Alok Aggarwal — Chief Executive Officer
That’s correct.
Atul Tiwari — Citigroup — Analyst
Okay. And obviously, the price, whatever has been written is similar to the today’s market price? Is that right understanding of that?
Alok Aggarwal — Chief Executive Officer
That’s right.
Atul Tiwari — Citigroup — Analyst
Okay, okay. Thank you. Thank you.
Operator
Thank you. [Operators Instruction]. The next question is from the line of Pritesh Sheth from Motilal Oswal. Please go ahead.
Pritesh Sheth — Motilal Oswal Financial Services Ltd. — Analyst
Hi, thanks for the opportunity. Just two questions. One on the acquisition. So for the assets that we have acquired, is there any mark-to-market opportunity that we see on the existing occupancy?
Pawan Kakumanu — Senior Vice President, Strategic Finance
Hi, Pawan here. So there is some amount of mark-to-market in both these assets available in about 4% to 5% mark-to-market on a consolidated level on the entire 6.5 million square feet.
Pritesh Sheth — Motilal Oswal Financial Services Ltd. — Analyst
And any thoughts like when it can be realized? I mean are the expiries of those under-rented tenants very soon or it’s longer?
Ankur Gupta — Non-Executive Director, Managing Partner and Head of India and Middle East
This is Ankur. I’ll just answer that question slightly differently. My colleague Rachit stated that these assets are coming at an equity IRR of about 17%, unlevered IRR of about 14%. So starting with about 8%-ish yield with all the cash from accretion that’s happening, I think, the best to look at it on a total term scenario that you are getting 8% yield, which is growing at about 6% annually, assuming that cap rates remain the same, so that probably is the easiest to look at. We can go tenant by tenant on 6.5 million square feet, but there are profiles that are different.
And I would also like to state that these markets have tremendous supply gap of high-quality spaces with almost no operating risk, the ability to increase rents as expiries come through is very high. So you’re kind of trading stability. This consistent growth in some of these portfolios rather than a spike, which is also good. So overall, on the portfolio basis, it adds tremendous value to our business. But I think the best we look at it is unlevered 14% return from these assets. That shows the real compounding impact of growth.
Pritesh Sheth — Motilal Oswal Financial Services Ltd. — Analyst
Thanks, Ankur, that’s very clear. And secondly, since we have good chunck of exposure to the IT services guys like Cognizant, TCS, Accenture, anything we are sharing on their outlook about hiring slowdown or office space take up, while — I mean, I saw we had a good renewal this quarter from TCS, but in terms of new space absorption, how do they think about next six months, 12 months? That would be helpful.
Alok Aggarwal — Chief Executive Officer
This is Alok. Let me answer this question. So we have seen a 0.9 million renewal for 15 years, so that — in SEZ, that itself validates the kind of attractiveness of our assets, SEZ. And even in Capgemini, they have taken new space in Calcutta. And we are talking about markets, we’re talking about different tenants. Calcutta market has done pretty well, it has kind of revived. We’re expecting a two million square feet kind of leases this year and we hope we can capture some of them and a lot of — of them IT services companies. So while they are not taking space in both, but they’re taking small leases 50,000 or one lakh square feet they’re taking, renewals they’re taking. We also have — Accenture has signed, Mercer has signed. So there’s a demand.
Of course, they have not grown their numbers in last quarter, but that’s okay because they have grown by almost 20% per annum in last two to three years. So I mean, one quarter, two quarter, three quarter of consolidation is okay. But I think icing on cake is they’re back to office. And more and more the staff will keep coming back to office, they will take more and more space for existing employees. Forget about the new additions. And that’s what happened with one of the tenants in Calcutta. As soon as they crossed 50% people coming back to office, they needed more space. So even if their numbers are not increasing, that’s okay. I mean we have — and we have seen the back-to-office numbers going almost up to 65 on average in our campuses. As soon this — and every month, these numbers are going up, so leasing will continue. There’s absolutely no issue on that.
Pritesh Sheth — Motilal Oswal Financial Services Ltd. — Analyst
Sure. And no exit or no discussions with Cognizant as well, right? No concerns on that versus what we’ve seen on media?
Alok Aggarwal — Chief Executive Officer
See, I would not go — and Cognizant probably they have some space in Calcutta, some in Bombay. They would leave some space in Bombay. But that’s okay because that’s happened. We have seen many of these companies leaving some space, got that filled. Most of the spaces have good mark-to-market. Some churn will happen in best of times and worst of times. So one tenant here and there is something that will keep happening. Yes.
Pritesh Sheth — Motilal Oswal Financial Services Ltd. — Analyst
Sure, sir, that’s very helpful. Thank you, Thank you for answering the questions. All the best.
Alok Aggarwal — Chief Executive Officer
Thank you.
Operator
Thank you.The next question is from the line of Adhidev Chattopadhyay from ICICI Securities. Please go ahead.
Adhidev Chattopadhyay — ICICI Securities — Analyst
Good afternoon, everyone. Am I audible?.
Alok Aggarwal — Chief Executive Officer
Yeah, it seems audible.
Adhidev Chattopadhyay — ICICI Securities — Analyst
Yeah, Just a couple of questions, this is on the NDCF, specially. So sir, considering whatever the leasing scenario on the existing portfolio, any NDCF guidance you’d like to share for the coming years in terms of what growth we can see organically in the NDCF? That is the first question.
Secondly, sir, in this transaction we have mentioned NDCF one-time we have given for the proposed asset infusion, there is a large working capital adjustment of INR263 crores. Could you just explain what is the nature of this adjustment? And going forward, how should we look at this? Is it one-time? Or it is more of a recurring nature when we arrive at NDCF accretion number? Thank you.
Sanjeev Kumar Sharma — Chief Financial Officer
Adhidev, Sanjeev here. Let me take first question, and then I will hand over to Pawan for the second one. As far as NDCF guidance is concerned, I will take you back to the previous year. Even after increasing the interest cost in financial year 2023, we maintained a run rate of INR5 NDCF or DPU. Though we are not giving any guidance for NDCF, but don’t see a significant volatility in our distributions.
Adhidev Chattopadhyay — ICICI Securities — Analyst
Okay, sir. So you do not expect any major expiries, I think, coming up, right? Is the right way to look at it, means more of a stable thing for the current portfolio in the coming year as of today?
Alok Aggarwal — Chief Executive Officer
So see, we have about 1.2 million square feet of space projected. Now is probably maybe 50% can get expired. So that can happen. I think,we should be mindful of that. But we have been seeing this from last three years, thrice it has happened. We’ve been able to backfill them. We have been — and most of the expiries if you talk about in Calcutta and in Noida, we’re seeing a lot of — by the way, we’re seeing good kind of traction in Noida markets. N1 we have achieved 97% and N2 there’s strong leasing pipeline. So where the price would happen, we would get mark-to-market. There could be three to six months lag in backfilling them, but we are confident that where ever expiries happen, we should be able to backfill them.
Adhidev Chattopadhyay — ICICI Securities — Analyst
Okay, okay. Thank you.
Pawan Kakumanu — Senior Vice President, Strategic Finance
Adhidev, Pawan here. On your query with regard to NDCF accretion, I think what we have presented is an FY ’23 pro forma number. The right way we would think to look at an NDCF accretion here is that the overall deal we are doing at 8.1%, 8.2% yield. Add to that, that one-third of this has been financed at debt at 8.5%, which means on the remaining equity portion we generate a yield of 8% on. And there is lease-up, in both these assets of about INR150 crores of annual run rate, and we expect a INR75 crore of security deposit inflows happening over the next two years. Add that in and we think we are looking at upwards of 8.1%, 8.2% kind of NDCF yield and that’s how we are looking at this overall metric.
Adhidev Chattopadhyay — ICICI Securities — Analyst
Okay. So sir, just to understand correctly, the NDCF which have represented should, again, on a longer-term basis, it should go up every year, right, on the basis of what we have currently set for FY ’23?
Pawan Kakumanu — Senior Vice President, Strategic Finance
That would be the right way of looking at it.
Alok Aggarwal — Chief Executive Officer
So earlier the contractural — the levers for growth both in the existing portfolio and the proposed acquisitions, continue to be fairly robust. And we will see that — we would see that continue to go and grow on a projected basis in a similar fashion.
Adhidev Chattopadhyay — ICICI Securities — Analyst
Okay, okay. Thank you very much.
Operator
Thank you. The next question is from the line of Murtuza Arsiwalla from Kotak Securities. Please go ahead.
Murtuza Arsiwalla — Kotak Securities — Analyst
Yeah, afternoon, Alok, Ankur, and other members of the team. Just two questions on the SEZ piece, which has been sort of holding back the industry at large. Any updates that you have to share with us? And if you could give us a breakup of vacancies between SEZ and non-SEZ? And just touching on the Cognizant piece. Again, any communication that you’ve had from them in terms of early terminations, etc., some assets that you could see expiring prematurely because been very vocal in the earnings call. And do you see a risk that some of the other sort of IT companies may want to follow suit to go in that direction?
Ankur Gupta — Non-Executive Director, Managing Partner and Head of India and Middle East
Murtuza, can I just come in here for a minute, and I’ll let Alok describe its detail. IT companies have been vocal about many things. And you may have mistaken the noise from the reality. What is set for main street versus Wall Street sometimes is different. Everybody univocally have said now that this whole work from home and all the stuff, it doesn’t work. And most markets in the world are back to full working from home. Alok mentioned the strong hiring trend that they’ve had.
Now still that trend, the factual matter versus commentary on a generic basis. So there will be some churn, but there will also be very strong lease-up and consolidation that we will see, and our assets are applying for it. It’s upto to the teams to now make opportunity of that situation that’s going to emerge. It’s just consolidation because you had growth, now it’s time for consolidation and then there will be growth again. India is very well placed to that growth. And some companies will do well, some companies will not do well. And our assets, hopefully will do well, and they will be attractive for companies that are under strong growth trajectory. And we firmly believe that our growth starts when people work together in offices and create better businesses.
And I’ll let Alok answer the second question, but also our — primarily our vacancy is in the SEZ portfolio, N1 is the only asset before the acquisition of the future Powai and G1, that’s not SEZ right now, and that’s almost 100% leased now. So primarily, our vacancy is in the SEZ portfolio, and we’ve seen good communication with regulators on reforms. Now when that those reforms happen, our expectation is sooner than later. The degree of reforms is really up to the regulators to decide.
Murtuza Arsiwalla — Kotak Securities — Analyst
Sure. Thank you. Thank you, Ankur.
Alok Aggarwal — Chief Executive Officer
So let me take this SEZ question. See, DESH Bill is getting delayed, but we have been in constant touch with regulators, and we’re expecting a partial decision approvals to come up soon. How soon, I think is difficult to comment. But having said that, now we also have lived with this SEZ reforms, on that reforms for the last three years. We have also kind of, we are saying — and we have seen there’s a lot of traction in SEZ. Fine, I mean while non-SEZs have done fantastically well, touching almost about 97, 98, but even SEZ Properties, TCS, Capgem — Capgemini has taken new space in Calcutta. Capgemini, Mercer, Accenture, these all companies are taking space in SEZ, so all are removing SEZ. We are sitting in front of every company which is not in SEZ, but is eligible for SEZ.
And we are shelling them the value addition which SEZ is bringing. So we also have changed our strategy, and it’s getting us results. Aristocrat, was never in SEZ actually. And they have got one full building in Noida. And there are many tenants who are willing to consider SEZ because 25-acre campuses, fantastic safety security, ESG, options to expand. So we are working on that, we feel if these reforms come, fantastic. If they get delayed, we are confident we should be able to convert a lot of tenants who are — or if not lot, many of the tenants who are presently out of SEZ to SEZ. That’s what we see.
Murtuza Arsiwalla — Kotak Securities — Analyst
Sure. Thank you so much. Alok
Operator
Thank you. The next question is from the line of Sri Karthik V from Investec. Please go ahead.
Sri Karthik Velamakanni — Investec India — Analyst
Thanks again. My question is pertaining to the quarterly results. When I look at the total security deposit movement from Q4 ’22 to Q4 ’23 on a period-to-period basis, there has been a net accretion. However, our NDCF movement suggests that it’s almost a reduction or a cash outflow of INR61 crores. I’m trying to reconcile both these data points. That’s one.
Sanjeev Kumar Sharma — Chief Financial Officer
Sri Karthik, Sanjeev here. In the balance sheet, when you see the number, it’s along with the IND-AS [Phonetic] adjustments because you need to do the discounting of the security deposit. And every quarter, you need to rewind also. Whereas, when you come to the NDCF, that’s coming from the cash flow. So that might be the difference which you are talking of.
Sri Karthik Velamakanni — Investec India — Analyst
Okay. Understood. And also the increase in borrowings for the year, roughly INR2.9 billion, against which our capex for the year is about INR1.3 billion. So the difference of about INR1.5 billion, how would that reconcile? And that’s the second question.
Sanjeev Kumar Sharma — Chief Financial Officer
Again, Sri Karthik, I think you are referring to the balance sheet number. If you refer to the NDCF statement number, which is the cash flow, yes, there is a gap, but gap is lesser than what you mentioned in your question. And just to answer that why financing over and above capex is, it’s mainly to fund the temporary working capital requirements or differences like withholding tax, like a refund of some of the tenant deposits which have not been refilled as of today.
And I would refer to last quarter’s calls also, one of you have asked a similar question. I explained then also that all these temporary differences gets netted off over a period of time, maybe in one quarter, we will enter into a situation where this working capital requirement funded through that. And in next quarter or subsequent quarters it get reversed, in one year, it is funded through that in coming years, it gets reversed. But on — over a period of mid-term, it gets nullified.
Sri Karthik Velamakanni — Investec India — Analyst
Understood. Lastly, on our interest cost, it’s today at about 8.2% and you’re tentatively indicating 18.5% as the current incremental cost of borrowing. Would that be the new, I would say, average for FY ’24 that we’ll have to work with for the reach to?
Ankur Gupta — Non-Executive Director, Managing Partner and Head of India and Middle East
Yeah. This is Ankur. Look, I don’t know whether the average is because we have floating rate debt. I would though urge you to look at the tenure of our debt along with the cost of the debt. And in markets or global capital markets that are slightly uncertain, both go together, I think benchmark or at least Central Bank, both in India and most places in the world, have stated a policy shift over the last few months. Certainly, India has been quite sort of prominent shift. So we don’t expect — in fact, we expect the reverse of many — and you guys are probably experts at that.
Many people are expecting a reversal to lowering of rates. But again, we won’t speculate on that right now. But we certainly see interest costs for us should be coming down over a short-to=medium period. And as enterprise goes larger and the lease tenure is longer, we can also look to have a combination of fixed versus floating. And given the appreciation that we have in our portfolio, all times long mixing [Phonetic] of debt because you don’t maybe have tenure paying too much [Technical Issue]
Sri Karthik Velamakanni — Investec India — Analyst
And then any indicative mix of distribution for the acquired assets?
[Speech Overlap]
Alok Aggarwal — Chief Executive Officer
Karthik, just before we get to this question, just rounding of the previous one, just a couple of points. If you look at the existing REIT debt, which is at 8.2%, this is already factored in, as we mentioned, all the interest rate hikes till date. And as Ankur highlighted, we do not with the policy shift, see any further increases potentially. So there is now a downward bias that you see on the existing portfolio. For the proposed assets that we are looking to acquire, the cost of 8.5% that we’ve indicated is a repo-linked benchmark. So again, that as we see a policy shift over a period of time, should start seeing a downward trend. So that’s the way you probably want to think about it.
Sanjeev Kumar Sharma — Chief Financial Officer
Yeah. On your second question, Sri Karthik, around the distribution mix, look, I think it shouldn’t materially change However, management is actively thinking about certain initiatives to improve the dividend contribution to this mix, which we can update you in subsequent quarters. But at this point in time, all things remaining the same, there will be no material change to distribution.
Sri Karthik Velamakanni — Investec India — Analyst
Okay. Clear. Thanks. Thank you.
Operator
Thank you. The next question is from the line of Vikrant from Apricus Wealth. Please go ahead.
Vikrant Gupta — Apricus Wealth Advisors — Analyst
Hi. Can you hear me?
Alok Aggarwal — Chief Executive Officer
Yeah.
Operator
Yes.
Vikrant Gupta — Apricus Wealth Advisors — Analyst
Great. So just a couple of questions. One is probably more general is, if you can give some insights into competition for tenants in the key markets that we operate in? And specific to the Powai acquisition is the other question.
Understanding, I guess, this 14% to 17% equity IRR that you spoke about is the growth rate and when I look at the independent valuation report it suggests that historical is around 2% for the market, and there is a lot of supply increasing in the market side. Could you perhaps explain the reason for the optimism?
Ankur Gupta — Non-Executive Director, Managing Partner and Head of India and Middle East
Yes. This is Ankur. I would just say that sometimes supply is stated. It takes a long time to build assets, certainly a very long time to stabilize assets and in these markets, a very, very, very long time to procure financial closures. So I would say that — and finally, to create the ecosystem, assets that we have been built over a few decades now, and the ecosystem exists around it. So my suggestion on some of these averages may not work in specific situations. And for us, we demonstrated these numbers in our portfolio. A lot of the escalations are contractual in nature.
The TCS leads that we talked about, 15-year lease with annual escalations. So I would just say that some of these are contractual in nature. Some of these are demonstrative in nature and expectation of future is somebody’s guess, but many times in India, it just takes longer to build and costs more. In fact, I would like to see how at these values, new construction with buying of land will actually point towards an even higher growth rate for our portfolio.
Sanjeev Kumar Sharma — Chief Financial Officer
And I’ll just add that, if you look at the track record of both these assets, and we have given it in our acquisition presentation, G1 used to lease at INR50 in 2015. And today, it’s leasing at north of INR80, which is about 6% to 7% CAGR, right? Powai used to lease at INR110 in 2017 and today, it’s at INR163, right? That itself is a, I would say, the numbers are in front of you. These assets, of course, command a premium, they grow at above inflationary rates and have done so in the past, and not this near-term past, but over a period of five to seven years.
Alok Aggarwal — Chief Executive Officer
And just I would like to add here the performance of the numbers could have been very, very different, if it was not for three years of once in a lifetime kind of event COVID, which we all went through. So just look at how these assets have performed even after three years kind of a COVID impact.
Vikrant Gupta — Apricus Wealth Advisors — Analyst
Sure, sir. Just a quick follow-up on that. I think Ankur mentioned this. So I’m assuming you can look at replacement costs. So, can you perhaps indicate if you find below or above the replacement cost?
Ankur Gupta — Non-Executive Director, Managing Partner and Head of India and Middle East
Below replacement cost in case of Powai, if you compare it to land prices today and where, let’s say, residential apartments sell at, which is I think the best com [Phonetic] that you can get for land plus construction. Properties in Powai are selling anywhere between, I would say, INR28,000 to INR32,000 a foot. I think our acquisition basis on these assets is about INR24,000 a foot and a very similar dynamic in Gurugram, where, again, if you look at the resi or in these markets or the land comps in these markets, the number would come out to be very similar in terms of discount.
Sanjeev Kumar Sharma — Chief Financial Officer
At these valuations, either land has to be free or construction has to be free to make financial returns at these rentals. So our expectation is, is that rental is going to go up significantly.
Vikrant Gupta — Apricus Wealth Advisors — Analyst
Sure. And sorry, just the question on the competition potentials in our key markets?
Alok Aggarwal — Chief Executive Officer
Yeah. So — this is Alok. When we talk about let’s take up, and we update market-by-market. When we talk about Powai, I don’t think — of course, those who can’t afford to be in Powai, they go out and take space on cheaper locations, but those who want to be in Powai, they take the continue in Powai and pay the market price.
And similarly, in Gurugram, yes, we have two or three top players and competition is among those top players.
Noida, I think assets are dominant and we are significantly ahead in terms of rental, in terms of ability to guide new tenants. At Noida at least, first tenants want to see our assets and for some reason, if that doesn’t work out, then they go out. That’s something I’ve seen from last seven years happening. Started again the most dominant assets, people like to be there. And for some reason, if they can’t be there, then they go out at more cheaper actions. So that’s how we look at competition.
Vikrant Gupta — Apricus Wealth Advisors — Analyst
Thanks.
Operator
Thank you. Ladies and gentlemen, that was the last question for today. I would now like to hand the conference over to the management for closing comments. Over to you.
Alok Aggarwal — Chief Executive Officer
We would like to thank everyone once again for joining us on the call. We’ll see you next quarter. Thank you, everyone
Operator
[Operator Closing Remarks]