Embassy Office Parks REIT Ltd. (EMBASSY) Q4 FY23 Earnings Concall Transcript

Embassy Office Parks REIT Ltd. (NSE:EMBASSY) Q4 FY23 Earnings Concall dated Apr. 27, 2023.

Corporate Participants:

Abhishek Agarwal — Head – Investor Relations

Vikaash Khdloya — Chief Executive Officer

Aravind Maiya — Chief Executive Officer Designate

Ritwik Bhattacharjee — Chief Investment Officer

Abhishek Agrawal — Interim Chief Financial Officer

Analysts:

Murtuza Arsiwalla — Kotak Securities — Analyst

Mohit Agarwal — IIFL — Analyst

Saurabh — JP Morgan — Analyst

Pulkit Patni — Goldman Sachs — Analyst

Kunal Lakhan — CLSA — Analyst

Neel Mehta — Investec Capital — Analyst

Presentation:

Operator

Good evening, everyone. A warm welcome to all for Embassy REIT’s Fourth Quarter FY 2023 Earnings Conference Call. [Operator Instructions].

I now would like to introduce your host for today’s conference, Mr. Abhishek Agarwal, Head of Investor Relations for Embassy REIT. Sir, you may begin.

Abhishek Agarwal — Head – Investor Relations

Thank you, operator. Welcome to the fourth quarter and full year, FY 2023 earnings call for Embassy REIT. Embassy REIT released its financial results for the quarter and financial year ended March 31st, 2023 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 databook in the Investors 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, any financial guidance and proforma 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 no assurance that we will be able to achieve the same.

Joining me today are Vikaash Khdloya, the CEO, Aravind Maya, the CEO Designate, Abhishek S Agrawal, the Deputy 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.

Vikaash Khdloya — Chief Executive Officer

Thank you, Abhishek. Good evening, and thank you all for joining us on the call today. We recently completed our fourth year since listing continuing our strong business performance and accelerating our growth investments. While we will take you through the details shortly, I’m pleased to report that we have once again delivered on our annual guidance. In the last fiscal, we added 44 new occupiers and leased a total of 5.1 million square feet across a record 100 deals. Including 2 million square feet new leases at 17% re-leasing spreads. We activated 2.3 million square feet new on-campus development at highly-accretive yields and announced an NAV accretive tuck-in acquisition in North Bangalore. We generated healthy 11% net operating income growth ahead of our guidance.

Moreover, despite the rising interest rates, we delivered on our distribution guidance of INR21.7 per unit, marking our 16th consecutive quarter of 100% payout and taking our overall distribution since listing to over INR78 billion. On the balance sheet front, we refinanced or renegotiated INR53 billion debt at 111 — 101 basis point positive spread, maintained low 28% leverage and a competitive 7.2% debt costs. So fantastic year overall and we are pleased to deliver to our unit holders.

On the macro front though global economic and capital market volatility continues with both inflation and interest rates accelerated level. This has led to considerable stress in the global CRE market resulting in widespread earnings decline. Amidst this overall cautionary backdrop, Indian REITs has remained resilient as India office remains a bright spot, given its dual structural advantages of abundance talent and low-cost.

Global companies are setting up and expanding the captive centers in India. And despite the layoff headlines, they continue to hire talents here especially in critical business areas like R&D and Product Engineering. Although, there might be near-term delays in office deal closures till the macro uncertainty abates, increased focus on cost and efficiencies by global corporates will eventually accelerate the India off shoring trend.

At Embassy REIT, our conviction in the Indian office opportunities remains strong as ever, especially, for institutionally managed Grade A properties. Our view is further corroborated by NASSCOM’s recent industry report, which outlined that just last year, around 100 new captive centers were set-up in India and 500 more are planned over next three years. We continue to capture demand from these global players through our premium wellness-oriented properties and focused investments in the most sought-after micro-market.

On the regulatory side, the government and regulators have been very supportive of the REIT product and we continue to improve the framework around management operations, financing and taxation of this emerging asset class. While the industry awaits further progress on the SEZ front, the recent amendments to the finance bill brought in much-needed clarity on taxation of repayment of debt components of our REITs distributions. Given the clear, stable and tax-efficient framework, we are confident that REITs will continue to attract domestic and foreign capital. The recent launch of a REIT InvITs by NSE further helps raise awareness as well as increased liquidity for a total return product.

On the ESG front, just last month, we hosted our flagship event, teamed in it together for a better tomorrow where we collaborated with over 200 of our occupiers on sustainability strategies. In addition, we commissioned the first phase of our 20-megawatt Solar Rooftop Project, an announced plans to explore doubling of our existing captive solar capacity. Our industry-leading ESG program received several global recognition during the year from GRESB, USGBC LEED, British Safety Council and the WELL at scale certification from IWBI and we continue to progress on our FY’25 ESG target as well as our broader net zero 2040 goal. ESC leadership remains the key business differentiator and a driver of premium brands.

Finally, I’m pleased to confirm that the Board today has approved the appointment of Aravind Maiya as CEO for Embassy REIT effective 1st July, 2023. Aravind is known to many of you as he has been part of our leadership team earlier playing a pivotal role as the REIT’s CFO. After an incredible 12-year journey with Embassy REIT and Blackstone earlier, I believe the time is right for me to pursue other interests and passions. It has been a privilege to lead Embassy REIT and I’m proud of the team and the results we have achieved over the last four years since our listing.

I will now pass it over to Aravind to say a few words.

Aravind Maiya — Chief Executive Officer Designate

Thanks, Vikaash. Good evening, everyone. It’s an absolute pleasure to be back and I look forward to working and interacting with all of you. Let me now hand it over to Ritwik to present our business and operating highlights for the year.

Ritwik Bhattacharjee — Chief Investment Officer

Thank you, Aravind. Hello, everyone. Before I begin, I would like to say that it’s been a privilege working with Vikaash over the last five years. He has been a driving force in bringing the REIT to where it is today. It’s also pleasure welcoming Aravind into the fold and I look forward to resuming our partnership at the REIT. So let me start with the business and growth highlights for the year. We leased pipeline of 1 million square feet across 100 deals and we have surpassed our annual leasing guidance of 5 million square feet. We’ve grown our active development pipeline to 7.9 million square feet over 90% of which is in Bangalore, India’s best-performing office market and we announced the tuck-in acquisition of the 1.4 million square feet Embassy Business Hub park that further expands our strong presence in North Bangalore.

On our leasing performance, we’ve leased 5.1 million square feet across 100 deals, which is comfortably the highest over the last seven years, both in terms of the area leased and the number of deals. This includes 2 million square feet of new leases at 17% re-leasing spreads and at a premium to market rents as well as 1.8 million square feet of end-of-tenure lease renewals at 16% renewal spreads. We’ve also secured 1.2 million square feet of pre-commitments for our under-development projects, driven by the expansion of our existing banking and financial services captive occupiers. Factoring 2.2 million square feet of exits during the year, primarily from Indian IT services occupiers, our Q4 occupancy stood at 86%. It’s instructive to note that our non-SEZ occupancy stands at a healthy 93% on a same-store basis both demand and supply trends increasingly point to a strong preference for non-SEZ office space.

We are seeing some key trends in the market. First, Indian office demand continues to be led by global captives. Captives contributed around 70% of our FY ’23 new and pre-leasing and now accounts for over 55% of our annual range. Second, corporates from sectors such as retail, insurance, and healthcare, all of which rely on technology and our increasingly embracing digital footprints are also setting up and then rapidly scaling their India captive centers. And just the last year, we’ve added 44 new occupiers in these sectors among others across our properties and we have successfully leased 1 million square feet to them. Third, While large deals are currently scarce, most markets are witnessing some healthy traction for small to mid-sized deals that range between 30,000 square feet to 70,000 square feet. Our highest-ever deal, 100 deals last fiscal year at an average deal size of 40,000 square feet underscores this trend. We’re also seeing occupiers that earlier exited or reduced their office footprint now re-engaged with new space requirements. We expect deal activity to pick-up later this year and we’re well-positioned with over 800,000 square feet of an active deal pipeline for our existing operations portfolio. And an additional 1 million square feet of pre-commitments for our under-development portfolio.

On our development portfolio and our hotels, during the year we continue to launch, build and deliver state-of-the-art buildings to cater to the momentum we see in office demand in the years to come, particularly in Bangalore. We delivered two projects across Pune and Bangalore. The 900,000 square feet Hudson and Ganges blocks in Embassy TechZone Pune, which has now been denoted as non-SEZ block and the 1 million square feet M3 Block A in Embassy Manyata for which the de notification is underway and the occupancy certificate is also expected next month.

We launched 2.3 million square feet in Bangalore across three new projects, including the first-of-its-kind D1, D2 redevelopment in Embassy Manyata and the new Helenium block in Embassy TechVillage through which we’ve enhanced our FAR by 1.2 million square feet and we’ve accelerated 3.3 million square feet in Bangalore, Noida across three ongoing projects. Of these, as we’ve mentioned previously, the M3 Block B development is delayed due to the non-availability of transferable development rights, or TDR, and other-related approvals, but all efforts are on to meet the committed delivery timelines.

Including Embassy Hub, our total development pipeline is now 7.9 million square feet. Most of which is either in the process of the de notification of planned as non-SEZ at inception. These active developments will be delivered over the next four years at a INR40 billion total committed capex, of which INR28 billion is spending costs that is to be spent as of year end. These projects are expected to add approximately INR9 billion of annual NOI upon stabilization at attractive yields.

By design, over 90% of the growth pipeline is in Bangalore, which is the most attractive office market in India, both in terms of occupier demand and development economics. A fifth of our development pipeline is already pre-committed to leading global companies such as JPMorgan and ANZ Bank and Philips. Additionally, we have around 1 million square feet of another advanced deal pipeline for banks and other tech captives that is specialized in cloud infrastructure and enterprise solutions. We are confident of stabilizing these properties within a year or so of their launch. As an example, with a 162,000 square feet of new pre-commitments in Q4 and an additional 325,000 square feet of advanced discussions, M3 Block A is expected to be around 50% pre-committed at the time of delivery. A quick word on our hotels. As you might recall, we’ve launched 619 key dual-branded Hilton hotels at Embassy Manyata early last year and we achieved breakeven levels within the very first month. They are large.

Our overall Hospitality business continues its strong rebound with 50% occupancy, a 57% ADR growth and an annual EBITDA of INR982 million. That’s over 2x of our guidance. We continue to invest in the development of the 518 key dual-branded Hilton hotels at Embassy TechVillage.

On our latest acquisition, last month we announced that the REIT would acquire Embassy Business Hub, a campus-style business park in North Bangalore for a total consideration of INR3.3 billion. Close to both the airport and to the REIT’s flagship Embassy Manyata Property, Embassy Business Hub cements the REIT’s permanent presence in North Bangalore, our micro-market that continues to witness an influx with global captives.

Of the 1.4 million square feet acquired, 0.4 million square feet is nearing completion and 93% pre-committed to Philips, and provide stable cash-flow visibility. The balance 1 million square feet is in early stages of development. Additionally, we have secured a Right of First Offer future phases of this property, the total 46 acres. This further extends the REIT growth options.

The REIT follows stringent related party safeguards and acquired Embassy sponsors’ affiliate’s share of the 1.4 million square feet of total leasable area in the property, this small acquisition, which accounts for less than 1% of the REIT’s GAV was priced at a 4.5% discount to the average of the two independent valuations.

The NAV accretive acquisition was financed with that which we secured at an attractive 8.1%. We do continue to evaluate other acquisition opportunities while closely tracking capital markets, which continue to remain challenging for raising the capital. As we stated previously, we are focused on ensuring that all acquisitions are strategic, follow relevant governance safeguards, and a value-accretive to our unitholders.

Over to Abhishek now for our financial updates.

Abhishek Agrawal — Interim Chief Financial Officer

Thank you, Ritwik, and good evening everyone. Let me start with the financial highlights for the year. We grew NOI by 11% year-on-year and surpassed our guidance by 2.3%. We delivered distributions of INR21 billion or INR21.71 per unit, in line with our guidance. And the refinanced/renegotiated over INR53 billion debt at 101 basis-point positive spreads with our in-place debt cost at an attractive 7.2%.

Let me take you through the details. First, an update on our full-year financial year ’23 income performance and distribution. Revenue from operations grew by 15% year-on-year to INR34 billion. This was mainly driven by new lease-up at attractive re-leasing spreads, contractual rent escalations, new deliveries, and a rebound in our hotel business. This was partially offset by the impact of exits in our office portfolio.

NOI and EBITDA both grew by 11% year-on-year. This was primarily driven by the increase in revenue from operations, partially offset by increased hotel operating expenses corresponding to the ramp-up in our hotel business. Our NOI and EBITDA margins stood at 81% and 79% respectively and continue to be the best-in-class.

In fact, for the commercial office segment, our NOI margins consistently remain around 86%, demonstrating our scale and efficiency. Net distributable cash flows stood at INR21 billion in line with the previous year. The year-on-year increase in our NOI and EBITDA contributed positively to our distribution, which was primarily offset by an increase in interest costs. This incremental interest cost was mainly related to our recently delivered buildings, the INR46 billion coupon-bearing debt raised to refinance our earlier zero-coupon bond and rise in interest rates on our floating debt.

Further, earlier today, our Board of Directors declared Q4 distributions of INR5.3 billion or INR5.61 per unit. This brings our financial year ’23 distributions to INR21 billion or INR21.71 per unit, which is in line with our guidance despite considerable rate hikes in the market.

Moving to our balance sheet and other financial updates. We continue to maintain our fortress balance sheet with low leverage of 28%, attractive 7.2% in-place debt cost, dual AAA stable credit rating, and INR104 billion proforma debt headroom to finance growth. Further, in line with our ESG commitments, we have considerably grown our sustainable finance portfolio to INR35 billion, which represents 24% of our total debt book. Our debt strategy remains focused on active capital management and interest cost optimization.

During the last financial year, we raised a total of INR41 billion debt at competitive 7.8% interest cost, even amidst continued rate hikes. We refinanced or renegotiated over INR53 billion debt at 101 basis point positive spreads, resulting in INR537 million annualized proforma interest cost saving. 61% of our INR148 billion debt book now carries a fixed rate of 6.7% for an average maturity of 22 months. The balance 39% is floating debt, which carries a fixed interest rate for an average of five months. With this, while we are not fully immune, we remain relatively better placed even as raising borrowing costs continue to impact the entire industry.

Moving to an update on our year-end portfolio valuation. As per the independent valuers’ assessment, our gross asset value increased by 4% year-on-year to INR514 billion, and our net asset value remained in line at INR394.88 per unit. This change was mainly driven by our new deliveries, ongoing development capex, improved hotel performance, and changes in leasing and property levels stabilization assumptions.

In conclusion, I would like to reiterate that we are conservatively financed, have access to diversified sources of capital, and are well-placed to navigate the current volatile macro and rate environment. At the same time, we remain well-positioned to invest and deliver on our growth in the coming years.

Over to Vikaash for his concluding remarks.

Vikaash Khdloya — Chief Executive Officer

Thank you, Abhishek. So another very solid and encouraging year, marking our fourth year anniversary since listing in April 2019. Over the last four years, our team has accomplished a great deal. We raised the scale of our portfolio from 33 million square feet at inception to a massive 45 million square feet today. We lead a total of 11.4 million square feet, acquiring 257 deals achieving 22% leasing spreads and expanded our occupier base by a third to 230 corporates. We delivered 3.4 million square feet of new office space and launched 7.9 million square feet new developments including the first Grade A office redevelopment at scale. We acquired a world-class business park in ETV, totaling 9.1 million square feet, and raised over INR36 billion of equity to India’s first QIP by a REIT.

We refinanced or renegotiated around INR143 billion debt in reducing our interest cost by around 204 basis points and we’re the first to access long-term debt from NBFCs and insurers in the Indian REIT context. We also launched our industry-leading ESG framework and net zero 2040 commitment. And finally, we enhanced our NOI by 76% to INR28 billion delivered close to $1 billion in distribution and expanded our investor base by 18 times to over 75,000 today. Looking forward, we have a clear strategy to further solidify our business and execute accretive growth to cater to the continued off shoring demand for India’s talent and thereby office needs. As long-term asset owners, we continue to enhance the scale, quality, and reach of our properties, as well as our occupier base which will undoubtedly deliver value across business, market and economic cycles. We have an excellent team of over 110 very talented professionals who are committed to execute the strategy and are driven by our ultimate goal of maximizing value for our Unitholders.

With this let’s now move to Q&A, please.

Questions and Answers:

Operator

Thank you very much, sir. Ladies and gentlemen, we will now begin the question-and-answer session. [Operator Instructions] We take our first question from the line of Murtuza Arsiwalla from Kotak Securities, please go ahead.

Murtuza Arsiwalla — Kotak Securities — Analyst

Yeah, hi, good evening, gentlemen. A couple of questions from my side. I know you’ve talked about in your presentation about how almost 70% of new leasing is coming from the GCC space. Could you give more outlook of what the year ahead looks like from this space because we’ve been tracking some data on service exports which also is indicating a lot of strength on the GCC? Second is I didn’t seem to find any guidance for FY ’24 in the earnings deck. Any specific reason for it or you would like to sort of get a handle on the numbers, a quarter or two quarters out or how are we thinking about that? Third question is, you know, both sequentially between the third quarter and the fourth quarter, the hotel segment seems to have seen some NOI margin compression, any specific reason for that? And even the sequential decline in NOI for the commercial, the office business, which you’ve not seen before. And last but not least, thank you Vikaash for the long service that you provided to the REIT and welcome back Aravind. But would you like to elaborate on what prompted the change or what is better that holds for you? Those are my four questions.

Vikaash Khdloya — Chief Executive Officer

Thank you, Murtuza. Quite a lot of questions there, let’s just get the big one out there first. So Murtuza on the management change, after an incredible 12-year journey, I believe the time is right for me to pursue other interests and passions. So it will be an excellent run and by the way, we have a solid business and a great team in place. So with Aravind back, I think, it will be fantastic as we move forward, and I think now the time is right for me to pursue some of my other competing priorities, which is family, new business interests, and fresh challenges. So I think the business — the REIT business is in great shape. I think today and now is the right time. Again, I would say there is 110 professionals and experts in the company and it’s all about the team and not a particular individual. So I think the REIT and the investors are in good hands.

With that, I’ll just quickly move to the other three questions. First GCC, we completely agree with you. We are seeing a trend of lot of growth both new GCCs are setting up shop in India, 100 of those set up in CY ’22. That’s the NASSCOM report. Of the 100, 66 venues cultivate new centers by existing GCC. And then we have the expectations that there would be 500 more in the next couple of years. Even in our own portfolio, we see the same trend of a lot of captives, wanting to set up shop small scale at first and then rapidly keep expanding. I think, in general, this is a great trend, simply because with the recessionary trend, with the overall drive to optimize cost inefficiencies, we’ll see more and more work getting offshore to India and I think that augurs very well for — especially for high-quality landlord like ourselves who offering total business ecosystem product because Murtuza, these GCCs are the guys who are ready to pay. They are — they want the best of ESG, they want the best quality and they do not mind paying premium rates, again, it’s still embarrassingly low rent of $1 a foot per month in India. So I think we’ll see more of that trend. In fact, even in our own portfolio, ITES, the IT services segment, which constituted about 25% of revenues at IPO, it’s now down to 15% and we have also consciously stopped to whether it’s global captives or other high-quality occupiers who have growth potential. So I think you’ll see more of that trend. Now, I think it’s a good thing especially, for higher-quality landlords have better product.

Murtuza Arsiwalla — Kotak Securities — Analyst

If I may Vikaash, what would be GCCs in your overall portfolio, just like you said, ITES would be 15%.

Vikaash Khdloya — Chief Executive Officer

Yeah, so GCCs would be about 55%, and then product tech, sometimes product tech could also be considered GCC, so there is a overlap. So that could be around another, that would be 15%. So GCCs and product tech put together would be 70%, which I think is the two segments, which will continue to see more off shoring and growth.

Murtuza Arsiwalla — Kotak Securities — Analyst

Sure.

Vikaash Khdloya — Chief Executive Officer

Yeah, I think just on that Murtuza, I think the key takeaway there as well is that IT services, and particularly the Indian IT services is going to dwindle, right? I think the way to reposition the portfolio to a multinational base, a base that’s increasingly looking beyond sort of just big tech or you look at some of the big financial companies, as we should have been out — are out there can be a more of a manufacturing hub as we are moving and trying to be sort of, move market-share away from China, you’re going to see other sectors, the bigger part of this portfolio, and I think that’s also areas we are focusing on. So Murtuza, why don’t I then quickly move to the guidance question? I think that’s a great question. So Murtuza, as you are aware, we’ve competed four years, we have consistently delivered on the guidance. What we have laid out for our unitholders. For now, we are not giving any guidance for FY ’24 simply because this continued Volatility in the global macro-environment as well as uncertainty around the SEZ regulation timeline. However, we would be happy to get some building blocks to everyone on the call and you for FY ’24. Can I request Abhishek, if you could help take some of the building blocks in respect of FY ’24.

Abhishek Agrawal — Interim Chief Financial Officer

Sure, Vikaash. And Murtuza let me give this building blocks through couple of points. First being on the leasing. So we continue to have some short-term caution for larger deals, but we are seeing encouraging, but we are seeing encouraging momentum with high-growth tenants as you saw during the current year, financial year 2023 we did come 44 deals across this high-growth tenants, but, and we expect some positive trends also. But what we have seen is that most of our vacancy is SEZ related vacancy and considering the expires of the next year, we will have around $4.5 million vacancy of SEZ space, which is significant, and the timeline and the rentals at which we will be able to leave this also depends on the DESH Bill, which is expected or any changes in the SEZ and the amendment in the SEZ Act, we are positive about it, but then we have to be cautious and wait for that ACT, as and when it comes, we will be able to market this SEZ space. So that is one, which Vikaash was also talking about.

Second, on the contracted escalations, what I would point out is that during the last year we had 8.2 million square feet of leases were contracted, escalations were up and we were able to achieve the whole of them with 14% escalation. And we are confident that for the next year when 6.7 million square feet comes up for escalation across 78 deals, I think we will be able to meet that 14% escalation also. For the hotel business, which is my third point, if you remember, we had given a guidance for the hotel and the actual performance has been almost double of that. So we continue to see the same upward trend and we expect that it will do even better.

The last and one of the points is interest cost obviously. So definitely, that is dependent on the trajectory of the market rate movement, which is very volatile as of now, but what I would want to give you as a building block is that we had delivered 0.9 million square feet during the last year and we expect to deliver around 2.1 million square feet during this current financial year and the interest cost relating to this 3 million square feet, which was growing and getting capitalized in the financials now, it will go and take the P&L, while these deliveries will take some time to stabilize because the lease up will take some time. We also have around 4,100 crores of NCDs, which are currently at an average cost of 6.61%. That also comes up for refinance somewhere around later part of the year, definitely, you know that the interest rates have moved over the last 12 months, 15 months it has moved by 250 basis points. So definitely it will reprice itself and hit the P&L.

The last part that I would want to say on interest-rate is that we again have around INR57 billion of debt, which is at floating rate with an average maturity of five months as I mentioned in our prepared — in my prepared remarks. Currently, it is at 7.98% interest rate, but that also comes up for repricing within the next five months, so from July to August, that will also reprice. So all of this will take a toll on the interest cost but having said that, yet the biggest point is the SEZ because the vacancy is significant. We expect along with the expiry, which is coming up, 4.5 million [Phonetic], which is there for the next year and there are and we await some guidance from the — or amendment. So that’s there.

Lastly, I would say, I would reemphasize that we are running the business for a long-term and we are committed to deliver our growth to our unitholders.

Murtuza Arsiwalla — Kotak Securities — Analyst

Great, thank you, Abhishek. And would you want to take the fourth question on the NOI sequentially down both for the hotels and office segment.

Vikaash Khdloya — Chief Executive Officer

Yeah, Murtuza on the hotel part if you see my NOI is actually down by INR4 crores, which is 4% compared to the sequential quarter. This is largely because of the repairs and maintenance expense that we have done for our existing hotels. So we can gear up for the next year. On the commercial business, it is — on the commercial business, if you see the — there is a decline in the NOI, that is largely because there is a certain manpower cost which has come in the last quarter. The manpower cost in Bangalore has increased a bit, which is the major reason and also we had delivery of — we had delivery of one of the asset that is H&G and appropriate tax for that has increased.

Abhishek Agrawal — Interim Chief Financial Officer

So, Murtuza, just generally quarter-on-quarter, I would guide you to seek more a full-year basis because they are property taxes we pay in one quarter relating the full four months, four quarters and again CAM true-ups happen at the end-of-the quarter and the end of the year. So sometimes there may be variability on a full-year basis. I don’t think there’s anything significantly different that happened in Q4 compared to the full-year if you look at it on a holistic basis.

Murtuza Arsiwalla — Kotak Securities — Analyst

Sure, sure. Fair enough. Thank you, gentlemen.

Vikaash Khdloya — Chief Executive Officer

Thanks, Murtuza.

Abhishek Agrawal — Interim Chief Financial Officer

Thank you.

Operator

Thank you. We’ll take our next question from the line of Mohit Agarwal from IIFL. Please go-ahead.

Mohit Agarwal — IIFL — Analyst

Yeah, thanks. So, best wishes Vikaash for your future endeavors. Thanks for your contribution and congratulations Aravind. Good to have you back and elevated as the CEO.

Aravind Maiya — Chief Executive Officer Designate

Thank you.

Mohit Agarwal — IIFL — Analyst

So I had a couple of questions, so firstly on the expires bit, last presentation showed that FY ’24, it will be 0.9 million square feet of expires. That number has gone up to 2.5 million. So could you elaborate where the increase has happened, and is it SEZ, non-SEZ?

Vikaash Khdloya — Chief Executive Officer

Sure Mohit and would you want to ask the second question?

Mohit Agarwal — IIFL — Analyst

My second question is actually on the SEZ bit. Last couple of quarters you’ve been talking about doing partial identification, so I guess Ritwik talked about the Pune block already being now non-SEZ. I think the Noida was also under process. So could you explain with basically getting delayed, how is the progress on that partial de notification thing happening?

Vikaash Khdloya — Chief Executive Officer

Great, thank you, Mohit. First, thank you for the wishes. And let me take both the questions. On expires, I think as you pointed, we had in the last presentation, 0.9 million square feet as expiries for FY ’24. If you see, we’ve increased that number to 2.5 million square feet in the latest presentation. So what happened is, in this quarter, we’ve received some exit notices and we likely exit based on our ongoing conversations to the tune of 1.6 million square feet, again, this 1.6 million square feet to just break it up, has a 35% mark-to-market and primarily, this 1.6 million square feet relates to 1 million square feet of space at Manyata and a 500,000 square feet space at Galaxy, both of which on a combined basis is at a 38% mark-to-market. So overall, I think we have just said that these are expiries. We have not given a split exits or renewals, so I would just want to kind of make that comment that the 2.5 million square feet are expiries. It will comprise both of exits and also of renewals and a medium chunk of it is coming from IT services players and I’ll come into what’s happening as a trend on the IT services player and also a large portion of this SEZ. So let’s tackle both IT services and SEZ. IT services, these players have right now high focus on margin conservation simply given that they are anticipating a slowdown and they want to be cost-efficient, and also the hiring has slowed down. Our exposure in the portfolio is just 15% but we do expect a positive churn as our occupier base pivots to GCC, the global captives who have higher paying propensity. So, large chunk of this is IT services company. Again, I would just want to make a broad comment that we view churn as good for the business in the medium-to-long term. And especially both, the Mayanta and Galaxy, the additional notices, our assessment that we have mean on expires there in dense residential catchments and hence we are very confident of achieving those 35%, 30% mark-to-market I mentioned earlier. So this is on expiries and we think this is a continuation of this trend we have seen earlier, where the legacy leases and occupiers especially IT services occupiers in SEZ, they are looking to both prune down space due to corporate housekeeping and consolidation. We have seen a lot of this in the last two, three years. I think you’re seeing a few additional of those in this quarter we saw. So that’s pretty much on the — on that.

In terms of the SEZ, I think that’s an interesting question. Let me break it down into what’s happening in our portfolio today, we have about 4.9 million square feet of vacant space as of the end of March, 3.3 million square feet of that is SEZ and 1.6 million square feet is non-SEZ and what happened is, against the 3.3 million square feet of vacant available marketable space we had, there is very little industry, sorry, there is very little interest, not just for our property across the industry for SEZ space, again because occupiers have moved higher the value chain. We are focusing on the captives, and the total business ecosystem, higher propensity to pay, market mature to that occupier set. So what that means is that all are unable to offer today, market today is the 1.6 million square feet. So this has become an industry-wide issue and the numbers are staggering in terms of the total SEZ space in the industry, 180 million square feet or 30 million square feet of just today existing vacant space, right? So that’s one.

Even if you look forward and clubbing both of your questions from SEZ and expiries of FY ’24, the 1.1 million square feet of the 2.4 million [Phonetic] square feet expiries is SEZ. So in total, at the end of FY ’24 pro-forma basis, assuming there is no new leasing, will have about 4.5 million square feet of SEZ space and non-SEZ is a factor that deliveries of 2.1 and 1.3 of expiries, it will be 5.1, so roughly end of the year, we’ll have half of a space, which is ready for market — which is marketable 4.5, that’s SEZ. Again, the global captives are not looking at SEZ simply because they are looking at ease of operations. They can see higher-end, they are not looking at tax benefits, which most of them at any that’s been phased out. So I think SEZ regulation amendment, which allows for partial de notification is a key for the industry and this is — as an industry, we have been in several conversations with both the finance and the commerce ministries and I think today what’s happening is even if I have a vacant space, the regulation do not allow me or permit us to do a partial floor by floor de notification. So let’s say if I have a 400,000 square feet block and 200,000 square feet is vacated by an IT services company, I can’t de notify that they can leave it to a global captive, the regulation only permit a full building de notification and that’s the challenge, so anything which is partial, SEZ and partial non-SEZ is not permitted. So what they’re doing in our portfolio is three things. One, of course, we are continuing our advocacy and our efforts with the regulators to ensure there is a amendment bill which helps us de notify on a partial slow-by-slow basis. Apart from that, all our new developments Mohit are behind that non-SEZ. So all our new development, the 7.3 million square feet, which excludes pre commitment to ANZ which they wanted SEZ is all non-SEZ. So there is no issue on a pre-commitment marketability and activity.

Two, obviously, all our non-SEZ spaces, we are actively marketing and we’ve seen pretty good results on that, you’ve seen it in the numbers. Third, what we’re doing is building, which are partially vacant or going to get vacated, we are trying to explore as they can relocate some of those occupiers into other blocks and generate or engineer a fully vacant block and try to get that SEZ de notified and actually we are in the process of that for a 400,000 square feet building vacate by a legacy, leased by IT services company, this is block Manyata which is in advanced stages. So I think we’ll just have to be patient till the regulation clarity content, definitely this is a challenge.

Having said that, I would just want to highlight and wrap wrap-up on this point saying that we still would have about 3 million square feet of existing non-SEZ spaces by the end of March 2024, including the current vacancy and expiries for this year and 2.1 million square feet of new deliveries, the entry block that, T1 block in Oxygen and also the Embassy Hub block, which can also — which is also non-SEZ. So we still have 5 million square feet to offer, but whatever is SEZ, it’s just pretty hard to build the pipeline on that.

Mohit Agarwal — IIFL — Analyst

Thanks, Vikaash. Just a couple of follow-up questions on this. So firstly on the on this government, you said that you’ve been advocating this, but just wanted to understand what’s the issue here. So the government seems to be quick on reversing the tax bid that came in the budget, on this it’s been a while that you’ve been talking to the government. So if you could help us understand and how do you see this playing out in the long-run because obviously all the listed peers and lot of commercial real-estate is SEZ. So just your thoughts here.

Vikaash Khdloya — Chief Executive Officer

Yeah, Mohit I mean, I think that’s a fair question and I think the simple answer, quick answer to that is this needs to be done, this needs to be done yesterday by the government, now what happened is the industry is asking two things which is one, coexistence of SEZ and non-SEZ occupiers in the same building, which, what I mentioned is floor-by-floor de notification. And second, the request of the oxygen-enabling regulatory framework, which simplifies the process. Simply put single window clearance and deemed permission. Whereas today, we have to follow a four or five months, three or four months process and only after approval we can kind of go back and market that space. So I think what’s happening at the government end is there have been several discussions between the finance and commerce ministry. We are not yet — we are not the only ones speaking to this, but it’s been in the paper is that they were not in sync on the way forward of this earlier. Having said that, Commerce Ministry has not taken it upon itself to figure out the holistic way forward. We understand that they are in the process of drafting an amendment and I don’t think it will be DESH, it will be just an SEZ amendment resolution, which will allow floor-by-floor, maybe all asks of the industry doing a single window clearance and permission may not be factored in, but the floor-by-floor just needs to happen and we are fully supportive of that. So I think my personal estimate, I have no inside view. It is a quarter or two away, but many of the other in the industry, I’m hopeful for even faster turnaround. I’m — I think it’s going to take two quarters. That’s my personal view.

Abhishek Agrawal — Interim Chief Financial Officer

Yeah, let me just jump in that Mohit. I think Vikaash is right and it’s a bit difficult to draw parallels with [Indecipherable]. I think the two very different things in the tax, when it came out in the budget certainly had an impact on our industry stock price, and have to really sort of make sure that we have represented that and that was really a very urgent aspect because of the budget getting table and passed to act, but I think at this point in time, we made the — we represented that this is important, it is critical across the industry and particularly as we go into sort of on a cycle like I said, there are GCCs coming in, the demand for the space is non-SEZ at this point. So yeah, we are hoping that with the confluence of everything happening in media from India’s, taking on this whole G20 position and the finance and the commerce ministry sort of thinking up that it might be a quarter or two away.

Vikaash Khdloya — Chief Executive Officer

Just to close this question, Mohit on a positive note, and I’d like to note we just successfully completed the de notification of the 9 lakhs square feet Hudson and Ganges in TechZone. So hopefully more coming soon.

Mohit Agarwal — IIFL — Analyst

Great, and just last follow-up. On the Manyata, you mentioned that 1 million square feet expiry incrementally. And there is M3 Block 1 million. So with the existing vacancy, and this 2 million new — 1 million new supply and 1 million expiry, how do we look at Manyata leasing over FY ’24.

Vikaash Khdloya — Chief Executive Officer

Yeah, so again this is my favorite question, Mohit, because I think Manyata contribute one-third of the REIT’s NOI, one-third of the REIT’s size and we are all super-excited on Manyata, it has seen some churn and it has seen transition happening. So let me break it down into two pieces. One, this year we started with a vacancy in Manyata of 1.4 million square feet. Excluding the pre commitment on existing available area, we have released about 1.1 million square feet in Manyata. And we saw an exit, we saw exits of 0.9 million square feet, net-net, we ended the year in Manyata with a vacancy of 1.3 million square feet, right? Additionally, we have guided to an additional 1.3 million square feet of expiries, not all of these will be exits, but let’s say on a pro-forma basis, we have marketable pace of 2.6 million square feet in Manyata as of the end of March 2024.

Now, two things, one, last year, if you see net leasing has been positive in Manyata. Manyata spreads have been pretty impressive around 20-ish percentage. All the exits that happened last year and also this year had a phenomenal mark-to-market simply because the legacy IT occupier space, we had much below-market rent. We also added Mohit, 18 new high-growth occupiers in Manyata last year and we continue to see that momentum, especially since the Hilton hotels we launched and also the BTO the back to office picked-up. So if you were to ask me, we’re pretty positive on Manyata. We are very, very excited, and that is the reason we’ve not only demolishing an existing building in V1, V2 and re-developing and I can, in my memory this is the largest scale 1.2 million square feet, I can recollect in office segment redevelopment of an existing building and we’ve also launched L4, which is a new early-stage block 0.8 million square feet apart from M3 block in block A and B which totals 1.6 million. So we have activated almost everything that we have in Manyata which could be constructed. So that should just give you comfort and also flavor on how we see Manyata.

In terms of pipeline, on the under-construction area, we are discussing with a global captive cloud infrastructure company and that’s at advanced stages, this is close to 35,000 square feet, a leading Australian bank where we’ve already pre-committed a large chunk in Block B, they want to exercise the growth option for another 135,000 square feet and we also have other another 65,000 square feet of early discussions, it takes advance discussions in the under-construction portion of Manyata to 500 square feet. On the completed portion, we have about 300,000 square feet in advanced discussions. This 300,000 is out of 800,000 square feet that Ritwik mentioned in his prepared remarks. And just to give you a flavor on that. As a leading top 20 US healthcare company, which is looking for 150,000 square feet, we have a US insurer and investment manager, first time in India, that’s looking at 100,000 square feet. We have again another US insurance made an existing customer in Manyata, looking to expand 50,000 square feet and there are couple of others including installation engineering company. So I think, I think we are very positive. Yes, Manyata will see some churn. There will be some 1 million square feet additional expiries that we mentioned, simply because the earlier IT services occupiers, most of it is SEZ. We’ll continue to see them move out. The healthy mark-to-market and we will see these large global banks come in. We are net-net positive and we think we see acceleration of demand on larger-size deals towards the second-half of this year. And in the meantime, the mid and small-sized deals will continue.

Mohit Agarwal — IIFL — Analyst

Okay, understood. Thanks a lot Vikaash and all the best.

Vikaash Khdloya — Chief Executive Officer

Thank you, Mohit.

Operator

Thank you. We’ll take the next question line of Saurabh from JP Morgan, please go ahead.

Saurabh — JP Morgan — Analyst

Congratulations Vikaash and Aravind for [Indecipherable]. Okay. I have two questions. One is on the tax. So in terms of each tax, years before your, the unit capital runs down, so the understanding is fair that you have INT28,000 crores of your net capital debt, which can be used for the company production. And out of that the run-rate currently, which will remain, you said about INR800 crores odd, is that understanding correct?

Vikaash Khdloya — Chief Executive Officer

Understanding is correct.

Abhishek Agrawal — Interim Chief Financial Officer

That’s correct, Saurabh.

Saurabh — JP Morgan — Analyst

Okay. Okay. Thanks. The second is on the. NDC, the working capital release of approximately INR110 crores odd and if I ask you what’s with that.

Abhishek Agrawal — Interim Chief Financial Officer

Saurabh, generally, our working capital has centers and security deposit and there are other general items, which are trade receivable, trade payable and any one-off item. So for this quarter, if you look at our working capital total is around INR114 crores, out of which the major [Technical Issues] which are receivables of the previous two, three quarters, it has been decreasing in the current quarter. The balance is without rentals of INR13 crores, INR14 crores and [Technical Issues].

Saurabh — JP Morgan — Analyst

And this is I mean, this is, I’m just trying to guess as to the predictability of this line, so this — I mean, because you have some blocks coming up in the next year also. So how should we think about same.

Abhishek Agrawal — Interim Chief Financial Officer

Saurabh, what happens is, generally, we look at working capital confident year-on-year, quarter-on-quarter there may be some timing operating like in this current quarter, it looks a big updated because there is a couple of receivables, upgraded receivables of the previous two, three quarters which came in this current. The way I would or the management sees working capital is year-on-year basis. It just takes and given the current year, we have some around INR204 crores [Phonetic] of working capital for the full-year. You can, you can — and this is largely coming because of the security deposit, which is coming out of the 5.1 million square feet leasing that we’ve done during the current year. So that is the major driver. So going forward, I think you should look at this as a stabilized basis only mover is the leasing. If the leasing happens similar, this similar number would come in

Vikaash Khdloya — Chief Executive Officer

Saurabh, what Abishek is saying in other words, is that if we see exits, let’s say the expiries that we have indicated and if there is a time lag on backfilling that space because we refurbished the space or we just just pick time to fill-up the entire one. So there will be a negative drag to that extent on the working capital because we will have to refund the security deposit, but the inflow of a security deposit at higher numbers, higher end, they take that whatever the two, six, eight months. So that’s just different.

Saurabh — JP Morgan — Analyst

Okay, just one last question, gross leasing has kind of improved this year, but you’re also seeing expiry and it seems to me that the expiries are related to the SEZ space, so how should we think about, when our expiry momentum kind of come down. And at a portfolio basis, is this understanding is correct, SEZ, non-SEZ is about [Indecipherable]?

Vikaash Khdloya — Chief Executive Officer

So Saurabh, I take the first [Indecipherable] from the date’s of the second. So first one, Saurabh, again hard to predict some churn is business-as-usual but I would say we’ve done with a large chunk of the IT services and SEZ, both of these combination of the SEZ, we have done with a large chunk of those occupiers who are either consolidating, doing a corporate housekeeping of just pulling down space. Again, most of it is in Manyata, all the other parks usually of newer age occupiers. So Manyata is the one which is seeing over the last two or three years, a lot of churn in terms of — a lot of positive churn I would say in terms of occupiers. I think FY ’24 will be the year of consolidation in that sense. So hopefully we know post that will be a little more stabilized state of affairs. Again, if you, on your question on SEZ, and non-SEZ, the portfolio today would be around 60%-40% in terms of SEZ, non-SEZ. But if you look at it from a, including the development portion then it’s even split 50%-50%.

Saurabh — JP Morgan — Analyst

Okay. And I know you gave the number for next year, the 1.5, what is it for two year, you have it or I can take it of…

Vikaash Khdloya — Chief Executive Officer

Yes, we have that, just give us 30 seconds. For the next two years, FY ’25, we have indicated, total expiry Saurabh of 1.8 million square feet, 1.5 of that is SEZ, 63% mark-to-market and 0.3 is non-SEZ at 2% mark-to-market. So that’s FY ’25, we’ll also share this offline with you. If it’s too much of data point, but FY ’26, we’ve indicated 2.2 million square feet total expiring, so 1.3 million square feet of that is SEZ at 52% mark-to-market and 0.9. million square feet is non-SEZ 7% mark-to-market. So clearly and I have the numbers for ’27 as well. But clearly, Saurabh, if you look at it, the large chunk of this is SEZ expiry. And these are the expiries, which has the highest mark-to-market, 63% in FY ’25 and ’26, 1.3, and majority of them, my guess would be in Manyata.

Abhishek Agrawal — Interim Chief Financial Officer

Yeah, just, I mean if you look at the supplemental data book is where we actually put this out. We don’t break that out SEZ, non-SEZ, but I think if you look at and Vikaash is right if you’re looking at Manyata and I’ll just give an example, right. In FY ’26, if you’re looking at roughly 2.2 million, if you’re looking at 1.7 million square feet of expiries, Manyata mark-to-market opportunity there is around 89%, right. So if you just think about sort of the quality and what we’re, why we are sort of doing the development we are at Manyata right now, it’s to effectively make it ETV or GolfLinks just new-age NextGen that are running at 3% vacancy right now. So completely we are pretty comfortable with that.

Saurabh — JP Morgan — Analyst

Okay. So basically then [1:09:22.5] notification to that extent is super important [Indecipherable].

Vikaash Khdloya — Chief Executive Officer

Saurabh, in general, yes, however, the good news is that we have got new delivery of M3 Block A 1 million square feet of which we have visibility and have committed to around let’s say 50%, so we still have some productive offer ready usable non-SEZ space, but the more get delayed, the more a problem of marketability for non-SEZ contiguous available chunk becomes a challenge. So I think till now we still are still okay. Obviously, it impacted we could have done even better this year, but if this gets delayed, let’s say beyond a quarter or two it’s going to definitely impact the marketability, available offerings for marketing reasons.

Saurabh — JP Morgan — Analyst

Okay. Thank you, Vikaash. Thanks for your time and congratulations Aravind. Thank you.

Vikaash Khdloya — Chief Executive Officer

Thanks, Saurabh.

Operator

Thank you. We’ll take our next question from the line of Pulkit Patni from Goldman Sachs. Please go ahead.

Pulkit Patni — Goldman Sachs — Analyst

Thanks for taking my questions. Congratulations, Aravind, and good luck, Vikaash for future endeavors. Just one question left, if you look at the leases that you’ve signed this year, you know, clearly they are much smaller and you mentioned also, I think it’s about 40,000 on average. Does the nature of agreement change, do these kind of tenants require different rent-free periods etc. If you could just talk about how these smaller square feet leases are compared to the large ones that you typically sign?

Vikaash Khdloya — Chief Executive Officer

Yeah. Thanks, Pulkit. Thanks for your wishes and on the question, I think you’re absolutely right. The deal sizes are narrowing simply because the large RFPs, while they are actively being discussed, there is caution on capex spend at headquarter levels globally and hence the decision-making is taking time which is what we hope that gets accelerated in the second half of this year and this is a little bit of a consensus view amongst the industry experts who are kind of discussing this with the occupiers. So the focus today remains small and medium-sized deals. We’re pretty happy with that. It’s a lot more hard work for the team but you know it embeds, a lot of growth into the portfolio. So I’ll tell you why these are not small occupiers. These are not start ups just because the deal size is a 40,000 or 25,000, these are not start-up. We are talking to some of the Fortune 500 companies, who are taking 30,000 square feet, 40,000 square feet simply because they want to tip their toe in the water in India and then start expanding. Clearly, that’s what has happened with, let’s say, an Australian bank who started very small in Manyata and now looking in the market for 1.2 million square feet RFP just within three years starting from 40,000 square feet. So I think these are large companies we are speaking about. We think the deal sizes are small because it’s tough to get capex spend approvals from headquarters and take large calls, everybody is figuring it out on the macro volatility front. We are more than happy to have them in the portfolio, because we know they will grow and in fact of the — it is an interesting statistic, Pulkit. Of the 40 new high growth occupiers across 1 million square feet new leasing that we added in FY ’23, almost half of them are already looking to grow the India footprint which will further aid our leasing. So I think this trend will continue. In terms of what are the — is there any difference on the lease terms, I think these are absolutely consistent. Only two difference, one we get even more premium rent because these are captive centers, they’re willing to pay extra rent. We do not fund the TIs of fit outs, unless it’s a global company. So that’s not a trend, we are doing more and more fit out financing. We don’t do that. We do it on an exceptional basis. However, interestingly while they are taking 30,000 square feet, 40,000 square feet, 50,000 square feet, they increasingly ask us to have a growth option clause in the contract where they can grow into contiguous floors, within the time period of 3 months to 6 months to 12 months. So that’s just kind of goes to show the tentative, they’re waiting for approvals, but they definitely see business growing. So I think it’s a good trend, we continue to get more premium rents and more number of occupiers diversify the base and hopefully grows 3 times, it really helps our portfolio.

Pulkit Patni — Goldman Sachs — Analyst

Sure. That’s useful. Thank you.

Vikaash Khdloya — Chief Executive Officer

Thank you. Pulkit.

Operator

Thank you. We’ll take our next question from the line of Kunal Lakhan from CLSA. Please go ahead.

Kunal Lakhan — CLSA — Analyst

Hi. Thanks. And thank you, Vikaash, for your contribution so far, and wish you all the best for future endeavors. And also, welcome back, Aravind, very — all the best wishes for you too. My question is actually on the guidance side again. So Vikaash, you did highlight that by the year-end, you are expecting 4.5 million square feet of SEZ vacant space. I know if you build that in and then of course like there’s contractual escalations on 6.7 million square feet. And then the interest repricing that you are expecting. Is it that difficult to actually put out a number in terms of guidance, and if not the exact number, at least directionally, can you just point us out whether the distributions in FY ’24, would be lower or higher than FY ’23?

Vikaash Khdloya — Chief Executive Officer

Yeah, thank you, Kunal, for the wishes and the questions. So, I’ll tell you two or three things I may be repeating some stuff, but I know, one, we’ve always delivered on the guidance we’ve laid out. It’s a tough macro environment out there, Kunal. It’s not about India office or about what other factors that we control. I can tell you that we would have exceeded the leasing guidance, we gave this year by a even higher margin than we did comfortably at least a double-digit margin. But just the signing has got pushed off. So that’s kind of an environment where we have visibility there is handshakes, advance discussions but just corporates are not willing to sign. So that’s one. So very hard to estimate what the timelines on those would be and the variability can be pretty huge, right? Let’s say an occupier of 700,000 square feet in Manyata vacates in November and the new guy, even if you have a handshake but only signs in April of 2024. So suddenly in 2025 so suddenly for ’24 you have a huge gap not only on the rental gap for those three, four months, but also secured a large chunk of security deposit easily INR100 crores, INR150 crores. So from a management perspective, I think it’s more prudent to kind of have more clarity on that. Second, this was pointed out earlier by, Mohit, that SEZ, I mean this is something we just don’t control and just today, we were discussing this earlier internally on the SEZ front, we just have 1.6 million square feet of non-SEZ existing operating space. If you take out Hudson and Ganges, we just got de notified and Pune given its low. So we just take that 800,000 square feet out, we have already leased 100,000 square feet. So that makes it about just 8 lakh square feet. So have a portfolio of scale of 45 million square feet with about 35 million, 36 million square feet operating and with the headline available vacant space is 5.5 million square feet. I just have 800,000 square feet to market. So in this context, we just think it’s more prudent to wait for clarity on both of these things to emerge. But we have laid out all the building blocks on how this will pan out. And on the interest rate maybe I can give you more flavor on that. So while Abhishek mentioned on the interest rates both the buildings completed and there will be interest cost, which gets capital — which was getting capitalized flow into the P&L and hence impact the distributions a bit, this is both for Hudson and ganges 0.9 million last year and 2.1 million square feet which will get delivered this year. Apart from that, I can just say that based on the current market rates, this broad estimate, we think the overall in-place debt cost, right, both considering the fixed coupon which comes up of re-pricing as well as the floating and all the factors that Abhishek mentioned the interest rate, average rate will increase by about 90 basis points to 100 basis points in place on the overall debt. So I think that may help on modeling the interest cost but I think the others, we would just like to, I’ll be saying it’s a little early to take that call. We’ll continue to evaluate the situation revisit in a couple of quarters.

Abhishek Agrawal — Interim Chief Financial Officer

Yeah, and let me just kind of reiterate on that, right, we’ve hit guidance, we in tough markets we’ve been faced with, whether it’s the interest rate environment, whether it’s a pandemic. I mean, I think you’ve got to keep it in perspective but again we’ve delivered close to $1 billion in distributions, right, and that’s ultimately always sort of our goal to make sure that unitholders are obviously getting as much cash in hand as possible and then hopefully we can build the growth upside on top of that. So rest assured, we’re keeping an eye on it, and hopefully, we’ll come back to you.

Vikaash Khdloya — Chief Executive Officer

And Kunal I know that we’ve mentioned this before and I understand that focus on the quarter results and the year results. But really, if you look at it the way we did it, the way we examined, the way we mentioned and communicated, we are running this for the long term, we are taking the heart cause, letting at 2 million square feet occupied Manyata go in the middle of Delta variant, during COVID. And hitting that occupancy where we would have been comfortably sitting in 92%, 93% compared to all other REITs in the early 80s would have been an easy call to take. But we took the call to let them go. Because they’re not ready to pay the rents. We took the call to demolish one of those buildings and do a 1.2 million square feet utilizing the extra realizing a 20% to 25% yield on cost and de notifying other block and re-leasing it at premium to market rents and at a healthy 25 basis points, 30 basis points — hardly 25%, 30% re-leasing spreads. So I think, I just think in the overall context, we want to continue to focus on creating value doing the right things. And when the market situation changes in the two or three aspects on SEZ, and on the overall global macro changes will take a call on guidance.

Kunal Lakhan — CLSA — Analyst

Sure. Thanks, and all the best.

Vikaash Khdloya — Chief Executive Officer

Thank you, Kunal.

Operator

Thank you. Ladies and gentlemen, due to time constraint we take the last question from the line of Neel Mehta from Investec Capital. Please go ahead.

Neel Mehta — Investec Capital — Analyst

Yeah. Thanks for the opportunity. Best wishes to you, Vikaash and Aravind on taking over. Just two questions from my side. Firstly on the future possibility in MTM, our portfolio, right? So except for Bangalore, that does it count as [Technical Issues]?

Vikaash Khdloya — Chief Executive Officer

The same for other cities.

Neel Mehta — Investec Capital — Analyst

But what could be the reason for this? So will we have any ability to charge slightly higher than market trends there or is it declining inevitably? That’s my first question and the second is on the…

Operator

I’m sorry to interrupt, Mr. Mehta you will have to speak rent close to your mic and speak a little slower, sir. Your audio is not very clear.

Neel Mehta — Investec Capital — Analyst

Is that better now?

Operator

No, it is not. Please use the handset if possible.

Neel Mehta — Investec Capital — Analyst

Yeah. Hi. Is it better now?

Operator

Much better. Please go ahead.

Neel Mehta — Investec Capital — Analyst

Yeah. So what I was asking was the future MTM opportunity in our portfolio. We’ve stated that except for Bangalore for all the other cities it’s being showing negative, right? So what is the reason for this? Would we have any ability to charge slightly higher than market trends or is there a decline going to be inevitable in these geographies? That’s the first question. And the second one is, of the 5 million square feet leasing that we did during FY ’23. How much was it in SEZ?

Vikaash Khdloya — Chief Executive Officer

Yeah, Neel, thank you for both the questions on the first one I just guide you to Slide 43 of our earnings deck, which has the mark-to-market potential on all of our markets, and it’s not true that there is no positive mark-to-market opportunity except for Bangalore. Yes, Pune, one of the assets, because the existing in-place rents are higher than what we expect market to be negative. So at an overall basis, the market, you’re right, is negative. Mumbai, I think it’s marginal, and again this is an assessment. Again Noida it’s marginally positive. I think it all depends on how the markets pan out in terms of way forward based on the SEZ, on the back to work, and also the captives in general I would say Bangalore has a higher propensity to attract more sophisticated occupiers and hence higher mark to market, also Neel, please note that Bangalore also has higher mark-to-market because Bangalore is a market for us where we have parks like Manyata and GolfLinks existing since 2005 and hence the in-place rents on some of the leases are really, really of 2005, 2010 vintage leases. So that’s the reason you would see a much higher mark-to-market in Bangalore. In general, we have leased on an overall basis entire leasing that we did this year at a premium to these markets. Again the premium would be low-single digits, but still it’s a premium to the market trend that CBRE estimates, which already factors a premium for our property. So I think, I hope that answers your question. But in general, we would look to do a higher mark to market but Bangalore because of just the legacy leases as well as really strong market, you see very healthy mark-to-market. And in terms of your second question on out of the 5.1 million square feet SEZ was interestingly, about 40% because that includes renewals as well. So just on new lease basis, just on new lease basis, we have done only 0.6 million square feet of the 5.1 million square feet which is SEZ. And we’ve done 1 million square feet renewed. So the split of the 1.6 million square feet SEZ that is 5.1 million square feet is 0.6 million square feet new leases and 1 million square feet renewals, if that helps.

Neel Mehta — Investec Capital — Analyst

Got it. Vikaash. Thanks a lot.

Vikaash Khdloya — Chief Executive Officer

Neel, thank you so much.

Operator

Thank you. Ladies and gentlemen, we have reached the end of the question and answer session. And I would now like to hand the conference back over to Mr. Abhishek Agarwal, Head of Investor Relations for closing comments. Over to you, sir.

Abhishek Agarwal — Head – Investor Relations

Thank you so much for joining us on today’s call and for your great questions. Most of the data points covered today can be found on our website and in the published materials and we’re always happy to engage further if any additional clarifications are required. Thank you so much.

Operator

[Operator Closing Remarks]