Mindspace Business Parks REIT (MINDSPACE) Q3 FY23 Earnings Concall Transcript

Mindspace Business Parks REIT (NSE:MINDSPACE) Q3 FY23 Earnings Concall dated Jan. 31, 2023.

Corporate Participants:

Kedar Kulkarni — Investor Relations

Vinod Rohira — Chief Executive Officer

Preeti Chheda — Chief Financial Officer

Analysts:

Adhidev Chattopadhyay — ICICI Securities — Analyst

Jatin — Bank of America — Analyst

Mohit Agrawal — IIFL — Analyst

Sameer Baisiwala — Morgan Stanley — Analyst

Presentation:

Operator

Good afternoon, ladies and gentlemen, and welcome to the Mindspace Business Parks REIT’s Earnings Conference Call for Financial Results for the quarter ended 31st December, 2022. [Operator Instructions] Please note that this conference is being recorded.

I now hand the conference over to Mr. Kedar Kulkarni. Thank you, and over to you, Mr. Kulkarni.

Kedar Kulkarni — Investor Relations

Thank you. Good afternoon, everyone, and thank you for joining this third quarter financial year 2023 earnings call of Mindspace Business Parks REIT. At this point, we would like to highlight that the management may make certain statements that may constitute forward-looking statements. Please be advised that our actual results may differ materially from these statements. Mindspace REIT does not guarantee these statements or results and is not obliged to update them at any time.

I would now like to welcome our CEO, Vinod Rohira; and our CFO, Preeti Chheda. They’ll first walk you through the business update and the financial performance during the quarter. We’ll then open the call to Q&A.

I now hand over the call to Vinod. Over to you, Vinod.

Vinod Rohira — Chief Executive Officer

Thank you, Kedar. Good afternoon, everyone. At the onset, let me wish each one of you a happy and healthy 2023. We delivered yet another quarter in line with our expectations. Our parks continue to witness demand for institutionally-managed office spaces. We have recorded a gross leasing of circa 1.3 million square feet in the third quarter of financial year ’23, taking the cumulative number to circa 3.5 million square feet in the first nine months of this financial year.

Our Hyderabad project, Mindspace Madhapur, recorded the highest share of gross leasing in quarter three financial year ’23, followed by our Chennai Porur asset and Commerzone Yerawada, Pune. We began the financial year with committed occupancy of 84.3% and achieved circa 400 basis points increase in the first nine months of the financial year to reach 88.3% as at December 31, 2022.

The committed occupancy of Mindspace Madhapur, the largest park in the portfolio, now stands at circa 95%. Our parks in Pune and BKC are near 100% committed occupancy. Our park in Malad also had circa 95% committed occupancy. As guided in our earlier calls, we are happy to announce substantial leasing during the year at our Commerzone Porur, Chennai park, which has helped us take the occupancy at this park to over 93%.

We continue to deliver robust financial performance supported by these tailwinds in the committed occupancy. We recorded an NOI of circa INR4,551 million, which, excluding a one-time compensation of INR186 million, represents a year-on-year growth of circa 16.8% and quarter-on-quarter growth of circa 4.6%. Our in-place rents have grown circa 9.4% year-on-year to INR64.5 per square foot per month. The gradual transition from work-from-home to work-from-office continues.

If you refer to the recent commentary of the Indian IT companies, more and more organizations are framing definitive guidelines to return to office. As we have been highlighting over the past few quarters, companies have realized the importance of having a dedicated and demarcated work environment, the improvement in productivity from being in a collaborative work environment is quite evident. During this transition, organizations are careful not to lose out on their talent. They are particular about offering top-quality office spaces that have the best health and wellness measures in place. As a result, they’ve observing a discernible shift amongst our occupier segments towards institutionally-managed Grade A office spaces.

As envisaged, the physical occupancy in our parks is nearing 50% as against circa 40% during the previous quarter. While the outbreak of the virus in our neighboring nation had led to some caution, it has not hampered the transition from work-from-home to work-from-office in India. Unlike their global peers, Indian office sector has demonstrated robust performance and remarkable recovery in demand in 2022, in spite of the uncertainties with global economic disruptions in the backdrop.

Overall, the leasing trends remain encouraging. India continues to be the preferred choice for top tech talent at affordable cost. And in the coming months and quarters, we may see large GCC/GICs looking at India to expand their support services network to optimize cost and bring in newer and smarter technologies for their customers across the world. However, due to the uncertain economic environment globally, we may see conservative posturing by occupiers in the next few quarters for large ticket size demand.

While Preeti will elaborate our debt strategy, let me spend a couple of minutes on how growing debt costs are impacting the sector. With low debt levels, AAA credit profile and greater share of fixed cost debt, we’ve been able to achieve tighter spreads on our borrowings. This however may not be uniformly applicable to the market at large. High cost of debt, difficulty in assessing debt markets and a rush towards residential developments is slowing down the potential commercial supply. Also, the under-construction supply is likely to come into the market at higher rents due to the inflationary impact of construction costs and debts. This opens up an opportunity for us to bring in strategic supply in the markets we are present in and further consolidate our position.

This quarter, we are also pleased to announce the proposed redevelopment of another strategic cluster at Mindspace Madhapur. This is in addition to our earlier redevelopment that is currently underway. The low-density park has been recently upgraded and the added infrastructure can easily accommodate further developments in the park. The high committed occupancy of 94.5% of the park is a testament to the strong demand in the micro market and encourages us to bring in strategic supply within our existing park. Further, the addition of the increased area would also offer an opportunity for tenants to expand and consolidate within our park.

Within this park, we are proposing to redevelop two of our legacy buildings constructed around 2005 with a collective leasable area of circa 0.36 million square feet. Post redevelopment, we expect the total leasable area to grow fourfold to 1.6 million square feet, subject to design finalization and necessary approvals. These three developments shall be value accretive to the REIT and would also provide a continued supply of new Grade A assets within the park.

We have completed the demolition of the existing premises of the redevelopment already underway and is on track to complete by December ’25 and we shall commence demolition of these buildings beginning first quarter of next financial year, and the new development is estimated to be completed by December 2026. Together, the two redevelopment projects incrementally add circa 2.1 million square feet to the overall portfolio. We are still awaiting clarity on the DESH Bill. In the interim, we have made representations to the government to provide an enabling framework within the existing SEZ policy for partial denotification. This is the key demand from industry and shall immensely help the revival of demand for SEZ spaces, which are large employment providers.

Most of our non-SEZ supply at Mindspace Airoli West is fully leased. Encouraged by the strong demand, we have applied for denotification of one of the existing buildings of 0.4 million square feet in the same park. To give you an update on the potential acquisitions, Commerzone Raidurg, Hyderabad and The Square Avenue 98, BKC Annex, Mumbai Region, we are nearing completion of our evaluation and intend to soon table the proposal to the governing board. Subject to the requisite approvals as may be applicable, we anticipate closure in the next few months.

I would now like to take you through the specific operational updates for quarter three financial year ’23. Of the total portfolio area of 32 million square feet, 25.6 million square feet is completed and contributed to circa 93% of our portfolio value. 1.8 million square feet is currently under construction and we have another 4.6 million square feet available in the portfolio for future development.

We received occupancy certificate for approximately 0.7 million square feet area across assets. We have leased 1.3 million square feet during the December quarter, of which 0.6 million square feet was on account of re-leasing and 0.7 million square feet was on account of new and vacant area leasing. Collectively, the gross leasing in the first nine months of the financial year stood at 3.5 million square feet. During this period, we have successfully re-leased circa 77% of the scheduled expiries of financial year ’23. We have recorded average re-leasing spreads of 26.6% on the 2.3 million square feet area relet during the nine months of the financial year.

We leased 0.3 million square feet at our Commerzone Polur, Chennai Park during the quarter. With this leasing, the committed occupancy of the park now stands at 93.5%. The overall committed occupancy of the portfolio stood at 88.3%, registering an increase of 140 basis points over the previous quarter. Our in-place rents have grown by circa 9.4% year-on-year to INR64.5 per square foot per month.

Coming specifically to the ESG updates, at Mindspace REIT, we stand firmly committed to resource optimization, water management, reduction of GHG emissions, clean energy, hygiene and safety. In alignment with our ESG targets, we are on the road to addressing a comprehensive set of critical issues that are significant for us as well as our stakeholders.

The quarter saw Mindspace REIT procure 100% green energy across common areas maintained by us at Mindspace Airoli West, Gera Commerzone Kharadi and Commerzone Yerawada. Received LEED Platinum O&M certification from USGBC for Paradigm, Malad Mindspace, Mumbai Region, and for one building at Commerzone Yerwada, Pune. Commissioned the Community Need Analysis to understand the requirements of people in the vicinity of our projects — of our business parks at Airoli. The outcome is likely to point to specific areas of focus, which will assist us in curating our future CSR projects in our markets.

We expect the forthcoming budget to support the growth momentum and further augment the business environment for commercial real estate. We hope to see regulatory amendments that help growth of investments in REITs, InvITs and consequent rise in capital inflows, both foreign and domestic into these instruments.

With this backdrop, I hand the call over to Preeti to take you over the financial updates.

Preeti Chheda — Chief Financial Officer

Thank you, Vinod. I’m happy to present our financial performance for the third quarter of financial year 2023.

We closed the third quarter with the revenue from operations of INR5.4 billion and net operating income of INR4.6 billion. The revenue from operations and NOI, both included receipt of one-time compensation of INR186 million from a tenant for termination of Letter of Intent at The Square BKC, Mumbai. Adjusting for this one-time impact, revenue from operations and NOI grew at 18.9% and 16.8% respectively on year-on-year basis. We continue to maintain NOI margin at 80%-plus.

We announced a distribution of approximately INR2.8 billion, which is INR4.8 per unit for the quarter. The distribution grew by 3.4% year-on-year. The distribution comprises approximately 91%, which is INR4.37 per unit of dividend, which is not subject to tax in the hands of unitholders, and approximately 9% which is INR0.43 per unit of interest.

At Mindspace REIT, we have followed the strategy to diversify our debt book and optimize our debt cost. In December 2022, post SEBI’s clarification allowing REITs to issue commercial papers, we concluded the commercial paper issuance of INR1 billion, thus completing the maiden commercial paper issuance by an Indian REIT. We shall continue to explore ways to optimize our borrowing cost through a mix of short and long-term borrowings. In the backdrop of global as well as domestic inflationary pressures, India has seen significant interest rate hike this year. For most part of the coming financial year, we expect interest rates to remain high before the environment stabilizes. This is expected to cause our borrowing cost to rise in the coming financial year.

Our portfolio gearing remains low, adding to the strength of our balance sheet. Our net debt as on December 31, 2022, was approximately INR48.7 billion. Our LTV as at December 31, 2022 stood at approximately 17.6%. We have a well-spread maturity profile of our debt with only 11%, which is INR5.6 billion, expiring in FY ’24. Approximately 42% of our debt is fixed cost in nature, helping us cushion some impact of rise in interest rates.

We have undrawn committed lines of approximately INR4 billion from financial institutions. Our low leverage provides us enough headroom for development within the portfolio as well as inorganic growth opportunities. REITs continue to witness demand from retail investors. This has contributed to the total number of unit holders of Mindspace REIT nearing 50,000 as the unitholder base expanded by over 13% over the last quarter, largely driven by the addition of retail unitholders. We expect positive policy developments to further deepen the market for REITs and InvITs in India.

With this, I request the operator to now open the floor for question and answers. Thank you.

Questions and Answers:

Operator

Thank you very much. [Operator Instructions] The first question is from the line of [Technical Issues] from ICICI Securities. Please go ahead.

Adhidev Chattopadhyay — ICICI Securities — Analyst

Yeah. Good evening, everyone. Am I audible?

Vinod Rohira — Chief Executive Officer

Yes, you are.

Adhidev Chattopadhyay — ICICI Securities — Analyst

Yeah, okay. Sir, few questions. Firstly, just wanted — you mentioned about the physical occupancy — I just missed the number. Could you also break it up across cities, how you’ve seen the trends moving across Mumbai and Hyderabad specifically?

Vinod Rohira — Chief Executive Officer

[Technical Issues]

Operator

Sorry to interrupt. Adhidev, I think there is…

Vinod Rohira — Chief Executive Officer

[Technical Issues] across the park, 50%.

Operator

I’m sorry to interrupt, sir. We could not hear you at all, because there was a disturbance from Adhidev’s line. Adhidev, when you’re not speaking, please mute your line. Sir, could you please repeat your answer? We could not hear anything.

Vinod Rohira — Chief Executive Officer

Yeah, hi. Can you hear us now?

Operator

Yes, sir. Now we can.

Vinod Rohira — Chief Executive Officer

Okay. So, some parks are outliers. Our Kharadi Park is 90%. The rest of it is between 50% and 60%, in that range.

Adhidev Chattopadhyay — ICICI Securities — Analyst

Okay. Second — my second question was on the expiring profile. So, I think there have been some fresh expiries of 0.5 million square feet. Could you just help us understand for now rest of the year, what is the — how much do you expect to re-lease out of the expiry and where do you expect the overall portfolio occupancy to trend, both in terms of actual occupancy and the committed occupancy? Thank you.

Vinod Rohira — Chief Executive Officer

So, whatever expiries were scheduled are already done with, and we’ve predominantly been able to even [Indecipherable] the sudden expiries that came through. We are not seeing any expiries for the next quarter.

Adhidev Chattopadhyay — ICICI Securities — Analyst

Okay. And sir, just final question on SEZ space. I think the last quarter,we alluded that it was, I think, around 1.8 million square feet of SEZ space, which was vacant. Now you’re planning to convert out of the 0.4 million square feet, as you mentioned. So, could you help us understand the timelines for this? And under the existing guidelines, can we expect some more space also to come up under similar arrangement in the coming few months?

Vinod Rohira — Chief Executive Officer

[Speech Overlap] in our Gigaplex Park, cumulatively we had 1.4-odd million between under construction and ready non-SEZ supply, which at the beginning of the year had vacancy of approximately 6-odd-lakh square feet. We’ve completely almost fully leased that out. We have no supply in the non-SEZ space at all in that park. So there is an opportunity of a 400,000 square foot building, which we applied for denotification. We should get it in the next four months latest for us to be able to bring that as a pipeline for further supply in the market.

Adhidev Chattopadhyay — ICICI Securities — Analyst

Okay. Thank you, sir. That answers my questions.

Operator

Thank you. We’ll take our next question from the line of Jatin [Phonetic] from Bank of America. Please go ahead.

Jatin — Bank of America — Analyst

Yeah, hi. Thanks for giving the opportunity. Hi, Vinod; hi, Preeti. Couple of questions. First, for Vinod. Vinod, would be great to get a color on the three things around the expiries and cancellations we saw this quarter. First, on the early termination and the LOI cancellation, if you could help with what categories these client belongs to, global, domestic, technology, captive, and what could be the motivation behind these? Believe there could be multiple — either adjustments, basis the lay-offs the industry has recently seen or re-evaluating their strategy on entering or expanding into India either on their own versus now thinking of outsourcing these to some of the Indian vendors. So this was part one.

And second, the 0.3 million square feet expiry which we’ve seen at the Madhapur redevelopment, was this a planned expiry or initiated by Mindspace to go ahead for the redevelopment in this quarter only?

Vinod Rohira — Chief Executive Officer

First one had a lot of pieces in it, but fortunately or unfortunately, there was an old tenant two years ago that walked away from our BKC asset, and we got compensation for it. And that is since then long pre-leased and the fully — building now stands occupied. So if you ask for that one-time compensation, it was for a client who got hit by COVID at that point in time, didn’t have clarity whether to continue or not, but they were committed on that space and they paid us for it. Coming back to the re-leasing of space that caught suddenly surrendered in the last quarter, we were fortunate to re-lease that back in the same quarter to a brand new tenant who took that space for our Hyderabad complex and we saw the vacancy as well as the re-leasing in the same quarter.

Jatin — Bank of America — Analyst

Sure, Vinod. Thanks. I have another one for Preeti. Preeti, looking at your NDCF, we’ve generally seen the capex items and your net debt drawdown, generally you typically move in line. This quarter, I think there were some bit of divergence and if not for that maybe the distribution, rather a bit more higher. So do you expect this to reverse in the coming quarters and incrementally aid our distributions?

Preeti Chheda — Chief Financial Officer

So this time in the NDCF, specifically if you’re looking at the capex versus debt numbers not really talking to each other, that’s because there is a INR100 crore item booked which is sitting in the working capital as well as capex, which is, I would say, reflecting — mirroring each other. So therefore, if you remove that then probably you’ll see capex match — the debt matching the capex. So that’s where we stand. And we should see a similar thing going forward, unless you have anything specific.

Jatin — Bank of America — Analyst

Understood. Okay. So the working capital balances, that’s — got it. Sure. Thank you.

Preeti Chheda — Chief Financial Officer

Yes.

Operator

Thank you. [Operator Instructions] We’ll take our next question from the line of Mohit Agrawal from IIFL. Please go ahead.

Mohit Agrawal — IIFL — Analyst

Yes. Thanks. So my first question is for the last few quarters, if you see, your NOI growth has been pretty robust, but somehow that has not translated into the NDCF growth, so NDCF has been flattish. If you look at the NDCF to NOI ratio that is coming down over the last few quarters. So how do you see that going forward? And, especially in the light that last two, three quarters, we have had some sort of inflows coming in from the Pocharam land sale, that will not be there next quarter onwards. So how do you look at the NDCF over the next two, three quarters?

Preeti Chheda — Chief Financial Officer

Yes. Hi, Mohit. So just to explain this, we have been able to utilize the incremental NOI which has come this year to reduce our debt support. We had mentioned — I’d mentioned earlier that because of the shortfall in the rentals, we’ve not been able to get all the rentals that we had envisaged. We were drawing in some bit of debt support to meet our distribution guidance. So that has reduced with the incremental NOI coming in. And the Pocharam proceeds have also helped us bridge that gap.

Going forward, we are hoping that because of the robust leasing that we’ve seen, which should translate to rentals in the quarters as we move forward, the rentals which is going to come from there translating to NOI increase. That should further help us do away with this debt support and then we should be able to independently have the NOI cater to the NDCF.

Mohit Agrawal — IIFL — Analyst

Okay. And for…

Preeti Chheda — Chief Financial Officer

There is one — and of course, I have to mention this that, there is one thing which is also eating up into our NOI, which is the interest cost, right, because while in FY ’23 it has not been very substantial but, obviously, some of the loan which we have taken, you will see transmission of those interest cost hike in the coming years. Also in this year, we enjoyed some loans where we had reset which were locked in for a period. Now, once we are out of those lock-ins, we’ll again see those rates getting to market. So next year, obviously, while we will see NOI increase, we will at the same time see the interest cost getting higher than what we see this year.

Mohit Agrawal — IIFL — Analyst

Okay. And if you look at the NOI growth for nine months cumulative, year-on-year it’s about a 14%, 15% growth. Should we expect the similar run rate to continue forward?

Preeti Chheda — Chief Financial Officer

So I won’t be able to commit to a number, but I would say directionally, yes, with the healthy leasing which has happened. And we expect that the NOI growth should be seeing a similar direction. I won’t be able to comment on a number though.

Mohit Agrawal — IIFL — Analyst

Sure. Second question is, Vinod, you initially mentioned about the de-notification on — I think you were talking about the B5 building, 3 lakh, 4 lakh square feet. With now the SEZ Bill, the DESH Bill likely to get — looking like it is getting delayed. What is the plan B? Beyond this 3 lakh, 4 lakh, is there any other plan to de-notify other buildings and what is the way forward for Airoli in terms of occupancy?

Vinod Rohira — Chief Executive Officer

Yes, absolutely. So the way we see it is, while DESH may take slightly longer, you’re right, they are, in the interim, allowing for considering unit-wise de-notification, and that’s come to its final stages, where we can then partially de-notify spaces within buildings that are vacant. So that will be the next step of unlocking. We want to start that process immediately and that will then allow us for more supply pipeline to come through.

Mohit Agrawal — IIFL — Analyst

Okay. And will that be just through an executive order, or like — could that come in the budget or is it just going to be a simple executive order?

Vinod Rohira — Chief Executive Officer

[Speech Overlap] to the SEZ rules.

Mohit Agrawal — IIFL — Analyst

Okay, understood. Any expectation in terms of how much time can that take, that change in the rules?

Vinod Rohira — Chief Executive Officer

I think in the next couple of months we will have clarity on that for sure.

Mohit Agrawal — IIFL — Analyst

Okay. And last one from me. What is happening on data center demand? So, I guess, we have been quite positive on both Mumbai and Hyderabad. So any movement, any progress there beyond the two data center buildings that we are doing?

Vinod Rohira — Chief Executive Officer

So a lot of the data center operators wanted to buy land and we were not too keen doing that unless it was value-accretive for us cumulatively. The leasing demand. I think, for data centers will come back, where you want the landowner, developer to build and lease it to you, and they are focusing our attention on those clients, because a lot of the data center hyperscalers are going to buy land.

Mohit Agrawal — IIFL — Analyst

Okay, understood. Great. Thanks a lot. That’s all from my side.

Vinod Rohira — Chief Executive Officer

The demand continues to be very strong in the New Bombay region.

Mohit Agrawal — IIFL — Analyst

Okay, understood. Thank you.

Operator

Thank you. Our next question is from the line of Sameer Baisiwala from Morgan Stanley. Please go ahead.

Sameer Baisiwala — Morgan Stanley — Analyst

Hi, thank you, and good evening, everyone. Preeti, can you quantify what could be the interest cost impact for next year, if it’s 100 basis point, 150 basis point on our overall debt?

Preeti Chheda — Chief Financial Officer

Yes, Sameer. Hi. So two impacts, Sameer. One is, obviously, the debt would also rise because of the capex that we will incur. We do expect to incur anywhere around INR1,000 crore of additional costs on the developments which are undergoing at the moment. So, obviously, the interest cost on that also will add. On the existing, in this coming quarter — in this quarter, we expect about 15% to 20% hike versus where we are today.

And in the coming year depending on how much the RBI would increase the policy rate, of course, it depends on that. But we do expect 50 bps to 75 bps hike. Also Sameer, just to explain what I said sometime back that currently we have about 70% of our variable cost debt, which have interest rates locked in for a couple of months. So once those lock-ins end, then even those will move to market. So what I’m saying will have impact on that as well.

Sameer Baisiwala — Morgan Stanley — Analyst

Yes. Thanks, Preeti. So 50 basis point to 75 basis point increase, does it include the second part, the lock-in which gets opened up?

Preeti Chheda — Chief Financial Officer

Yes, it does.

Sameer Baisiwala — Morgan Stanley — Analyst

Okay. So that’s the overall impact, and we need to add INR1,000 crore more to INR4,800 crore on debt outstanding right now?

Preeti Chheda — Chief Financial Officer

Yes, you should.

Sameer Baisiwala — Morgan Stanley — Analyst

Okay, very clear. And the second question is, for the 2.1 million square feet B9, B5 and data center, which is getting completed in Q4, what’s the sort of rental accretion that you expect next year?

Vinod Rohira — Chief Executive Officer

So these are all — most of them are actually pre-leased, as we speak. The data center is fully built to suit. The Commerzone Kharadi building has probably 50-odd thousand square foot left. And Airoli Building 9 is about 130,000-odd square foot left, which we are hopeful before the end of the next quarter we’ll be done with that.

Sameer Baisiwala — Morgan Stanley — Analyst

Sure, Vinod. So what I’m trying to get is, so the average rental would be like 70, 75?

Vinod Rohira — Chief Executive Officer

So each of these assets are different. The Pune will be in the region of 80. The Mumbai Region 1 will be between the 58 to the 60 number, and the data center is already pre-leased at between 74 and 75.

Sameer Baisiwala — Morgan Stanley — Analyst

Got it. So maybe roughly INR150 crores all put together on a 12 months basis?

Vinod Rohira — Chief Executive Officer

Rents will start at different dates, but yes, you’re right — annualized you are right.

Sameer Baisiwala — Morgan Stanley — Analyst

Okay. And one final question from my side, and that is for the two acquisition assets, the interest rates have moved up, as you know, over last six, eight months. So how are you thinking about funding of the same? Has the valuation expectation changed? Are you getting these at a higher cap rate, so a better value for you as a buyer? Just your thoughts would be very helpful.

Preeti Chheda — Chief Financial Officer

So, Sameer, Vinod can comment. Let me just attempt to answer that. We will be cognizant of the interest rate hike when we are acquiring these assets. Obviously, when we are acquiring these assets, we’ll not just look at short term, but we are looking at adding these assets for long-term asset augmentation in the REIT. So we will look at the fundamentals of the assets besides, of course, your value accretion and all, we will be mindful though.

Vinod Rohira — Chief Executive Officer

Yes. And just to add to that, primarily to us the profile of tenants, quality of building, location, and the cumulative value and quality of that asset really matters in the long-term. And both these are really strategic and of the quality, we want to infuse in the REITs. So we’d be very happy to take them in.

Sameer Baisiwala — Morgan Stanley — Analyst

Yes, sure. No, I get that, and that’s why they qualify, Vinod. But, Preeti, I mean, what you said, does it imply, maybe there could be short-term pain, long-term gain, is that what you’re trying to say?

Preeti Chheda — Chief Financial Officer

So, Sameer, it’s not about short-term pain, but I’m saying that today when we are evaluating an acquisition in the REIT, we are just not going to look at what the short-term interest rate increase will do to the overall acquisition decision. We’re going to look at long-term. And when we are buying this asset, we will look at accretion for the REIT.

Sameer Baisiwala — Morgan Stanley — Analyst

Okay, great. Very clear. Thank you so much.

Preeti Chheda — Chief Financial Officer

Yes.

Operator

Thank you. [Operator Instructions] [Operator Closing Remarks]