Nexus Select Trust (BSE: 543913) Q2 2025 Earnings Call dated Nov. 12, 2024
Corporate Participants:
Pratik Dantara — Head of Investor Relations and Strategy
Jayen Naik — Chief Operating Officer
Rajesh Deo — Chief Financial Officer
Analysts:
Mohit Agrawal — Analyst
Pritesh Sheth — Analyst
Parvez Qazi — Analyst
Praveen Choudhary — Analyst
Jatin — Analyst
Pradyumna Choudhary — Analyst
Presentation:
Operator
Ladies and gentlemen, good day, and welcome to the Nexus Select Trust Q2 FY ’25 Earnings Conference Call.
As a reminder, all participant lines will be in the listen-only mode and there will be an opportunity for you to ask questions after the presentation concludes. [Operator Instructions] Please note that this conference is being recorded.
I now hand the conference over to Mr. Pratik Dantara. Thank you, and over to you, sir.
Pratik Dantara — Head of Investor Relations and Strategy
Thank you. Good evening, everyone, and thank you for joining the earnings conference call of Nexus Select Trust for the quarter ended September 2024. Before we proceed further, I would like to highlight that the management will make certain statements that may constitute forward-looking statements. Please be advised that our actual results may differ materially from these statements. We do not guarantee these statements or results and are not obliged to update them at any time.
Specifically, any financial guidance and pro-forma information that we will provide on this call are management estimates based on certain assumptions and have not been subjected to any audit review examination procedure. You are cautioned not to place undue reliance on such information and there can be no assurance that we will be able to achieve the same.
Before we begin, I wanted to let everyone know that our Executive Director and CEO, Dalip Sehgal isn’t able to join us today on the call due to a personal family matter. I’m here with the rest of the management team to lead the call and address any questions you may have. Thank you for your understanding. Joining me today on the call are our CFO, Rajesh Deo; our COO, Jayen Naik; and our Chief Leasing Officer, Nirzar Jain. We will start-off with brief remarks on our business and financial performance and then open the floor for questions.
In Dalip’s absence, let me take you through our performance in 2Q FY25. But before we delve into our quarterly performance, I wanted to spend a few minutes on two key topics. The first one is the acquisition of Vega City Mall that we had announced last month. To give you all an update, we have raised the funds that are required for closing this acquisition. We are in the midst of closing this transaction and expect the deal to close in the next couple of weeks.
Second topic I would like to touch upon is how is Nexus transforming malls from traditional real-estate spaces into consumption hubs. As most of you are aware, our lease structures are designed to capture consumption-linked upside potential while ensuring minimum guaranteed rentages. This enables us to achieve stable cash flows with ability to participate in consumption-linked upside with revenue-share in almost 90% of our customer contracts.
We have been creatively monetizing spaces within the mall while improving the overall customer shopping experience. For example, we recently launched India’s first double cuboid anamorphic screen at Nexus Hyderabad. This state-of-art technology will not only provide a visually stunning experience but also revolutionarize in mall advertising. Another example is that we are now the first mall platform in the country to sell the naming rights of food court and thereby monetize it. You will see more of these unique branding gains from us in the future. We have also been generating additional income streams by optimally utilizing mall open spaces.
Our ticketed events revenue has seen a jump of 6x in the first half of this year compared to last year. We also believe that technology will be a big differentiator for our business as we go into FY26 and beyond. We have been working towards digitizing our customer shopping experience. Over the last 12 months, the Nexus One app has become an integral part of the shopping journey for lakhs of our consumers across 12 properties, achieving over 4 lakh downloads. I’m pleased to announce that the Nexus ONE app has excelled with 30% of transactions from repeat customers.
Now, I’ll come to the 2Q performance. We witnessed robust retail net operating income growth of 5% year-on-year despite a soft market backdrop. On the back of this resilient financial performance, we are delighted to announce our fifth distribution of INR3,041 million translating to INR2.007 per unit, which is in line with our projections and represents 100% payout.
During the quarter, we witnessed tenant sales of INR30 billion, which grew 2% year-on-year from a high base of last year with a two-year CAGR in the zip score of 9% to 10%. Economic activity was low during this quarter, which was impacted because of heavy rains across key cities like, Navi Mumbai, Delhi, Chandigarh, Shradh, lower wedding days, coupled with no blockbuster movie releases. However, we have witnessed very strong tenant sales growth of 18% in the month of October with the onset of festive season.
I am pleased to tell you that our mall have recorded their highest-ever one-day sale on 27th of October, leading up to Diwali. We expect this momentum to continue in the second half of FY25. Let me now share some category trends with you that we are witnessing across our malls. As you are aware, we have been allocating additional space to categories like electronics, jewelry, beauty and personal care over the last few years.
We have witnessed strong growth in the quarter in these categories. We had indicated in our earlier calls that fast fashion players were sitting on old inventories, which was impacting their performance. So what we are now seeing is that most of these fashion retailers have been able to liquidate the old inventory, they are seeing arrival of fresh new inventory and with the increased number of deals in the second half of the year, we expect tenant sales growth to improve going ahead.
Let me now walk you through our leasing and marketing performance — leasing performance. With strong demand from tenants, our leasing occupancy now stands at 97.4%, which is 40 basis points higher than last year. As we speak today, most of our malls are close to 100% occupied with a healthy waitlist of tenants. In 2Q, we have leased 0.22 million square feet, out of which we re-leased 0.19 million square feet at 20% re-leasing spread.
Our malls continue to be the first port of call into the Indian market with signing of international brands like Foot Locker, YSL Beauty, Nespresso, Gucci Beauty, opening our first store in India with us. We also opened the first Tira store in Navi, Mumbai at Nexus Seawoods. These brands are increasingly choosing our malls as their first port of call due to the immersive and engaging shopping experiences we offer.
On the marketing side, as you know, we have onboarded Ayushmann Khurrana as our new Happiness ambassador. We are working with him on creating exciting new content and also lining up concerts across our portfolio, which will augment footfall. In the coming months, we will also install the anamorphic screen across our other mall, further solidifying our position as industry leader in mall experiences. We will continue to invest in technology to drive sales growth, which will be an important pillar in the coming years.
Coming to our balance sheet, we have a robust balance sheet and are armed with a watches of close to $1 billion for acquisitions. We have recently refinanced debt of about INR2.5 billion at a debt cost of 7.5% per annum, resulting in debt cost reduction by 10 bps to 8%.
On the ESG side, ESG as sustainable side, we continue to lead the market with our ESG goals. We received five-star rating for the first time and were ranked second in Asia amongst the listed retail peers with an overall score of 92. Our progress from a score of 76 in 2022 reflects our ongoing commitment to sustainability initiatives. Across our portfolio, approximately 40% of the energy requirement is met by renewable sources. And during this quarter, we installed 0.65 megawatt rooftop solar in Nexus Hyderabad with a potential of generating 870K units annually at 20% plus yield on cost.
We are also proud to announce that as part of our Lakes of Happiness initiative which we started in 2021, to date, we have successfully revitalized eight lakes across Bangalore, Chennai and Maharashtra, with additional two lakes to be launched in Hyderabad later this month. With these new additions, the Lakes of Happiness initiative will now encompass 10 lakes positively impacting over 1 lakh people, local wildlife, farmers and creating local job opportunities.
Lastly, summarizing our quarterly performance, our retail NOI growth was 5% in Q2. Leasing demand for our assets continues to remain robust with favorable demand-supply dynamics and Nexus being the first port of call for many international brands looking to enter India. On the consumption front, in the first half of the year, we are seeing growth of brands in our mall that is higher than similar brand stores outside our mall. We are also seeing strong growth in October and expect momentum to continue in the second half of this year.
We have announced our distribution of INR3041 million. We are expecting to close the acquisition of Vega City Mall in the next few days. And lastly, with a strong balance sheet, we remain committed to close the other two proposed acquisitions that we had spoken about last time in this financial year and our pipeline continues to remain healthy. With this, let’s now move to Q&A.
Questions and Answers:
Operator
Thank you very much. We will now begin the question-and-answer session. [Operator Instructions] Our first question comes from Mohit Agarwal from IIFL. Please go-ahead.
Mohit Agrawal
Good evening, everyone, and thanks for the opportunity. My first question is on your FY25 guidance and versus that how — the first half numbers. So if I look at NOI and NDCF, NDCF is about 4.1% for first-half, versus what you’ve guided is 8.7% to 8.8%. So how confident are you that second-half will you see a pickup and you meet the guidance? And on NOI also, we are about 6%, 7% below on an annualized number for the first half. So your comments on that.
Pratik Dantara
Okay. So Mohit, hi, Pratik here. Let me try and take that. I think we’ve had a very good October. I think with that, you would probably want to wait another quarter out to see where we end up. At this point of time, we are fairly confident that we should meet both the NOI and NDCF guidances that we have given out at the start of the year.
Mohit Agrawal
Okay. So on the October number itself, like what we saw is 2% growth in October — in the the last quarter year-on-year. And now I think the month number is 18%. So — and you mentioned that you continue this too. So the divergence is huge. So could you explain actually what probably drove this? Is it a few particular malls where we’ve seen a turnaround because let’s say, if you see a Nexus Select city, it has grown 8%, but some of the malls have registered a negative consumption growth in the presentation. So just trying to understand, is it driven by three particular malls or is it driven by three particular categories? And how should we think about the second-half consumption on a second-half basis?
Jayen Naik
So hi, this is Jayen. I’ll take this as I can answer your query. In the quarter two, you see that we were down in apparels, were down in F&B, we were down even in cinema. These were critical aspects which actually pulled down our consumption. But in — with the event of festive season and all, we have seen a big uptick in the Apple sales. In fact, I think Apple sales itself has grown by 19% against negative 2% or 3% in Q2. Cinema, of course, October, I’m talking of South where we have a large presence in South, the good movies that came and the revival was more than 100% in the South territory, which again helped us. Gain in footfall also gain in consumption also.
Again, F&B, which was — you saw here results also across whether it’s the negative, but with the kind of effort that we put in and let me harp on the efforts that we put in so that why and how this has happened then. So when we saw the entire train coming across and with the rails being extended a lot. What we had already decided was that we’ll go in for a very aggressive marketing program and we had engagement actually and that’s why I think Pratik also touched upon his note that we have got themed events. This time around right from the 5th of October, we had got themed events in all our malls.
So somewhere it was a Dino World, somewhere it was a Sheesh Mahal, somewhere it was a Lost World and all those events were primarily aimed at pulling people back into the malls. And the promotion of these actually worked wonder for us. So normally there is a traditional this thing that Navaratri, West is slow. We do not face that. We in fact had a good runover in Navaratri. In the east and like Bhubaneswar and all, we know that is always big. The faster or the early advent of themed events and all that helped us really pull in people in even larger numbers than we did last year. In fact, we clock its highest-ever sales monthly sales before that. And the mall that we talked about in terms of Hyderabad or Ahmedabad where we felt that there was a little bit of a slowdown, we actually achieved our best numbers right there. So I think that all is a parcel of the work that has happened and the trend that we see. Going-forward, we do believe that the trend will definitely continue and there is no reason why it should decelerate from here and now onwards.
Pratik Dantara
And Mohit just to kind of summarize what Jayen is trying to say is, I think the category growth was broad-based across our categories. Categories which were soft in Q2 have actually bounced back in October. So apparel, accessories have seen a bounce back, significant strong bounce-back.
Mohit Agrawal
And for this consumption growth numbers of 2% for last quarter and 18% for October, could you give the corresponding footfall growth as well?
Pratik Dantara
About 2% in the month of October and 2% down in Q2.
Mohit Agrawal
Okay. So 2% up in for October footfalls and 2% down for the last quarter.
Pratik Dantara
Yes.
Mohit Agrawal
Okay. Okay. That’s all from my side. Thanks a lot and all the best.
Operator
Thank you. The next question comes from Pritesh Sheth from Axis Capital. Please go ahead.
Pritesh Sheth
Yeah, good evening. Thanks for the opportunity. Just following-up the previous question. So this 18% growth, could one say that there is some bit of seasonality in that because sorry, last year, you mentioned that Q2 was impacted because of few days of start. So that things have preponed versus last year. The 18% growth was also looking higher because of the festive season started this timeline and what would be your expectation in November, December when things normalize, you know, could we continue to see that 8%, 9% growth in terms of consumption for second-half?
Pratik Dantara
Yeah Pritesh, thanks for the question. I think obviously 18% is a huge number. Obviously, there is a festive impact in that. On a steady-state basis, you should see 9%, 10% growth in this business. And on a two-year CAGR also, if you kind of look at it even on a Q2 basis, we had a base wherein we grew at about 16% 17% and then the 2% growth in Q2. So on a two-year CAGR basis, it’s a 9%, 10% growth business, which is what we would probably guide you to on a number basis.
Jayen Naik
And, Pritesh just to add because Diwali was in November previous year, so we should be looking at October plus November, which gives you a kind of 10%, 11% growth. Also this year, we expect the festive wedding season to take-off in the second-half because there was no wedding dates in the earlier part. So we are confident, but maybe not at the 18% the long-term growth rate could be maintained.
Pritesh Sheth
Got it. And just understanding on this Vega City acquisition whenever we complete, how would it impact NDCF of flat NOI positively or negatively, will this acquisitions in general be accretive from day one, that’s how you structure it or to make it accretive, we’ll have to wait for six months-to see that turnover and then start becoming accretive.
Pratik Dantara
So, Pritesh let me as a concept kind of take you through how we think about it, right? So not specific to Vega, but any acquisition that we do, if it’s an under-leased or an undermanaged asset, it will need about six to eight to 12 months to actually turn-around. So when you talk about being accretive to shareholders, it will be accretive on a stabilized basis. Specific to Vega, I think let’s just wait for a few more days when we close the transaction, we will come out with a note, which will have details around accretiveness, etc., and then we can have a chat again.
Pritesh Sheth
Okay. But just we are keeping your guidance in mind. Second-half we are expecting a — I mean, second-half we are expecting better than the first-half. So will this Vega city acquisition impact our guidance or this is already baked into the numbers?
Pratik Dantara
So it shouldn’t impact our guidance.
Pritesh Sheth
Okay. Fair enough. And just on the acquisition pipeline, the three assets in South, one in North, obviously, three in South, one is Vega City. Other two — one of them is Hyderabad or for now considering the lack of clarity on that, we have taken it out and probably added a couple of more acquisitions there.
Pratik Dantara
No, that’s the Hyderabad one that we are awaiting regulatory approvals on. And of course, there’s one in North as well that we’ve completed diligence and we are kind of in the midst of transaction documentation finalization.
Pritesh Sheth
And we have added one more apart from these three that we have already been discussing, right?
Pratik Dantara
Yeah. So there are three separate transactions. The Vega one has got announced and it is due to close in the next few days. The Hyderabad one has got announced and we are awaiting regulatory approvals and clearances there. And then there is a third one, which is an asset up North where diligence has been completed and we are actually in the midst of finalizing the transaction documentation.
Pritesh Sheth
Okay, got it. I mean, I was just referring to Slide 4 where you mentioned South India three malls, North India one mall. So there are four, but you’re talking about three deals here. So.
Pratik Dantara
Three deals, but yeah, that’s four, four malls, three in South, one in North.
Pritesh Sheth
Okay. Perfect. Okay. Thank you. That’s helpful and all the best.
Pratik Dantara
Thank you.
Operator
Thank you. The next question comes from Parvez Qazi from Nuvama Group. Please go ahead.
Parvez Qazi
Hi, good evening and thanks for taking my question. So my first question is for Vega City Mall. You’re saying that you expect the acquisition to get completed over the next few days. So will Vega City get consolidated from the likely date of acquisition going ahead or will you consolidate it for the entire Q3?
Pratik Dantara
No, so we’ll consolidate it from the day we close the transaction, which will be the date when we announce the closure of the transaction.
Parvez Qazi
Got it. So when now you said Vega City has almost about INR40 odd crore of monthly consumption. So when we talk about, hello?
Pratik Dantara
Yeah, we are there.
Parvez Qazi
Yeah. So when we talk about consumption in H2, this number is included in your guidance or this will be over and above that?
Pratik Dantara
No, it will be over and above. Our guidance is purely organic like-for-like guidance that we’ve given.
Parvez Qazi
Sure. And with regards to the rentals during Q2, what percentage came from the variable component or revenue-share?
Rajesh Deo
So it came — it was around 9%.
Parvez Qazi
Sure. That’s it from my side and all the best.
Pratik Dantara
Thanks Parvez.
Operator
Thank you. The next question comes from Praveen Choudhary from Morgan Stanley. Please go-ahead.
Praveen Choudhary
Thanks so much for taking my question. And congratulations for getting such a good number for October. I have just one question pretty much, which is the dividend per share, which is down quarter-over-quarter 7%. I know we should not look at Q-on-Q. Normally Y-on-Y is better, but we don’t have that availability. So I’m just want to understand what’s drove that, especially because your NOI and revenue is kind of flattish.
Pratik Dantara
Hi, Praveen, Pratik here. I think that’s on account of a slight dip in NOI on account of seasonality in Q2. There is a slight dip in NOI. There is an increase in cash taxes by about INR15 crores. That’s driven the decline in the GPU.
Praveen Choudhary
Okay. And when you’re looking at the DPU guidance for the full-year. As the question was asked about the Vega Mall, it will impact your NOI — sorry, it will impact your NDCF and DPU in the second-half as well. But would you be able to separate that for full-year or so that the guidance is on organic basis…
Pratik Dantara
We will be able to give you like-for-like numbers, so that you will get to the organic DPU growth or number.
Parvez Qazi
Okay, great. And finally, the last question is 9% to 10% organic growth that you mentioned on a steady-state basis, which historically you have been able to deliver. Do you think any reason why in future we may not be able to achieve it? Do you seen last two quarters consumption has been a little bit weak in general in India and in retail space. Do you think macro is impacting that at all or you are very confident about that 9% to 10% going forward? Thank you. That’s my last question.
Pratik Dantara
I think we’ve been talking to brands globally and obviously, first half is what it is, but I think brands are very confident that the consumption will pick up in the second-half of the year. I mean almost most of them have had a very, very strong Diwali and October. So we are kind of hopeful that this momentum will continue in the second half.
Parvez Qazi
Thank you. Thanks so much and all the best.
Pratik Dantara
Thanks.
Operator
Thank you. [Operator Instructions] The next question comes from Jatin from Bank of America. Please go-ahead.
Jatin
Yeah, hi. Thanks for taking my question. Could you guys check the ticketed event revenue part which you highlighted, do you consider that as part of your retail NOI, which you report? And if yes, how much would your NOI growth be ex of that considering that it was a pretty significant 6x example in that number?
Rajesh Deo
So Jatin this is Rajesh, that’s part of the retail NOI will come from other stream of retail. But we have put that from a perspective that it’s not only rental which is coming, we have other schemes of revenue, but there is immaterial in the scheme of things as of date.
Jatin
Understood.
Pratik Dantara
So one point that you would like to kind of highlight is that I think over the years, we’ve moved from being traditionally or being owning traditional real-estate spaces to kind of transforming these real-estate spaces into consumption centers, right? And this journey — in the journey that happened over years as we acquire malls and transform them. What this has done is beyond pure rentals, which is MG-based, we’ve added newer streams of revenue. So obviously, revenue-share is one that’s got added and it gets added to the rental piece.
But apart from that, we’ve added newer streams of revenue, be it branding spaces within the mall. And like I said, we kind of branded our food court and we are earning branding income out of it. There’s space on hire across the mall and we kind of leading that space we kind of set-up kiosks that have the highest per square feet rentals and we kind of introduce new brands through kiosks. A ticketed event that you kind of touched upon, we try and build-in rooftop solars to optimize on costs. So we are trying to kind of build additional streams of income beyond the traditional minimum guaranteed rentals. I think over the years, you will see that some of these becomes reasonably large contributors to our retail NOI.
Jatin
Understood. Got it. Thanks Pratik. That is my question.
Operator
Thank you. The next question comes from Pradyumna Choudhary from JM Financial Family Office. Please go-ahead.
Pradyumna Choudhary
Yeah, hi. So we are hearing from certain companies regarding signs of slowdown in urban consumption, right? So are we witnessing any initial signs of that or would you say our target segment is different altogether and so there’s not been any issue.
Pratik Dantara
Pradyumna, hi, Pratik here. I think with what we’ve seen in October and what we are now seeing in November, we are not seeing a slowdown as yet. So obviously, first-half was a different story, but as we get into the second-half, we remain very bullish that the momentum is back and should continue for the second-half of the year.
Pradyumna Choudhary
All right. Thank you.
Operator
Thank you. As there are no further questions from the participants, that concludes today’s presentation.
[Operator Closing Remarks]