Mindspace Business Parks REIT

It gives me immense pleasure to bring to you our third Annual Report.

REITs in India are still in the nascent stage of their evolution and have a long way to go till we reach the levels seen in developed REIT markets. Mindspace Business Parks REIT began its journey in August 2020 during one of the most difficult times in the history of commercial real estate and has emerged stronger from the crisis.

Your Manager's experienced management team has been in this industry for over 2 decades now and gone through multiple cycles. This experience has helped us prognosticate evolving occupier preferences, create offerings and identify micro-markets that are evolving in CBDs and SBDs.

This experience has helped us grow to become the dominant player in our micro-markets and create world-class ecosystems that are irreplaceable at the cost metrics prevailing now.

If I can categorize the financial years post our listing,

FY21 and FY22 for Mindspace REIT were the years of transformation and FY23 was the year of recovery. While the world saw the pandemic as a major impediment to commercial office demand, we saw it as an opportunity.

We expeditiously executed the business strategy of upgrading assets and bringing them to speed with the best offerings in the market. We were able to carry out this complex task seamlessly during the downtime with minimum discomfort to our tenants. Occupiers who have returned to their workplaces are amazed by at the transformation their office buildings have undergone.

After countless debates on future workplace strategies and several months/years of working from home experiment, a consensus has emerged that office is going to be the mainstay of future work environments as productivity is the highest when working from office. Thus, a lot of emphasis is coming from the topmost echelons to encourage employees to attend office few days every week to begin with and then ramp it up. They want to usher the returning employees to one of the best work environments that fosters collaboration, augments innovation, and boosts productivity. Employers want to provide employees with experiential office ecosystems that they would look forward to visit every day. Occupiers today are looking for office assets that offer ample recreational spaces, entertainment zones, and food and beverage options, to ensure building occupants' health and wellbeing, and also ensure hassle-free access to different modes of transportation. Hence, there is an increased focus on moving to premium grade A office ecosystems and this desire has spurred demand for offerings like ours.

To give you a perspective, we have recorded our second consecutive year of gross leasing of over 4 million square feet. On the back of strong leasing activity, we have recorded sharp improvement in committed occupancy. We started the year with a committed occupancy of c. 84.3%, which has risen by c. 470 bps during the financial year and touched c. 89.0%. Our all three assets in Pune and the assets at BKC and Malad are almost fully leased with nearly 100% committed occupancy. Our parks at Madhapur and Porur are recording c. 95% committed occupancy. The strong demand for our upgraded offerings, at these locations, and the dearth of space availability has encouraged us to bring forward the timelines of future development in Pune. We have also been able to undertake area addition by taking up another redevelopment opportunity at Madhapur which we announced during the year. We continue to undertake such strategic calls to bring in additional supply within our existing portfolio in our quest to create long-term value for our stakeholders.

• Recorded c.4.1 msf of gross leasing during FY23

• Completed area of the portfolio grew by c.1.9 msf

• Committed occupancy rose by c.470 bps to c.89.0%

• NOI grew by 13.2% YoY to INR 17 bn

• Announced distribution of INR 11.3 Bn or INR 19.1 per unit

• Achieved re-leasing spread of 26.3%

• Raised INR 15.4 bn through NCDs at REIT and SPV level

• NAV of the portfolio grew by INR 7.0 per unit to reach INR 371.9 per unit

• In place rent of the portfolio grew by c.5.7% to reach INR 65.2 psf pm

• Started construction on new projects of c.1.3 msf within existing portfolio

• Ranked 4th highest in Asia on Development Benchmark by GRESB

Note:

c.1.9 msf area was added however,

c.0.36 msf was removed on account of redevelopment of buildings 7&8 at Mindspace Madhapur msf on account of completions during the year

The vast availability of STEM talent in India, strong IT industry, offshoring capabilities, growth of BFSI industry, and overall growth of the country has made India one of the most resilient office markets.

Having said that, the concerns regarding upcoming recession in the West, global economic slowdown on account of high-interest rates, and overall volatility is likely to have a bearing on demand in the near term. India may not remain immune to external shocks and some of the larger RFPs have been put on hold. However, we believe that the impact on office demand in India is likely to be shortlived as pressure to cut costs would lead to a new cycle of offshoring of jobs as organizations would look to cut costs by outsourcing work to countries like India. A similar scenario played out post the global financial crisis of 2008.

As we had anticipated, the much talked about supply in some of our micro-markets has not come yet as developers are deferring the delivery timelines given the increase in cost of borrowing, dearth of funding, high inflation, large RFPs going on hold, and uncertain economic conditions in the West. Many developers have gone back to the drawing board and are converting their office projects to residential segment due to the stronger demand dynamics there at present. This is constricting the upcoming supply. Further, the supply that has come in, is demanding a higher rental to compensate for the increase in construction costs, thereby increasing the mark-to-market opportunity for us.

Given our ability to understand the business better and stay ahead of competition, there are two major trends that we see unfolding:

1. Active asset management with regular upgrades of building

The business of commercial real estate has changed significantly post COVID. Developers today are not just expected to construct an office asset but are expected to actively manage the asset, ensure timely maintenance, upgrade support infrastructure, increase procurement of renewable supply, add newer amenities, and implement robust health,

wellness, and safety protocols. This eliminates a number of contenders from the market and also renders a lot of upcoming supply ineligible for occupiers' evolved preferences. We had used the COVID induced downtime to upgrade all our assets and bring the same up to speed with the best offerings in the market, while ensuring relevance with evolved preferences. In strata-sold assets, asset management and upgradation of assets is a daunting task as it's acostly, complex, and time-consuming process, and we foresee such assets becoming redundant and languish.

2. Emphasis on occupying sustainable assets that score high on ESG metrics.

As organizations across the globe are working towards achieving their net zero emission targets, there is an increased preference towards occupying assets that score high on ESG benchmarks. For companies in the services industry, real estate contributes a significant chunk of their greenhouse footprint and there is an increased pressure to reduce the environment footprint.

We remain ahead in both these areas through our in-house facility management division, regular asset upgrades, and our unwavering commitment towards creating sustainable asset ecosystems that are benchmarked with the best.

During the year, we received 5 out of 5 Stars for our sustainability efforts on the Development side and 4 out 5 stars for the Standing Investment Component by GRESB, the Global Real Estate Sustainability Benchmark. We have been ranked 4th in Asia on Development Benchmark by GRESB. Further, our 7 assets were rated 5 Stars in British Safety Council's Health and Safety Audit. We have also received British Safety Council's prestigious 9 ‘Sword of Honour' awards across these 7 assets.

As a part of our ESG journey, we recently concluded the issuance of India's first REIT level Green Bond. We released our inaugural green financing framework that is aligned with the Green Bond Principles developed by the International Capital Markets Association (ICMA). We engaged Sustainalytics, a Morningstar company, globally known for its ESG research, ratings, and data for evaluating the Green Financing Framework and to provide independent opinion on the alignment thereof with Green Bond Principles. Using this Framework as a guiding principle, we issued our First Green Bond and raised INR 5.5 billion at a fixed coupon of c. 8%. The current regulation doesn't mandate us to issue Green Bonds, nor is interest arbitrage for Green Bonds in India meaningful. However, for us as an organization, it is a matter of responsibility to do our best to help mitigate the impact of climate change. The funds are raised only for green projects that can help do this. Sustainalytics has also provided a post-issuance review capturing the utilization of proceeds and its impact on mitigating the impact of climate change.

We remain cognizant of the economic situation unfolding globally and are gearing up to navigate it. Our management team's exposure to this industry spans decades and we have witnessed several cycles. Our learnings from the past and our understanding of occupier requirements enable us to stay ahead in this industry and create assets that stand the test of time.

Despite listing during the pandemic and being in the shadow of the pandemic and lockdowns, our leasing teams have managed to lease c. 12.2 msf over the last 3 financial years (FY 2021-23). This is a testament to the strength of our assets, our asset management strategy, and our leasing team members, who have achieved this insurmountable feat consistently.

The IT industry is facing some headwinds; however, they are still hiring albeit at a much slower pace than what we had seen over the past few years. With the attrition rates now stabilizing, the employer-employee dynamic which was favouring employees has started balancing out. Organizations are now in a better position to call employees back to work than they were over the past two years. We have noticed physical occupancies rise at our parks.

The space take-up by IT companies and GCCs/GICs over the last two years has not been commensurate with the record hiring during that period. With the employees now returning to work, there is increased pressure on taking up new spaces for expansion. While the larger RFPs are on pause due to the global headwinds, they are continuing with the expansion plans as there is increased pressure to take up new spaces to accommodate the new hires which would continue to provide tailwinds to demand along with the trend of shift to Grade A experiential office assets.

On the acquisition front, as we had intimated the exchanges during March 2023, the Sponsors of ROFO opportunity at Hyderabad and the shareholders of the other acquisition opportunity at 'BKC & Annex' had deferred the sale of all outstanding equity shares to Mindspace REIT, in light of the volatility and uncertainty in the markets. Both have promised to re-offer this opportunity to Mindspace REIT first, at the appropriate time. Apart from these two opportunities, we continue to explore other growth opportunities within the Portfolio and gear up to capitalise on third party acquisition opportunities.

Delay in the implementation of SEZ Policy reforms has kept the demand for SEZ spaces muted. Representations have been made by various Industry Associations to the Government to consider the policy overhaul to revive the SEZ spaces. These reforms would not only bring back the demand for these office spaces, but would also help generate tax revenues and employment by increased occupancy.

To conclude, let me take this opportunity to extend my gratitude to all the unitholders who have been with us and allowed us to execute our business strategy that has delivered consistent returns. Due to rising awareness of REIT as an asset class, our unitholder base has more than doubled during the financial year to over 50,000.

I would like to thank our tenants and other stakeholders for their sustained confidence in Mindspace. I would also like to thank the banks, financial institutions, mutual funds, insurance companies, and pension funds that have provided us capital in the form of loans or by subscribing to our NCDs. Our debt book is now getting diverse with a number of insurance companies and pension funds subscribing to our issue or buying it from secondary market.

The Government and the Regulators have been very supportive and committed to ensure the future of REITs and InvITs as an asset class. They have proactively brought out suitable amendments as and when required to support the sector and ensure its long-term future.

The members of the Governing Board of our Manager have been the guiding light to uphold the highest standards of governance. Our strong network of suppliers and vendors has ensured timely and quality deliveries despite the supply chain disruptions to help us build assets that match global standards. I would also like to thank our management team and all our employees, who act as a strong foundation to the business we intend to build, and the milestones we intend to achieve.

Chief Executive Officer.