Chalet Hotels Ltd

NSE:CHALET

Earnings Call Transcript 2022-Q2

[Operator]

[Audio Gap]Director and CEO of Chalet Hotels. Thank you. Over to you, sir.

[Sanjay Sethi, MD, CEO & Director]

Thank you. Good morning, ladies and gentlemen. After 6 quarters of various levels of lockdown, the hospitality industry is seeing business momentum pickup, led by a positive consumer sentiment and easing of restrictions. And I guess the industry is quite excited about it.Globally, over 38% of the population has now been fully vaccinated in key markets such as U.K., U.S., Singapore and UAE have between 60% and 80% of the population fully vaccinated. In India, as you know, we recently hit the 1 billion dose mark and over 32% of the eligible population is now fully vaccinated. At Chalet, 99% of the team has got the first jab and 80% have received both jabs. The gap is only because there are a certain number of weeks before the second jab, and another 2 or 3 weeks, we would actually have got almost everyone double jabbed. Major business cities have seen restrictions being eased, and domestic corporates have restarted work from office. Business travel is also on the rise. The air traffic passenger numbers in India were around 55% pre-COVID levels in September, where domestic airlines now committed full capacity. India has seen some of the highest ever single day air traffic numbers during the COVID period for the current month, which is October. Before I start with the overview of our business performance for the quarter gone by, let me update you on a key development on one of our dormant projects. As you know, we have a residential project at Koramangala in Bengaluru, which was stuck in litigation over cancellations of an earlier issued NOC for height by HAL. The project was under development with several towers at various stages of completion. We have worked out a revised development plan and have executed settlement terms with HAL. I'm happy to share the honorable High Court of Karnataka has passed the final orders, and this marks the closure of the long-standing litigation on the project. We will recommence development shortly to unlock value for the asset. In addition, all [indiscernible] of the contained flat owners are aligned with our new plans and will soon be submitting applications for requisite approvals for commencing the project.I'd like to highlight here that this project is branded as a Vivarea product, which is a luxury brand. And for those of you who are familiar with the Mumbai Vivarea will know that it stands right at the top amongst the residential buildings in Mumbai. In addition to that, the location of Koramangala being the most premium in Bangalore for residential, we do expect a significant amount of value addition through activation of this project -- or reactivation of this project. The revised plans include 11 residential towers and a commercial building for [ starter phase ]. Milind will take you through some of the key numbers on the project shortly. For the quarter ended 2021 -- September 2021, at the consolidated level, we have clocked an adjusted revenue of INR 1.16 billion against INR 696 million in Q1 of the year, which is a growth of 67%. Adjusted EBITDA was at INR 253 million against INR 24 million in Q1, an 11x growth. As Hospitality segment progresses on stabilizing operations, we are witnessing quick ramp up in performances. For the division, we reported INR 911 million of revenue against INR 462 million in Q1, higher by 99%, and an EBITDA of INR 138 million against a loss of INR 99 million in Q1.Occupancies at our hotels have climbed to 56% for the quarter ending September up by 28 points and RevPAR was at 2,161 up from 1,252 in Q1. October continues to follow the trend, and the occupancy till date for the portfolio is 59%, with an average room rate of INR 4,330 odd, which is up 11% as compared to quarter 2. In mid-August, hours of operation of F&B Maharashtra were increased till 10 p.m. from an earlier restriction to 8 p.m. -- 4:00 p.m., apologies for that. The same has subsequently been revised to midnight from last week. This bodes well for the business, given the commencement of the festive season. F&B revenues have seen a sharp uptick and were sequentially up by 167% for the last quarter. Rooms and F&B respectively contribute 55% and 38% of the Hospitality revenue for the company. We have been evaluating the performance of our non-hotel assets for best suited use. The Inorbit Mall at Bangalore has been underperforming for a while. The onset of the pandemic kept malls shut across the country for several months and impacted retailers.As a quick pivot to optimize the asset, we have started work on repurposing the space and will be converting the same to a commercial office product, adding another 0.3 million square foot of commercial assets to our portfolio of 0.6 million square foot in Bengaluru. So this will initially add about 0.9 million of new office space at the Whitefield location.Work on conversion of retail space at Sahar has progressed well. We are in the process of leasing the current space currently. In fact, lease and license agreements for 25% of the space have already been executed, and the tenants have started fit out works. One of the tenants actually expects to begin office on that location from late November.On the growth pipeline, the 2 commercial development projects, with an area of 1.4 million square foot, are progressing well and in line with the time line shared on previous calls. The commercial target Bengaluru now has a revised area of 0.66 million as against 0.45 million earlier because we've been able to add 2 more floors to the structure. Basically, the cinema status that is coming, multiplex that is coming in that tower to support the mall, with the mall going out of action has now been converted to 2 additional office floors.The estimated cost of the Powai project, however, has gone up on account of steep increase in commodity prices, especially steel. We continue to evaluate demand dynamics to assess the opening of the new hotel in Hyderabad, expansion of capacity in Pune and the rebranding of the Powai Hotel. We're also evaluating the demand metrics for Airoli to take a decision moving forward for the 260-room Hyatt Regency in the Mindspace complex over there. The renovation work at Renaissance Mumbai is at its last leg. With this, we are targeting the rebranding to Westin in Q4 of this year.The last 1.5 years have been challenging and unpredictable. We have streamlined our business over the past few quarters, remobilized dormant assets and repurposed underperforming malls. In addition, Chalet has significant value yet to be unlocked from its existing balance sheet, and I look forward to discussing the same in the near future with you.I now hand over to Milind, our CFO, to take you through some of the final details on the financial performance.

[Milind Wadekar, VP of Finance & Tax and CFO]

Thank you, Sanjay. Good morning, ladies and gentlemen. Reported revenue for the quarter was INR 1,376 million, which includes INR 161 million received from a commercial tenant on account of early termination of contract. INR 50 million [ ACI ] income, which was written off in FY '21 and a rebate received from an operator of INR 4.6 million for past disputed liabilities.Adjusting for the same, the revenue was at INR 1,161 million, INR 116 crores against adjusted revenue of INR 696 million in Q1 of this year, a growth of 67%. Further, we accounted INR 33.6 million for interest on cancellation of 3 flats at our residential project in Koramangala. Adjusting for this, EBITDA was at INR 253 million against adjusted EBITDA of INR 24 million in Q1 of this year. PBT post charges on depreciation and interest for the company was negative of INR 278 million as against negative of INR 693 million in the sequential quarter of Q1. After taking credit for deferred tax assets of INR 140 million, loss after tax was at INR 138 million. The Hospitality segment contributed to 79% of the total income of the company.On the cost front, we continue to maintain lower fixed and variable costs compared to our pre-COVID performance. Fixed cost was lower by approximately 37% and variable costs were lower by 44% as compared to pre-COVID Q2 financial year '20. The variable costs are expected to rationalize as operations scale up, whereas our strategic initiatives on cost will keep the variable cost contribution lower than traditional levels.Revenue and EBITDA from Retail and Commercial segment was at INR 377 million and INR 326 million for the quarter, respectively. Adjusting for compensation received from the tenant, the revenue was at INR 206 million and EBITDA was at INR 172 million. As mentioned by Sanjay, we are repurposing Inorbit Mall at Bengaluru. The contribution from our malls were not significant during the quarter [indiscernible]With conversion of retail spaces to commercial office spaces -- sorry, the conversion of retail spaces into office spaces will be EBITDA and return accretive and stabilized earnings from retail assets quarter. Debt for the company in the first 6 months has gone up by INR 171 crores, which included INR 135 crores CapEx spend. The net debt of the company as of September '21 stands at INR 2,042 crores.Our cash PBT, that is EBITDA less finance cost for Q2 FY '21, has been INR 48 million, which has turned positive for the first time since the pandemic hit us. This has -- this was led by prudent cash flow, working capital management, along with other strategic initiatives. The average cost of rupee loan as at September '21 stands at [ 7.57, ] an improvement of 47 bps since March '21. We have cash and cash equivalent of around INR 57 crores as of September '21 and INR 710 crores available lines of credit for general corporate purpose and planned CapEx. We have received new subscription of INR 500 million from promoters on the 0% non-convertible redeemable preference shares for funding the outflows relating to residential project at Koramangala. The total subscription now stands at INR 175 crores. As briefed by Sanjay, the project has seen a closure on litigation. With the new development plans, we'll have 9 towers of 10 floors and 2 towers of 11 floors each, totaling to 8.5 lakhs square feet of residential area. There will be additional 1.5 lakhs square feet of commercial space for Chalet Hotel. Out of this, 2.8 lakhs square feet of residential project is already sold and the balanced sellable area is around 5.7 lakhs square feet. The cost estimated to complete this project, including commercial space -- commercial building will be in the range of INR 425 crores, and the project is expected to be completed by FY '26. With this, we now open the floor to questions.

[Operator]

[Operator Instructions] We have the first question from the line of Karan Khanna from AMBIT Capital.

[Karan Khanna, Analyst]

Firstly, on your residential portfolio at Koramangala, including the commercial part, you mentioned about INR 425 crores of required CapEx to finish the project. Can you give us some sense on the expected cash flows that you would be estimating internally, along with the split between sold and unsold part, including the commercial strata sale?

[Sanjay Sethi, MD, CEO & Director]

Certainly, I'll let Milind address that. But Karan, as an overview from here onwards, we largely expect the cash -- the outflow to be supported by sales. We still have, as Milind mentioned, some money left to be drawn up from the preference shares from the promoters. That should be more than adequate to take us to the next level, but Milind will comment in detail.

[Milind Wadekar, VP of Finance & Tax and CFO]

So Karan, we have around 5.68 lakh square feet residential area for sale and around 1.5 lakh square feet commercial area. Cost, we already mentioned, it's going to be in the range of INR 425 crores. And on revenue side, we don't want to give forward-looking numbers, but the expected selling price per square feet is expected to be much higher than our previous estimates.

[Karan Khanna, Analyst]

Sure. But any ballpark number that you can share?

[Sanjay Sethi, MD, CEO & Director]

So Karan, it's like this. I mean we expect the base price to be comfortably northwards of 13,000 square foot, add to that floor-wise parking, et cetera. And this is a base starting price. As the project progresses, the price will increase. We are very confident that we see numbers northwards of INR 15,000.

[Karan Khanna, Analyst]

Secondly, on your commercial portfolio, can you give us some sense on your exit negotiations with the tenants for the Inorbit Mall? And as a follow-up, you would now have a little more than 1 million square feet of commercial real estate in the Whitefield market over the next 3 quarters. What we understand is that the Whitefield market already has weakened office space, with significant supply hitting the market over the next 4 to 6 quarters. In that context, can you help us with your thoughts on the same, along with leasing time line for all the 3 blocks separately, that's the 1.1 million square feet of recently vacated area, 0.3 million square feet of Inorbit conversion and 0.66 million square feet of the new construction, along with expected interval, if you can share?

[Sanjay Sethi, MD, CEO & Director]

So Karan, we've got more than enough adequate queries. And the list on our tracker -- sales tracker is long. We obviously can't -- couldn't lease out the mall area until we had our tenants vacated. And Accenture Learning Center just recently got vacated. So we could mobilize those 2. But on the new office tower, which is expected to be commissioned in Q4 of this year -- end of Q4 of this year, there is significant interest. We've also got potential tenants now doing site visits for the current Inorbit Mall, which is, as we speak, being dismantled to reconfigure it to an office space.The Accenture Learning Center is the way it is. We still have retained the 67 rooms that were there, and we've added that to the hotel inventory in Whitefield, Bengaluru. We are -- we don't have any concrete numbers to share with you before we actually close the deals themselves. So that will be a little premature. However, keep in mind that whilst there may be vacant space within Whitefield, the quality of assets makes a lot of difference. The provision of the hotel connected to this office space and the metro station, literally, you get off the metro station and you on the property is both a clear advantage for this particular complex, and we expect to get the extraction on it.

[Karan Khanna, Analyst]

Sure. And lastly, on your hospitality portfolio, you've mentioned in your investor presentation that, currently, I think occupancy is around 59%. Is it possible to get some sense on the citywide occupancy and ARR trends in the month of October? That would be my last question.

[Sanjay Sethi, MD, CEO & Director]

Citywide October numbers will be -- I can give you a flavor of it. So the Marriott Executive Apartments, I'm starting off with Powai, is at 75% occupancy in October. But this is -- we have not really shared this publicly, so we might need to keep it overview of 59%. Let me give you an overview that the ones that are of concern, the one-off -- one of that is of concern, that's the Whitefield Bangalore Marriott...

[Karan Khanna, Analyst]

That's right. That's right.

[Sanjay Sethi, MD, CEO & Director]

Which has lower occupancies in the rest of the portfolio and has dragged the average down. But you must remember, the 67 rooms just got vacated over there, which were giving us 100% occupancy for the period. So you might see a sharp drop there, but that's going to be filled up very soon.In the recent weeks, we've seen business travel come back there and the occupancies are climbing up. So when we report occupancy of Whitefield Marriott, we are reporting on the full inventory of 324 plus 67 rooms, that's 391 rooms. And therefore, the occupancy will look a little muted. But on the original occupancy, it goes up 6.5% on the original inventory of 324 rooms.So that's the only hotel that we're concerned with because Whitefield has taken slightly longer than the rest of the country to pick up, on account of the nature of business in that area. But as international travel and the IT companies start traveling, even domestic companies, we see that picking up. We are not really concerned -- so concerned about that hotel, and it's a brilliant hotel. It's always been the best performing hotel in that market, not just in Whitefield, it has performed amongst the best in the whole city. And we do know that when things come back, they will come back with a bang for that hotel. I mean our performers are clearly the JW Marriott Sahar, the Pune Hotel, the Four Points by Sheraton and the Marriott Executive Apartments.

[Operator]

[Operator Instructions] The next question is from the line of Vikas Ahuja from Antique Stockbroking.

[Vikas Ahuja, Research Analyst]

Congrats on decent results and strong execution. My first question is, our exposure is largely corporate. So we are currently at a little disadvantage to peers with strong leisure presence. But do we think with the trend of mostly all corporates now are looking to call back people back to office, even the tech companies, which were claiming work from home and Zoom meetings is a new normal, almost planning to call more than 90% of their staff back next year. So any early indication we are getting, if there's no third wave, do we think maybe in FY '23 we will see a very strong pick up in leisure, especially on the pricing side?

[Sanjay Sethi, MD, CEO & Director]

Thank you, Vikas, for the question. I hope you're doing well. Yes, we do expect that things will come back and ramp up on business travel pretty soon And with that return of business travel and add to that, the new revenue streams that we've developed over the last 18 months, we do expect FY '23 to look a lot stronger. Our previous estimate was that we should be back to close to normal numbers from October of next year. I think we retained that outlook And FY '24, as a whole year, is likely to be the -- a good year. I mean we should be back to pre-COVID numbers.I must also add here that we've been looking at some lead indicators of what's happening in the market. Two lead indicators that we're looking at, one is the growth in air passenger growth -- air passenger travel. And we see now a significant percentage of the flights in key sectors of Delhi, Mumbai, Hyderabad, Bangalore, Chennai. And Pune is closed for a bit, but it'll open day after tomorrow, are now business travelers. A clear indication that the people have started traveling for work. So that's one strong indication. The second indicator that we looked at is the hiring patterns of companies, and the hiring patterns have been very, very strong. Just to give you an indication -- sorry, one metric that we look at is what is the leasing trend for these increased hires within these companies? And I was speaking to our leasing head within the group companies. And he said, "For every 5 people that they are hiring, they are adding on 4 extra seats within the office spaces." And this hasn't changed. This was the number that we had even pre-COVID. So potential tenants, potential businesses were who could -- who are our key accounts for our hotels, all seemed to be hiring well. And they seem to be providing 4 office spaces for every 5 files that they do, all good positive indicators. In addition to that, the special corporate, which is the contracted corporate travel accounts in our segmentation, we see the 28% to 30% month-on-month increase between September and October -- 28% to 30% actually on month-to-month increase between September and October on that segment, which, again, is a good strong trend. And in addition to that, we've got staycations, which are improving also, 5%, with higher ADRs. What we've been able to do is occupancies improving for the rest of the retail segment, which is a visible rate, as we call -- where we call them bar rates, where the available rates, have gone up. So if today you were to scan for some of our hotels that have high occupancy, the visible rate in those markets has -- are now almost about 60% higher than they were about 1.5 months back.And finally, the RFP cycle for the next year has started. And we were at a meeting with Marriott in our call yesterday, and they confirmed that there is no discounting happening on the global corporate accounts as far as the room rates are concerned. And the -- most of the accounts are likely to be closed at 2019 rates.

[Vikas Ahuja, Research Analyst]

Okay. This is very helpful, sir. And also for hotels, do we have any plans of -- I know, currently, we have no plans of moving to leisure and all. But from a medium- to long-term perspective, do we -- do you think that we can actually also move into leisure? Or do you think the parent being a commercial builder, so synergies are better only with city hotels?

[Sanjay Sethi, MD, CEO & Director]

No, I don't think the second part is true. Chalet will look at its own portfolio and reassess its strategies according to what the requirement of the day are. The leisure has been a growth area as a strategy for the last 3, 4 years now for us. We've stated that in almost every call that we've had, that we do want to get into the leisure space. We haven't found suitable assets that work for us. We don't want to take development risk in work for now. We'd rather acquire an asset if it's available. So that's one. Second, and look at it, it's a very interesting phenomenon that's happened over the last 18 months. Whilst we say that we are not in the leisure destination, we've created leisure products within the cities. A large part of the business is actually coming out of people who are taking staycations, which is basically -- the purpose of the staycation is leisure.So what we've done is we've created what are known as urban resorts, within the cities, within the existing hotel profile and created a new segment for them. Powai is a clear example of the location, in taking the locational advantage of the lake front to grow their staycation. We have strong staycations even in Pune, in Four Points by Sheraton in Vashi. JW Sahar has had strong staycations. And I think the -- as I mentioned in my opening statement, the conversion of the Renaissance into Westin sometime maybe in January of the next year will reposition it as a product also because Westin is all about wellness as a brand. So we see a significant move on the guest profile over there. I hope that addresses your question?

[Vikas Ahuja, Research Analyst]

Yes, it did. I also have a follow up for Milind. Milind, last quarter, you talked about our CapEx and the debt target. So CapEx, you said it would be around INR 850 crores in next 2.5 years, and that would be peaking at 250 -- around INR 2,500 crores. So any changes with that? Because I know there has been some delays and changes to these numbers.And also, I have a follow-up. One clarification of the preference loan by promoter. So just correct me if I'm wrong, the total debt-free report that does not include promoter's preference loan? And once you start getting cash flows from the real estate project, I mean -- so how that money will go back to promoter? Is it like it's going to be in the initial phase? Or that is the last thing, at least, to do?

[Milind Wadekar, VP of Finance & Tax and CFO]

Okay. Vikas, let me take your questions one by one. On CapEx, INR 850 crores. I mean, we have spent around INR 100 crores INR 135 crores in the last quarter. So to that extent, it will come down. Our peak debt estimate remains at same, INR 2,550 crores. It may go up a little on account of this increase in cost of projects, but that's not really significant. On these preference shares, it will be redeemed out of surplus cash generated from this project. So it's not initial outflow. Whenever we have surplus, after meeting all project-related expenses, it will be redeemed. Hope I have answered all your questions?

[Vikas Ahuja, Research Analyst]

Yes, sir, you did.

[Operator]

The next question is from the line of Prateek Poddar from Nippon India.

[Prateek Poddar, Research Analyst]

When I look at other expenses as a line item, is there any one-off? Or this is a sustainable run rate, I would have thought that the incremental flow-through of revenue into EBITDA, that should have been better given our cost cuts. So just wanted to understand that. Is there any one-off over here? Or these are the normal expenses?

[Sanjay Sethi, MD, CEO & Director]

No, these are normal expenses, except -- I think one expense that will be one-off is your payment to the exits that we had at Koramangala of 3 people. And we also wrote back the SLM revenue that we had from Accenture, which could be an overall impact. But you got to keep in mind that now the salaries are getting normalized. And as business and occupancies improve, we are hiring. If you recall from earlier conversations, we had come down to 0.72 employees. The last quarter, we are now up to 0.78 or 0.79. I can't remember the exact number. So there has been hiring to take care of the extra guests that we have in the hotels. So those are costs that are going to continue to go up. One of the commitments that we have is that we have capped our manning numbers at a portfolio level of 9 employees to a room when we have full business back. So I think we have -- we'll still be a far more efficient than we were pre-pandemic on those numbers. Besides that, there is no really exceptional expenses, maybe unless, Milind wants to add something?

[Milind Wadekar, VP of Finance & Tax and CFO]

So our revenue -- hospitality revenue has gone up from INR 67 crores to INR 128 crores, more than doubled. And more or less on the same lines, our other expenses have gone up.

[Prateek Poddar, Research Analyst]

Sir, the way I was looking at it was sequentially, if I see your revenue growth in the hospitality segment. And when I see the EBITDA data, the flow through is around 55%. I would have thought this would have been slightly higher given the amount the way costs have been contained. So that was just a limited point which I was trying to understand?

[Sanjay Sethi, MD, CEO & Director]

And one thing and I did touch upon it earlier, that the exit of Accenture, which was revenue that was coming to us without any cost, and our flow-through was almost 100% there, is not there, starting after first week of September -- or the first week of August rather. And therefore, there could be some difference of marginal gap on account of it. However, if you really look at our EBITDA line, our EBITDA line has climbed up fairly sharply in the hospitality performance from a negative EBITDA of [ INR 99 ] million to a positive EBITDA of INR 13.8 million. So the gap is INR 237 million against a revenue increase of INR 400-odd million.

[Prateek Poddar, Research Analyst]

Got it. This is really helpful Sir, second question was, I think just elaborating or building up on Karan's question. By when do you expect -- Accenture has left, right? And then you also have the 2 properties of the Inorbit Mall as well as the new commercial property, which is coming up. In your best estimate is your -- is in 1 year, something which you would look for to fill up these properties? Or this could take some while? I'm just trying to understand the time period required to fill these properties. Not asking for any numbers, just broad sense as to by when can we fill up these properties?

[Sanjay Sethi, MD, CEO & Director]

So look, Prateek, I think one -- Milind give you a little more flavor on this, but let me give you an overview. The Accenture exit has been -- actually advantageous to us. Because their lease was signed up about five years back at low rental. And they had a lock-in period. So they actually paid us right up to 2024 for the rooms. So we've got literally 3 years of revenue in advance. Similarly, their lock-in period rather notice period on the office assets and a couple of other operating services that we are providing, they have honored that and given us the funds upfront. We expect to end up somewhere between 1.5 to 2 years accretive, in the sense that we've got the rent until '24. We'll probably lease it out 1.5, 2 years before that ends. So we'll actually get double dipping on that asset as far as rent is concerned for at least 1.5 years.

[Milind Wadekar, VP of Finance & Tax and CFO]

So Prateek, to answer your questions, the completion time lines for these buildings are different. And our commercial block will get ready maybe by end of next quarter or -- and it will be offered to tenants for fit-outs, whereas this conversion of mall may take 9 months for construction period post-approval. So maybe one year from today, okay? So by the time our mall is ready, major portion of our new office building will be leased out. And there are serious inquiries leads for existing Accenture Learning Centers. But to answer your question further, I mean, the entire leasing may not happen in 1 financial year. It may spread over maybe 2 financial years.

[Sanjay Sethi, MD, CEO & Director]

I see an 18-month or 100% leasing period from now. In fact, I'd just like to update you that we have received the MOU approval for conversion of the mall. So that's one big time consuming approval has already come in. So that time lag that Milind was speaking about would shorten further. And as we speak, the dismantling of the mall is already happening. So what Milind is trying to say is, in the next 18 months, we are likely to have complete leasing of this 0.9 million square feet.

[Prateek Poddar, Research Analyst]

Great. Great. Just last question. When I see -- and it's more often times when I see today ADRs, the visible ADRs [indiscernible] we've seen above pre-COVID in MMR. Is that a fair understanding?

[Sanjay Sethi, MD, CEO & Director]

Not the ADRs, but the best available rates may look -- maybe high. But they fluctuate depending on occupancy, day of the week and demand in that particular location or city. That keeps going up and down. Because that's changed on a daily basis by the revenue managers. We are -- at Sahar, it's now at about INR 10,000-odd on the best available rate on the public rates. That's also driven by the fact that Sahar has a very large block of 400 rooms occupied for a period of 3 months. By 3 months, right? Yes, 3 months. By Disney+ Hotstar, which is covering -- first covered the IPL and then subsequently the World Cup that's happening the T20 World Cup. And they'll continue to occupy that until mid-November. So that left us only 188 rooms. And what we've done is we've optimized those 188 rooms to make sure that we get higher rates for them. November, in fact, October and -- sorry, September and October, we have seen occupancy at JW Sahar at 90%. So that hotel is clearly outperforming the market, and the market share of the hotel is very, very strong.So the rates will fluctuate depending on demand. Bangalore will be the lowest, if you go to the website, whether it's [indiscernible] , followed by maybe Hyderabad. Renaissance continues to be strong. Four Points is actually now giving rates, which are back to almost close to 2019 rates because the occupancies are in the high to mid to high 70s there. Last few days, we've topped close to 85%, 90% occupancies in that hotel. And a large part of that business that's coming in there is now business travel.

[Prateek Poddar, Research Analyst]

Got it. Got it. And just from an industry perspective, do you expect this momentum to further accelerate in quarter 4 of this year? Because business will further open up, there will be more travels. As you indicated also about the indicators, this will just build on, right? So from resort on also, we should think about industry in Q4 being much better than Q3, especially on the corporate side, right?

[Sanjay Sethi, MD, CEO & Director]

So Prateek, we see month-on-month improvement in corporate travel. As I mentioned earlier, we've seen 28% to 30% increase month-on-month between September and October in corporate travel itself. And that's a rapid pace of improvement. And October still has its own challenges of the [indiscernible] and all that in between. In spite of that, we said we may see a slight drop in Diwali week, which is the next week. But after that, the ramp-up, again, is going to be extremely sharp. In fact, our view is that the early pickup that had happened about 3, 4 months back on domestic corporate travel was going up very sharply. But we see the next big step up happening post Diwali. And the second big step up happening post the first week of January, when the post Christmas, Diwali and New Years traffic comes back. I must highlight over here that the wedding season looks very, very bullish for our hotels of Powai and Renaissance. We're seeing a very solid improvement on bookings and confirmations for weddings in the hotel. There's still a restriction in Mumbai, but we're working with those restrictions. And we'll be able to deliver good numbers on the wedding. For example, now the restriction in Mumbai have now been -- changed from 50 people to now 50% of the hall capacity. And because they are large halls, connected with large lawns and multiple halls together, our ability to take large weddings is very high. The Novotel, for example, did massive promotion on Viva, which is a wedding promotion for the Accor Group, and they've recently got 70 lakhs of wedding revenues. Shaadi by Marriott, again, which was the initiative that we started. I think about 2 or 3 years back has kicked off very well. They have a dedicated website for that.And that's generating huge amount of leads. They did share numbers with us, but I don't want to share them right now. But the numbers of leads that they're getting are phenomenal, both Accor and Marriott. We're extremely excited about the wedding business. And now that that's starting in the next week or so, we see this going right up to early April. We should see a strong production out of that segment.

[Prateek Poddar, Research Analyst]

If I may ask, sir, is renaissance also back to 2019 levels in terms of ADRs? You talked about Four Points...

[Sanjay Sethi, MD, CEO & Director]

No, no. Renaissance has a very large inventory of 771 rooms in the hotel and the Marriott Executive Apartments. So right now, we are focusing on the occupancy part of it, not worrying too much about the rates right now. But as a market overall, we've seen rates go up within the micro market around the airport, and that will lift Renaissance rate. And the next step of Renaissance is actually going to be rebranding in January when it moves to Westin.

[Prateek Poddar, Research Analyst]

Got it. And last question, sir. Just from an industry perspective, are you seeing a material difference between, let's say, a 1-star or a 2-star hotel versus 5-star hotels in terms of pricing and occupancy? As in people are not settling to go to 1 and 2 stars. But because of whatever the scare, people are more willing to pay a slightly higher premium and go towards 5-star. Hence, you are occupying a better occupancy or let's say, the 5-star hotels are getting a better war versus what a 2- and 3-star would be getting or that's not the case. It's the same across the board?

[Sanjay Sethi, MD, CEO & Director]

So I've really not seen the 1- and 2-star numbers, Prateek, so I won't be able to comment. My view, general view is that there is a market for every price point and there's a demand for every price point. So once that profile of the guests may change, category to category. But even as we go down the value, there will be a demand for INR 1,000 rooms also always. So that's always there. Yes. As far as corporate travel is concerned, given the risk associated with, on the health front, the corporates are more comfortable going with the top end of the hotels. They don't want to put their employees at risk because that then puts them at risk from their employees if anything goes wrong. So the trust in brands is where they're placing the majority of their guests. And the global standards, that are followed at our hotels of our category, are clearly the preferred hotels for a lot of the corporate houses and their administrative teams to book at.

[Prateek Poddar, Research Analyst]

Yes, I'll come back in the question.

[Milind Wadekar, VP of Finance & Tax and CFO]

So Prateek to answer your question on the expense, royalty and management fees, which we pay to operators as one-off increase in business. commission, which we paid to OTAs and other companies has gone up. So these are 2 major heads. Repairs and maintenance cost has gone up a little. These are 2, 3 heads. or increase in -- and with a purely operational expenses.

[Prateek Poddar, Research Analyst]

Can I just squeeze one last question on Koramangala. Given the way the realty sector is behaving, and the premiumness of that location, from a presale perspective and given that that's a Vivarea brand, do you expect that the presales will be very, very strong? And maybe the project gets sold out in a very short lease span of time. I don't want any numbers or directionally FY '26 is a date of completion, but would the presale be so strong that you would be -- you would have sold the project much, much before that?

[Sanjay Sethi, MD, CEO & Director]

So Prateek there are 2 elements that are coming to play on Koramangala, one is that the building -- 9 out of the 11 buildings are substantially built. So -- and the demand for residential is the highest that we've seen in many years across the country. Koramangala, Bangalore is amongst those districts that have seen high demand on the residential side. So yes, we see pace of bookings once we open up to be high.The second element is because the building is substantially completed, the payment, which is typically linked to construction, will be at -- literally at the 85 -- 80%, 85% of the total value coming in upfront. It's only the 2 new towers where we linked to construction activity, which may come in its own structure. But we do expect, once we open sales, the bookings will lead higher upfront payments.

[Milind Wadekar, VP of Finance & Tax and CFO]

Prateek, further to add to what Sanjay said, I mean, originally, we have sold around 202 apartments. We have seen cancellation of 119 in the last so many years. With a resolution to this litigation, I mean, a few of our customers will cancel the flats and taken up...

[Sanjay Sethi, MD, CEO & Director]

Exit.

[Milind Wadekar, VP of Finance & Tax and CFO]

Exited. So they may come back.

[Operator]

The next question is from the line of Amandeep Singh from AMBIT Capital.

[Amandeep Singh Grover]

Sir, firstly, on the CapEx part, can you give us breakout of pending CapEx between the hospitality and the commercial segment, along with time lines, especially for the Powai and the Airoli Hotel, if possible?

[Sanjay Sethi, MD, CEO & Director]

So on -- I'll give you the time lines, but Milind will come into the numbers on the CapEx. On Airoli, we said, we are evaluating the demand dynamics. From the time we decide to start, we see roughly a 30-month time to open the hotel.There was one issue that was restricting us in Mumbai and was holding back a lot of the large projects was the Flamingo issue in the area that is protected area around it of 10 kilometers. That's been reduced to 4 kilometers. So all our projects are now clear from that restriction. And we had already taken approvals for the hotel as it was for most of the approvals about 2 years back. We need to revalidate some of those approvals. So I don't think approval is going to be a challenge. The only thing in play there is where are we on the demand? So we need to right time the assets, and we'll write time into the demand pickup. My general input right now is and this is my gut feel, that I think we are good to go in the near future.

[Milind Wadekar, VP of Finance & Tax and CFO]

So among the -- our total CapEx plan for next 1.5 years is around INR 770 crores. Out of that, INR 200 crores is for hotels and balances for commercial office buildings. Again, this 200 -- out of this 200 for hotel, 150 will spend in next financial year. That is for completion of Hyderabad Hotel, addition of 88 rooms in Pune and part of a Renaissance rebranding to Westin.

[Amandeep Singh Grover]

And what would be the expected CapEx for the -- including the Airoli and the Powai projects upcoming hotel?

[Sanjay Sethi, MD, CEO & Director]

So Powai upcoming hotel is now a question mark. We have to take a call on this. We haven't taken a call. Now there are 2 options there, and I provide -- given that we have 771 rooms today, do we want to add another 150 rooms in the environment that we've just seen? It's something we need to need to reevaluate. And if we were to reevaluate and decide not to go ahead with that project, that opens up a massive land parcel to us for alternate asset classes to be put there. So that's something that we've got to study, evaluate and we will come back to you at the right time.

[Amandeep Singh Grover]

Sure, sir. And sir, secondly, as a follow up to the previous participant. So you mentioned that 9 towers are already constructed. So -- but you have given a time line of, say, more 4 years to construct the remaining 2 towers. So is this a conservative guidance? Or do you think it will take 4 years to construct the remaining 2 towers, along with the commercial part of it?

[Sanjay Sethi, MD, CEO & Director]

I want -- I meant 4 years for completing entire sales? I mean the construction time is around 2 years [ indiscernible ] all at roles.

[Milind Wadekar, VP of Finance & Tax and CFO]

There's not too much -- we are waiting for approvals. We are a bit conservative on sales velocity. So from that perspective, we are taking it up to FY '24.

[Sanjay Sethi, MD, CEO & Director]

We don't want to come back to you with a sorry face at ruining all you time. We are giving you numbers that are conservative so we can outperform these numbers, both on a rate per square foot and on time lines. We -- as by nature, the company and the group is -- does not give out aggressive numbers. So this is what we're doing. As Milind said, 2 years -- 2, 2.5 years is the construction time, but closing all sales that's 100% of the apartments sold. So that's when we record for revenue is a 4-year period. This includes from now to May, which is the time required to dismantle the work that was done about 10 floors and to get the final approvals. So the sales will only start from June next year, and you must sort of take note of that, please.

[Amandeep Singh Grover]

This is really helpful. Yes my follow-up question was in respect to that only. But on the accounting aspect, this would be in line with India's [indiscernible] that means that it would read the P&L only after the project completion? Right?

[Sanjay Sethi, MD, CEO & Director]

That's right Amandeep I mean we'll follow India's [indiscernible] and we'll account it on completion of projects.

[Milind Wadekar, VP of Finance & Tax and CFO]

So if you would ask the same question to our project team their answer would have been 2, 2.5 years. Because you asked to our CFO, he gave the answers 2024 because 2026 rate -- because he was looking at it from recordings in his accounts.

[Operator]

The next question is from the line of Amit Agarwal from Nirmal Bang.

[Amit Agarwal, Research Analyst]

I have two questions. One is on this cash flow. You talked about the cash flow, PBT of about 4.8 if I'm not mistaken. Is it including the one-offs like a INR 16 crore you've got and I think INR 5 from [ SIES ] another INR 4 million -- INR 4 crores from Marriott? It's stripping out these one-offs. Can you talk on that? And my second question is more on strategy getting out of retail. So is that a strategic move to focus completely on hotel and office sector going ahead and no more retail? And moving ahead, will there be any other vertical? Or you just stick to office and hotel sector?

[Sanjay Sethi, MD, CEO & Director]

So I'll answer the strategic part first. the strategy is clearly to -- some hotel companies would spread their risk by getting into business hotels, long-stay products, leisure destinations or holiday homes, that sort of stuff. We have done asset classes as our strategy for hedging the risk. And I think that's worked out well during the pandemic for us. You're right. We do want -- we are with this exit on Inorbit in Bangalore and The Orbit, Mumbai, we will exit retail almost completely. The hotel assets, all the office assets will have small format, retail, of course. That's the normal offering of those products. So we will largely end up with hospitality and office assets and the classes that we're operating in. There's one residential project, but that's one that we'll conclude. And since it's an exit through sale, that will not remain with us for too long. However, hospitality will continue to contribute the largest part of the revenue. Now Milind can come in.

[Milind Wadekar, VP of Finance & Tax and CFO]

Amit to answer your question on PBT, cash PBT of INR 48 million, it is including one-off income. But this one-off income is supported with the hard cash, which we have received.

[Amit Agarwal, Research Analyst]

Sure. So operationally, these are one-offs. So operationally, this time, you probably would have been negative if you -- if they were a move. Am I correct on that?

[Sanjay Sethi, MD, CEO & Director]

No. But operationally, our EBITDA is -- I mean a netting of this adjustment has gone up to -- from INR 2.4 million to INR 25 million for the quarter, I mean, sequentially.

[Milind Wadekar, VP of Finance & Tax and CFO]

But you're right, to a certain extent that we would still have been negative on cash to service our interest commitments that were there. But we've looked at -- look forward and we believe that the next 2 quarters, the operation -- offering numbers will be adequate to cover these costs.

[Amit Agarwal, Research Analyst]

Sure. And your CapEx plan, I mean, given the fact one thing which I noticed was that your interest expense is about 40% of your top line, correct me if I'm wrong. Going ahead when things are definitely improving very, very strongly, but the risk of third wave and fourth wave remains. So are you going to still stick to your CapEx plans of INR 750 crores. I think that's what you said, INR 770 crores otherwise you would sell something in the next 2 years? Or is there a possibility it could be spread out or looking more depending on how the things pan out?

[Sanjay Sethi, MD, CEO & Director]

So, Amit, our CapEx plan, major CapEx is for commercial buildings. Our cost of capital today is 7.5. And incremental returns -- I mean returns on incremental CapEx will be in high teens or maybe in the range of 20%. So we'll continue incurring this CapEx. Complete these buildings. It will start earning even an EBITDA for us.

[Operator]

Thank you very much. That was the last question for today. I would now like to hand the conference over to Mr. Sanjay Sethi for closing comments. Over to you, sir.

[Sanjay Sethi, MD, CEO & Director]

Thank you so much. Thank you, everyone, for joining us for the call.