Brookfield India Real Estate Trust (BIRET.BO) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Brookfield India Real Estate Trust Q1 FY '26 Earnings Conference Call. [Operator Instructions] On this call, we have with us today Mr. Alok Aggarwal, CEO and MD; Mr. Rachit Kothari, Non-Executive Director; Mr. Amit Jain, CFO of Brookprop Management Services Private Limited; Mr. Shailendra Sabhnani from Brookfield. I now hand the conference over to the management for opening comments. Over to you.

Yes. Good afternoon, everyone. This is Alok. On behalf of Brookfield India Real Estate Trust, I extend a warm welcome to all participants joining us for today's Q1 financial year 2026 earnings call. Let me begin by sharing some insights on India's macroeconomic environment and its continued relevance to the office real estate sector. India's economic outlook remains strong, and India is projected to remain one of the fastest-growing large economies, reaffirming its dominance in the global economic landscape. Stabilizing inflationary trends have enabled Reserve Bank of India to cut the repo rates thrice in 2025, a total of 100 bps reduction, and this would help boost liquidity for the business. The Indian office market witnessed record-breaking leasing performance in 2024 and is poised for sustained momentum in 2025 as well, cementing India's reputation as an office to the world. As per industry reports, office leasing momentum remains healthy with gross absorption exceeding 40 million square feet in H1 CY 2025. And on a yearly basis, we expect this to cross 90 million square feet. Here, it's heartening to note that from last 2 years, we have been crossing all-time high leasing year-on-year. Space taken up by GCCs played a key role in strengthening office adoption with GCCs contributing a share of over 1/3 in the overall office space leasing in H1 of calendar year 2025, followed by BFSI and tech companies. India's abundant skilled talent pool continues to attract MNCs seeking to establish or expand their GCCs. This, coupled with a combination of stable inflation, improving interest rate outlook and sustained corporate growth augurs well for increased demand for space take-up in 2025, '26 and later years as well. Brookfield India REIT remains well positioned to capitalize on this demand with high-quality future-ready campuses in top gateway cities. Turning to Brookfield India REIT. I'm delighted to report a good last quarter. We achieved gross leasing of 650,000 square feet in Q1 FY 2026, of which 51% was with GCCs. The re-leasing spread stood at 22%, one of the highest in recent quarters. It is interesting to note that of the total leasing that happened in this quarter, over 78%, that is over 5 lakh square feet gross leasing was across our SEZ properties. This included SEZ space as well as NPA space. Post SEZ reforms in December 2023, we have achieved gross leasing of about 4.6 million square feet across our portfolio. This leasing was spread across SEZ, IT commercial and NPA areas, with former 2 taking roughly 40% share each and NPA areas contributing over 20% plus percentage. It's interesting to note that GCCs contributed 40% of this total gross leasing during this 18-month period, which is roughly over 1.8 million square feet, showing continued demand from GCCs. There's a strong demand revival in our SEZ portfolio with occupancies growing by over 11% in the past 18 months. SEZ properties, K1 and Downtown Powai, SEZ are already at over 95% occupancy and G1 and G2 are at mid-80s and moving towards 90% occupancies. We continue to have a strong pipeline across our SEZ properties, and we expect occupancies to improve across all our SEZ properties in quarters to come. At portfolio level, we look at our occupancy track record for past 6 quarters. We have been able to consistently increase our occupancy quarter-on-quarter. With over 9% occupancy growth in past 6 quarters, our committed occupancy for the REIT portfolio today stands at 89%. Our Board has approved a preferential issue of INR 1,000 crores at an issue price of INR 310 to new investors. Of course, this is subject to unitholders' approval. This would help create capacity to pursue future growth opportunities. We are in conversation with our sponsor group to evaluate acquisition opportunities in Bangalore and Chennai. On the ESG front, we continue to make significant strides towards our net zero carbon goals by 2040 or sooner. Currently, 44% of the total energy requirement at our Delhi/NCR campuses is sourced from renewable energy, and we are on track to achieve 100% green power across all our campuses by 2027. We have also achieved 44% reduction in carbon emissions against the 50% target by 2030. On the resource utilization side, we have reduced water consumption by 27% and achieved 58% recycling of water across our portfolio. In combination of our efforts on the ESG front, we received many applauds and awards. Some of them are EDGE, which is excellence in design for greater efficiencies, certification by IFC, which is part of World Bank Group in recognition of achieving over 20% savings in energy, water and embodied energy in Downtown Powai. G1, G2, N1, N2 and K1 have successfully been recertified under the ISO 50001 Energy Management System Standard, reaffirming their continued commitment to energy efficiency and sustainable operation practices. We also received CII Kaizen Awards for the best sustainability practice for Downtown Powai, both SEZ and IT commercial assets and Airtel Centre, demonstrating our strong focus on ESG initiatives. Looking ahead, we expect leasing momentum to remain strong in the rest of the year with high-quality future-ready campuses offering both SEZ, NPA and IT/Commercial space, we are well positioned to attract a diverse tenant base and accelerate our journey towards high occupancy and growth. Let me invite Amit to take you through the financial updates.

Yes. Thank you, Alok. Good afternoon, everyone. We continue to grow organically with sequential occupancy improvement, contractual escalations as well as the spreads achieved on re-leasing and renewals. Our operating lease rentals have grown to INR 458 crores in Q1 FY 2026, 9% higher Y-o-Y compared to INR 420 crores in the same period last year. The NOI for Q1 FY 2026 is at INR 499 crores, 13% higher Y-o-Y compared to INR 440 crores in the same period last year. On the distribution front, we are distributing INR 5.25 per unit this quarter, translating to a total distribution of INR 319 crores. This is an increase of 17% Y-o-Y compared to Q1 FY 2025. Our REIT is well positioned to benefit from the reducing interest rate environment backed by robust credit rating and predominantly repo-linked borrowings. As you are aware, RBI has reduced repo rate consecutively for 3 times in calendar year 2025, reducing the benchmark interest by 100 basis points. Our portfolio has 88% of our loans linked to repo rate, and this interest rate cut shall translate to savings and hence, increased distributions for us. We have already achieved 35 bps reduction in our portfolio interest rate in Q1 FY 2026 and the remaining 55 bps reduction in our portfolio interest rate shall come into effect in Q2 FY 2026. This would lead to additional interest savings of INR 61 crores per annum. We continue to maintain a dual AAA rating from ICRA and CRISIL on the back of our strong balance sheet, a long-dated maturity profile and limited amortizations over the next few years. Our outlook for future growth of NOI and distribution in our current portfolio is very healthy. Once our current portfolio achieves stabilization at 97.5% occupancy, we would realize growth of 13% in NOI and 23% in our distributions. In terms of numbers, this would mean our distribution per unit on a stabilized basis would become INR 26 plus. And this is without accounting for any impact on account of contractual escalations, MTM and any future changes in the interest rates. With that, I would request the moderator to open the floor for Q&A.

[Operator Instructions] We have a first question from the line of Puneet from HSBC.

My first question is on the change in working capital and Ind AS adjustment of 375 million. If you can talk a bit about how much of it is coming from tenant deposits and which assets in particular, it will be very helpful.

So Puneet, this is primarily related to the vendor payments, I would say. Now in March quarter, so there are our manpower vendors who are typically paid in a time lag of 2 to 3 months. But for March quarter, because of the year-end cycle, that lag is reduced to, say, a month period, right? But now in June, coming in June, so there is a time lag of, say, 2 to 3 months in making the vendor payments. So I would say the major movement in the working capital is because of this change in the cycle for the vendor payments, especially the manpower vendors.

And that's a positive number for you, right?

Yes, that's correct. In the current quarter, we have made lesser payments and thereby -- yes, that's correct.

Okay. Secondly, on your CAM and other revenue, if I look at CAM as a percentage of income from operating lease rentals, that has gone up to almost 40% compared to 34%, 35% what it used to be. How should one read that?

See, this is driven by increase in occupancy levels as well, Puneet. Our occupancy levels have grown by 9% in last 18 months, right? And even in quarter-on-quarter, if you see occupancy is growing. So that means -- and obviously, the operating expenses, the CAM expenses don't grow in the same ratio, while our CAM revenues grow as our occupancy increases. So that is the broad impact and the reason for improvement in the CAM margins overall.

But between the fourth quarter '25 and the current quarter, where I think your occupancies have gone up marginally, the jump seems to have been quite sharp. That's what I'm trying to understand.

So there are 2, 3 reasons there. So I would say there is a contribution from MIOP as well. MIOP was acquired in the REIT portfolio in Jan to March quarter. So there is a profit margin which MIOP has for providing property management services to G1. So that is one factor. And as you see, the expenses have also increased, right, quarter-on-quarter. So that translates into the increase in revenue as well. Occupancy growth is the third reason. And then if you see the OLR margins for our Kairos portfolio have improved because we have been able to recover higher costs as CAM revenue in that particular portfolio. So I would say that these 3, 4 are the primary reasons for a major increase in CAM revenue quarter-on-quarter.

Okay. That's helpful. And lastly, if you can...

The large part of leasing that we had done 6 months back has started generating income only this quarter. So some amount of impact is on account of that as well.

Yes. No, I'm saying I think on a Q-on-Q basis, your income from operating lease has been flat, but it's the CAM increase, which is driving the growth on the NOI side. So hence, the question here.

Yes, that's right.

Okay. Lastly, on the preferential issue, how should we think about that versus a QIP? Why go for preferential issue and not...

Yes. So the reason we decided to raise a preferential issue as a manner of fundraising was really because there was a lot of interest in the market from non-institutions as well, which we were receiving. At the same point in time in a QIP, a lot of, I would say, corporates who don't have QIB licenses or high net worth clients or family offices cannot participate. So this is the only way we can make them participate in the company's growth. So we decided to tap into the opportunity and raise funds. As you're already aware, we are in conversations with the sponsor group to enable a large entry into Bangalore and Chennai. So in many ways, this INR 1,000 crores, if this gets approved by the unitholders will add to the INR 3,500 crores that we raised in Q4 -- not Q4, Q3 of last financial year. and give us about INR 4,500 crores to INR 5,000 crores of dry powder, which will help us buy assets worth INR 7,000 crores to INR 7,500 crores. So we believe we are in a good spot, and this fund raise will help us only strengthen.

Understood. That's helpful. And lastly, on the ROFO part, what should one think about as the time line for evaluating that the ROFO [indiscernible] Equinox?

Yes. So I think the current focus for the REIT is to grow into markets that it's not present in. So I think the focus is Bangalore and Chennai right now. And I think in terms of timing, of course, management wants to do it as soon as possible. We continue to work with the sponsor group. But we'll, of course, announce it as soon as we can.

Okay. So my reading was this is -- they are also looking to sell to third party. So it's unlikely to come to REIT. That's one -- that's how one should read it?

Are you talking about the right of first offer?

Yes, for Equinox, yes.

Yes. So I think the seller has found a better price in the private markets for that asset. And it's likely that it goes through there. But if it does not, then the REIT ROFO comes back after 3 months.

So REIT did make an offer which was -- the seller got a better price in the market.

[Operator Instructions] We have our next question from the line of Pritesh Sheth from Axis Capital.

First is on leasing. So I think good traction this quarter on G1, G2 and N2 specifically. How is the pipeline sort of looking like now? Can we extrapolate this run rate in terms of leasing what we have seen in this quarter for the full year? And what would be our occupancy target for these 3 assets for this year, considering the start that we have got? And second, on the exit that we saw in our Kensington non-SEZ portfolio, likely was CRISIL. By when can we backfill the space? And what sort of -- what sort of rental expectation that we would be having? So first 2 questions on leasing.

Yes. Pritesh, this is Alok. Let me -- multiple questions, so let me take one by one. In terms of CRISIL, we all knew that it's going to get vacated. We have -- we are in a very advanced discussions with a global MNC to take up the space. And we are very confident that it should close -- it should close this month itself. So that leasing of the same is secured. It will happen at market rentals. That's a discussion going on. So that's something we are comfortable. No challenges in that. So that's one. Then you talked about the pipeline. The pipeline is strong, and it is -- it's across assets. We have a 5 million square feet kind of a pipeline as of today, which is spread across SEZs, NPA and commercial and IT assets. So -- and of course, pipeline doesn't mean that everything would get converted, but we have seen in past strong conversion to the pipeline what we have. Some of them are in advanced discussions. So leasing is something we are comfortable with, and we have been maintaining that leasing momentum is there, and it will continue to kind of roll out. Let me -- but also just talk a bit about individual assets, which will give some comfort. When we talk about G1, we're already at 84%, good pipeline for SEZ as well as NPA flows. So that momentum is continuing. K1, we are already at about 97%, so pushing for the little leftover stuff. N2 is something, again, work in progress. I think G2 is something I would like to talk about because I think last call, some concerns were raised about G2, but we have maintained that G2 also, probably it will get leased out with a bit of lag. We have seen 2 new tenants taking space in G2 last quarter. And so -- and both of our tenants are from our existing portfolio. They have preferred G2. They have been looking at G2. So this again validates that G2 also is gaining momentum. And please also keep in mind that in G2, while we have a strong discussions on NPA, we have not closed leases as such, but we are very confident that in the next few months, we should also do that. So again, I'm saying there was always some concern in G2, but as we have maintained, we are getting strong momentum in G2 as well. And considering what we have given up our leasing guidance at early 90s, 93%, around that 100 basis points, 200 basis points, we should be able to continue to keep making progress in leasing and rentals also kind of moving up. Tenants are closing leases faster, not a lot of negotiations happening. We have seen 60% by GCCs in our portfolio. So good positive momentum in leasing across sectors with, I would say, kind of rentals also firming up gradually across assets.

And I'll just add to what Alok said, we have about 1.7 million square feet of non-processing areas in our portfolio, of which 700,000 square feet is yet to be leased because some of that conversion has happened very recently. So if only that portion gets leased, we'll pick up 3% in occupancy, and there's a much wider pipeline for that area today. So we feel very comfortable about the ability to prorate this run rate into the rest of the year and end at about 93%, as Alok described.

Got it. Pretty helpful. Second, I think on our largest tenant, which is TCS, obviously of late, we all have come across news about the let off, any sort of discussion that you guys are having with them in terms of any space which can come out, which is currently occupied and they want to exit because of this let off in employee count?

That's an interesting question. But let me tell you, without taking names, they have not tendered single square inch of space in the last 5 years. And if -- I don't know. I mean, so my team told me they want more space in one of our assets. So I would just say that. But I think my sense here is let's not get kind of -- get unnerved by a noise here and there, some of the companies go through this cycle. But let me just give you one -- while you have heard about one small, I don't know, negative or whatever it is, but the large tech companies, they have decided to increase their back to office from 2 days to 3 days. Now that company wants space from us in Noida, Gurgaon, Kolkata. So the point what I'm saying is some noise and that will keep happening, but the momentum in India for leasing is very strong, whether it's through GCCs, whether it's back to office, whether it's through SEZ spaces getting converted into NPA, whether it's Indian companies, which today case -- which can't take today space in SEZ campuses, which they were never able to take. And so one news here and there doesn't affect us and there's no effect to the ground, that's the point I am seeing.

Sure. And just one last on the interest rate reduction part. So some of it we have already realized. Some of it is yet to. Overall, how much does it adds to our current DPU run rate if the rest 50, 55 basis points gets translated to us over the next couple of months. I mean, over the next, yes, couple of months, if you think that we are going to benefit fully from whatever is already cut by the RBI.

So Amit here, so overall, at the portfolio level, the benefit of 55 bps rate cut that will come to us over the next 1 or 2 months would be in the range of around INR 60 crores, out of which REIT share would be, say, around INR 37 crores because even taking the economic interest that REIT has in certain assets like NCP, G1and Kairos. And on an annualized basis, going forward, I would say the overall benefit that would accrue to REIT would be in the range of INR 60 crores, which would translate into INR 1 per unit of distribution.