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

Ladies and gentlemen, good day, and welcome to Brookfield India Real Estate Trust Q2 FY '26 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded. On the call today, we have from the management, Mr. Alok Aggarwal, Chief Executive Officer and Managing Director; Mr. Rachit Kothari, Non-Executive Director; Mr. Amit Jain, Chief Financial Officer of Brookprop Management Services Private Limited; and Mr. Shailendra Sabhnani from Brookfield. I now hand the conference over to the management. Thank you, and over to you, sir.

Good evening, everyone. This is Alok, and welcome to Brookfield India Real Estate Trust Q2 FY '26 Earnings Call. I extend a warm welcome to all our unitholders, analysts and participants joining us today. Let me begin by sharing some insights on India's macroeconomic environment and its continued relevance to the office real estate sector. India continues to be one of the fastest-growing large economies in the world. The macroeconomic environment remains supportive with stable inflation and a pro-growth monetary policy stance. Following the cumulative 100 basis points repo rate cut this year, liquidity has improved, and that's creating a positive setup for businesses and investments. The Indian office market continues to demonstrate remarkable resilience and depth. Gross-leasing activity for first 9 months in calendar year '25 achieved a record 60 million square feet. The sector is on track to surpass 90 million square feet of annual leasing activity. Global capability centers, or GCCs, contributed more than 38% of total absorption in Q3 CY '25, a clear indicator of sustained occupier confidence and India's position as an office to the world. And a noteworthy development during the quarter was SEBI's recent reclassifiation of REITs as equity instruments. This progressive move is expected to enhance liquidity, broaden institutional participation and further strengthen investor confidence in the REIT ecosystem, a positive step that reinforces REITs position as a mainstream asset class within capital markets. Turning to Brookfield India REIT, I'm pleased to report and a strong quarter of business performance for Brookfield India REIT, marked by healthy leasing activity, continued occupancy growth and robust financial performance. When we talk about leasing occupancy, during Q2 FY '26, we achieved gross leasing of 5,92,000 square feet, maintaining strong leasing momentum. About 46% of this leasing came from GCCs, reaffirming their continued preference for high-quality institutionally managed campuses like ours. Our committed occupancy has now surpassed 90%, an increase of over 10% since the SEZ policy reforms were initiated in 2023 end. Importantly, leasing traction continues to be broad-based across SEZ, IT, commercial and NPA spaces. Over the last 24 months, we have cumulatively leased over 6.4 million square feet, with GCCs contributing more than 35% of that leasing volume. We also recorded a re-leasing spread of 21%, reflecting the underlying strength of our portfolio and the quality of our tenant base. We're also excited to announce a proposed acquisition of Ecoworld, a fully built and stable grade-A large office campus located in Outer Ring Road, Bangalore, one of the best performing micro markets in India. This campus has occupancy of 94% and expected to touch occupancy of 96%, 97% in the next 3 months. This transaction, when completed will be transformation for Brookfield India REIT. This is will mark entry of Brookfield India REIT to Bangalore at scale. The transaction will increase our operating area by over 31%, expand our GAV by about 35% and take our pan-India footprint to 7 cities. This will also improve tenant diversification by increasing the share of GCCs to 45% from 37% and reduce the share of top 10 tenants to 30% from 34%. Post acquisition, our portfolio will have over 32 million square feet of operating assets, making us one of the largest and most diversified office REITs in India. In terms of our ESG commitments and progress, during this quarter, we continued to do so and we have got recognition from global ESG institutions. We have received 5-star GRESB rating for the fourth consecutive years. Our key recognitions in the ESG include Edge certifications by IFC for a majority of buildings in Downtown Powai, recognizing excellence in energy and water efficiency; 5-Star BEE A-rating for several assets, including Downtown Powai, SEZ, Prudential, Delphi, Spectra and Winchester buildings; British Safety Council, 5-star ratings for a majority of our assets. Looking ahead, we expect the leasing environment to remain robust, driven by continued expansion of GCCs and India's position as a global technology and service hub. With over 90% of occupancy, a strong leasing pipeline and the proposed Ecoworld acquisition, we are well positioned for sustained NOI and distribution growth in the coming quarters. Let me request Amit to take you through the financial performance. Thank you.

Yes. Thank you, Alok, and good afternoon, everyone. I'm pleased to share that we have continued our strong financial performance in Q2 FY 2026. Our net operating income for the quarter stood at INR 510 crores. This reflects steady Y-o-Y growth of around 13%. Including North Commercial portfolio, the NOI stands at INR 640 crores. We declared a distribution of INR 5.25 per unit, translating to INR 336 crores in totality, a 14% Y-o-Y increase compared to Q2 FY 2025. Our net asset value stands at INR 349 per unit, up 4% in H1 FY '26. Adjusting for noncash, non-GAAP items like deferred tax liabilities and goodwill for North Commercial portfolio the NAV share will be INR 354 per unit. Our balance sheet remains robust with LTV at 21.6% excluding shareholder instruments and AAA stable ratings from both ICRA and CRISIL. The average interest rate today stands at 7.5% for the REIT and would be positively benefited by any future repo rate cuts given the majority of our portfolio that are repo-linked. We have a long-dated debt profile minimal near-term amortizations and ample headroom for future acquisitions. In addition to what Alok highlighted, the proposed acquisition of Ecoworld is going to be a great addition to Brookfield India REIT in terms of numbers. The proposed acquisition at INR 13,125 crores is at a discount of 6.5% compared to average JV completed by 2 independent registered valuers. Addition of Ecoworld will help increase our pro forma NAV to INR 355 per unit from current INR 349 per unit and would also be accretive from a DPU standpoint, increasing the DPU by 3% on pro forma basis compared to current run rate. With this acquisition, the share of dividends in total distribution is also expected to double to approx 30% from current levels of 15% to 16%. Let me now request Rachit to take you through more details on the proposed acquisition of Ecoworld.

Thanks, Amit. It's a big milestone for us, and we are very excited to be announcing what is going to be, if approved, the largest deal in the Indian REIT space to date. But more than that, we are excited for the fact that this truly completes our pan-India story. That's the journey we had set out on when we listed this REIT in 2021. As many of you would be aware, most large parks in Bangalore are already under a REIT structure or are proposed to be under REIT structures. And to that extent, this acquisition was both strategic and important to our REIT in particular. The REIT was close to the situation for over a year. We had been talking to the investors about it as a part of our earnings presentation and had already raised about INR 4,500 crores of capital that we are now proposing to top up by launching another INR 2,500 crores to INR 3,500 crores of fundraise that will help us conclude this transaction. There a few important points that I'd like to mention since we have the benefit of all of you on this call. First, this acquisition will mark a large entry for our REIT into Bengaluru, as Alok highlighted, making it a truly pan-India REIT. Bangalore will be almost 30% of our value and income economics going forward. Second, the transaction has been structured very well to match payment with income. The REIT is going to pay for the lease starts upfront when they close the transaction, and we'll get 18 months to pay for the vacant tower, which is going to refurbishment, which will give it time to relaunch it, lease it and also raise capital to finance it. Third, the projected metrics are very attractive on both counts, yields and returns. The REIT is acquiring -- or proposing to acquire this asset at a 7.7% forward cap rate on the lease start, which sets up to almost 8% DPU yield or the incremental INR 3,500 crores equity that is going to be deployed here, which is 25% higher than where our stock is trading in yield terms today. Second, a portion of the asset is still under rented, which creates a 7% per annum growth potential over the next 5 years as these mark-to-markets get realized. And lastly, on the returns, the asset IRR with 7.7% entry cap rate and a 7% growth will stack up to close to 14.5% on the INR 13,000 crores price that we have, which would mean an 18% equity IRR on the acquisition stand-alone but 25% incremental IRR for the REIT on the INR 3,500 crore equity that is yet to raise to finance this deal, making it a truly attractive proposition to significantly uplift the overall total return of the REIT while keeping the LTVs below 35%. And lastly, we have been highly focused, as you are all aware, on increasing share of dividends in our DPU to increase its appeal to a larger investor base. This transaction will pull our dividend share up to almost 30% in the short term, which will improve the post-tax yields in the hands of our investors and make the stock more inclusive. With that, we'll ask the moderator to open for questions.

[Operator Instructions] The first question is from the line of Puneet from HSBC.

Congratulations on good performance on leasing. But more importantly, if you can also explain on this transaction, how would you look at the 7.7% forward cap rate, if you can just throw some detail there, it will be very full.

Yes. So Puneet, Rachit here. I think this cap rate is based on a forward estimate for financial year 2027, which is almost next 12 months versus where we've achieved this transaction at, this is -- today, if you look at this asset, it's about 94% occupied at INR 102 of average rent, which is about INR 850-odd crores of run rate in OLR terms and add to it the service provider income, we're almost close to about INR 870 crore or INR 860-odd crores, right? Now from this point...

This is inclusive of service provider, I thought...

So INR 850 crores is inclusive of service provider. Add to it 2 things, first, 5% growth for the next 12 months because this is September ending numbers to September ending numbers.

FY '27?

That is correct. So on an average, September at the middle of that financial year would be the midpoint that you can compare to where you are right now on these metrics. So that September to September a 5% growth on the OLR. INR 102 got committed as of date, Puneet, if that's the confusion.

No, no. So my understanding is INR 850 crores divided by INR 13,000 crores, right? It doesn't come to 7.5% is what I'm trying to understand. Am I missing something here?

Okay. So let me break it down. INR 850 crores is from 7.1 million square feet at 94% occupancy. For tax, the REIT is paying INR 12,000 crores, right? So you have to first take INR 850 crores to its true income potential. As Alok outlined, there are advanced conversations that can take this occupancy to 96%, 97% in the near term. So when you gross up for that and you provide for a year of growth to take this to forward income, that will come to almost INR 900 crores or INR 910 crores. That you have to divide by INR 12,000 crores to arrive at the 7.6%, 7.7% number.

Okay, INR 910 crores by INR 12,000 crores, that's what you're saying.

Yes, that's correct. So INR 850 crores of run rate plus INR 40 crores of a year of escalations and another INR 20 crores on account of the lease up, that is in advanced stages, we have good visibility of INR 900 crores to INR 920 crores kind of a number, which gives you the 7.6% to 7.7% cap rate on the INR 12,000 crores. Now on the deferred component, which is the tranche 2, that INR 1,100 crores is against a separate 700,000 square feet building, for which we are getting 18 months to pay and, at the same time, 18 months' time to lease it, which at a market rent of about INR 115 would generate NOI of close to INR 105 crores, which will set up to close to late 8 kind of a cap rate on that tower separately.

A few more things. So occupancy for this building was only 85% till almost 6 months back. How soon would the 94% start generating rental? Is there a sit out period, et cetera?

Yes. So 85% was including the towers for which we are deferring the payment. If you adjust for that, you take out 10% from the denominator, 85% will gross up to 93%, 94%, which is really where we are at right now. So this is all very near term. But Alok, feel free to add.

No, no. So of course, the market has seen a lot of traction and rent fees are in tune of 3, 4, 5 months. And most of these leases will start generating rents in near term. It's not going to take a few quarters, next few months, except...

So for the existing 7.1 million square feet, would you see a need for any major refurbishments in the next 1 to 2 years?

No, these are all occupied. Where the refurbishments have to be done, they already have done. So no major refurbishments required rather than the general refurbishments which would be required in any campus.

Understood. And lastly, just on the technical side, when I look at the valuer's report, the rental is INR 92 versus your presentation which say INR 102. Can you help me bridge the gap? I think the parking and other things need to be added, but if you can just break it down, it will be very helpful.

Yes. Puneet. Yes, this INR 92 number is the warm shell rent average rental. So there is approximately INR 4 to INR 5 of parking. So INR 92 plus INR 4, INR 5 is INR 97. And there is the committed LOI that is going to kind of come in, which will kind of take that number, almost 3.7 million square feet of signed LOIs, which will kind of start generating rent, which are at higher rents of closer to INR 110, which will kind of take this number from INR 97 to INR 102. So that is the INR 102 number that you kind of see in the presentation today.

The next question is from the line of Yashas Gilganchi from BOB Capital Markets Limited.

Congratulations on signing the branding agreement to acquire Ecoworld. I would like to know when you expect to close the deal and when the asset is likely to start generating revenues for BIRET? And also, is there a ramp-up period before the asset is expected to start operating at a stabilized level?

Yes, so on the closing, I think our target is to close it within this quarter or early next quarter. I think the intention we'll do it as soon as possible, which means you can expect income to come from next quarter onwards from this portfolio either partially or for the full quarter. And we don't expect any significant ramp-up period because we are very close to the 96% mark on the occupancy. Of course, there will be lease-ups in the portfolio. Traditionally, the asset has been 98%, 99% occupied. So we may still see a couple of percentage points picking up, but it will be fairly stable from an income generation standpoint.

Okay. So just so I understand this correctly. So you expect to close the deal this quarter and the revenues to start coming in, in 4Q?

That's correct. That's our target.

The next question comes from the line of Karan Khanna from AMBIT Capital.

Congrats on the acquisition. So my first question, just a clarification. If you look at the recent acquisition of Ecoworld, there seems to be another sponsor asset in proximity, which is Ecospace, which does not seem to be part of the deal. So could you share some insight in terms of how we should read this? And at what stage would you also look to acquire the 126 million square feet at Ecospace?

Yes. No, it's a good observation. I think at this point in time, our focus is on Ecoworld. Ecospace can potentially come in the following years should the sponsor want to sell that asset. But we'll react to it when it comes to market. But at this point, I think our focus is just on Ecoworld to conclude that transaction. But that's a smaller asset. As you said, it's 1/5 the size of what we are buying. So it will be, I would say, very complementary and strategic to us whenever it comes to market.

Sure. Rachit, just a follow-up. The sponsor recently acquired a mixed-use land parcel in BKC as well, and you have about 0.3 million square feet in 3 floors in G Block BKC. And this asset which you've acquired is again in G block. So at what stage would you look to potentially bring that about 1 million square feet in BKC in as part of the REIT? Or is it too early to think of the BKC assets coming in into the REIT platform?

Yes. I think it's a little bit too early. I think it's still at a greenfield stage. At least 4 to 5 years of hard work left on that property before it starts generating rent. So it will becomes suitable for the REIT at a later point in time. on your observation on Godrej BKC, I think it can be fairly near term, should again the seller want to -- or the sponsor want to sell the asset. This is 250,000 square feet in BKC in one of the better buildings. So clearly, the REIT be interested as well.

Sure. So my second question to you, Alok, what feedback are you getting from your tenants regarding future leasing opportunities considering the global uncertainties. Are you seeing some pause in terms of leasing decisions? Or any delays in terms of finalization of deals?

So Karan, actually, we have been living with these uncertainties from the last, I would say, 5 to 6 years, but I can tell you, things have never been so better what we've seen in the last 12 months. We have seen that happening, occupancy for REIT has moved up considerably and it's kind of inching every month. And today, we have -- as because SEZ reforms also have played a role, we have SEZ vacancy has gone down. And what we have converted, we are able to get new tenants, new kind of tenants which are never -- we could get them into our campuses. And if you really see the occupancy terms -- occupancy numbers, I would say you can go through Slide 14. So there, you can get a sense, most of our non-SEZ assets are around 95%, 98%. Even SEZ without nonprocessing areas is 91%. Only nonprocessing area, which started coming to market 18 months, 20 months back, is ramping up. It's moving from 0 to -- it has 61% and will move to higher numbers. Pipeline is strong. So fairly strong momentum. And what was happening in U.S., at least what we think and what we hear, that will again drive stronger, I would say, outsourcing or movement to India. That probably will strengthen. So that's the sense we have.

And last question, Alok, how are you observing the demand from flex-space operators across your portfolio, especially since many of the REITs have been highlighting that they're among their top tenants? So how do you view this segment as a demand driver, and is its presence your portfolio increasing?

No. So our target is we have -- our target is to have about 5% or maximum 10% of our space go to flex space operators. So that's a target and the demand is there. And we are kind of -- we have like in Powai, we have given a space, special building, which got vacated has been given to COWRKS, and they have tied up with our global tenants. So they are definitely helping us in kind of letting us move our occupancies.

The next question is from the line of Mohit Agarwal from IIFL.

Just continuing with the previous question on the SEZ properties. Could you give some specific color on when the occupancy across your Gurgaon properties, G1, G2 and actually even N2 start moving up? So some specific time lines in the next couple of quarters or so?

Occupancy is always already moving up. And let me kind of talk about G2, which was, I think the last quarter was at 73%. Now it's at 78%. So 5% kind of occupancy has moved up in the last 1 quarter. Again, G1 occupancy, if you see over the next -- last 12 months, you will see improvement. K1, again, had moved substantially up. N2 again have moved up. So it's kind of moving up. But our sense is as we are saying our target for year-end, around 93%. So that largely will be contributed by these SEZs only. There's the scope for non-SEZ properties to move up is there, but they're already at 95%, 98%, it is 100%. So there the scope is limited. Of course, we will move up. Largely, these SEZs will driving up the growth in occupancy.

My second question is on the acquisition. Post this acquisition, you will be having a debt to GAV of almost 34%. This is including the INR 2,500 crores fundraise that we'll be doing. So how comfortable are you with this level of debt? And what would be a comfortable target for you in the long run? Also, the second part to that question, really, what is the cost of debt for both the SPV level debt and the REIT level debt that you'll be raising?

So Mohit, we've historically also stated that our long-term sustainable debt range is typically in the 33% to 35% range. And with this acquisition and the debt sizing that we are doing, we are effectively getting into this range. This comfortably maintains ratings at a AAA level while ensuring the best capital efficiency. So we see this pretty much as of a fairly sustainable kind of ZIP code that we will remain in. In terms of the cost of financing, if you look at the current portfolio, we are at 7.5%. The new debt on Ecoworld should also be in the same ZIP code. And the REIT bond pricing should be in the 7% to 7.25% quarter kind of ZIP code, which is where current yields are. Obviously, the pricing there. would be more dependent on how the markets are closer to when we actually do this transaction. But that's pretty much how the debt number would look like.

The next question comes from the line of Pritesh Sheth from Axis Capital.

Just one question on the acquisitions. So you talked about 18% IRR and 25% incremental IRR. Just sort of some clarification, can you exactly, again, reiterate those numbers just for the clarification sake?

So let me break this down for you. I think on the INR 12,000 crores that are supposed to go out upfront, the cap rate is about 7.7%. And that -- this is against the lease towers. And these lease towers have a 7% growth profile on a 5-year basis as a combination of the contracted growth of 5% per year, plus in addition of MTM, so there's about 30%, 35% of area that's coming up for expiry at almost 30% MTM in this period, right? So this gives us a 7% annualized CAGR on that. So this stacks up to 14.5% asset level IRR. The tranche 2, which is against the MT tower, will be bought at a late 8 kind of a cap rate with a 5% growth profile. So that also stacks up to a 14% asset level IRR. So on an average on the asset, you're making 14% to 14.5%, right? On top of it, if you just look at the acquisition stand-alone at 33% LTV, which has been our guidance all throughout, borrowing are going to be at 7.5% as Shailendra described. So you will be able to add on the equity side another 3% to 4% for the equity IRR because of the leverage. So that's about 18% on the acquisition stand-alone 33% LTV, right? Are you with me this far?

Yes, yes. Absolutely.

Right. And now because to finance this acquisition, part of the money is going to be raised through incremental debt between 7% to 7.25%, as Shailendra described, 50% of money is going to come from that 50% is the incremental fundraise right? So you're basically going to get 18% returns while financing half of it at 7% to 7.25%, which means it's going to be 25% on the incremental equity raise.

Just on the existing portfolio. So I think you talked about this CRISL house -- erstwhile CRISL house which got released. But just trying to understand the MTM or the range that we would have contracted for that. Or maybe just in terms of percentage, you can quote how much re-leasing spread that we got on that?

Almost about 30% over the long-term lease we had.

And on this interest rate, the cost of debt that we have now, I think it has gone off for quite a bit quarter-to-quarter. Yet, I think on the cash interest outflow, we have not seen too much changes in this quarter. So potentially, it will come next quarter, is it?

So yes, The full impact of 100 bps rate cut not fully built into the portfolio mid of the quarter, right? So from next quarter onwards, you will see a full quarterly impact of 100 bps rate cut.

Yes. Just on the existing debt, I mean, we would have a new debt which will come in once we complete the acquisition. But just on the existing debt, how much on an absolute basis you see this interest cost further going down?

So in absolute terms, it will be, say, a quarterly impact of around INR 10 crores on the total debt number.

And just on this SEZ properties, again, I mean, you gave a qualitative comments earlier, but you mentioned a strong leasing pipeline that you're looking at. If you can quantify occupancy targets for the SEZ property by this year-end or next year, what would it be?

So as I said that by March end, we are looking at around 93% occupancy. And as I said, bulk of that occupancy ramp-up happened from SEZ Properties REIT because honestly it's already at 95% plus. So you can do the math actually. I don't have [indiscernible] but SEZ which will move up to, let's say, around -- I mean [indiscernible] cost around 90%, 91%.

The next question comes from the line of Sumit Kumar from JM Financial.