Ladies and gentlemen, good day, and welcome to the Brookfield India Real Estate Trust Q1 FY 2025 earnings conference call. As a reminder, all participant lines will be in listen-only mode until the floor is open for questions. Should you need assistance during the conference call, please signal an operator by pressing star then zero on your touchtone phone. Please note that this call is being recorded. On the call, we have the following persons: Mr. Alok Aggarwal, CEO and MD; Mr. Ankit Gupta, President; Mr. Amit Jain, CFO of Brookprop Management Services Private Limited; Mr. Rachit Kothari, and Mr. Shailendra Sabhnani from Brookfield. I now hand the conference over to the management for opening remarks. Thank you, and over to you, sir.
Yeah, this is Alok Aggarwal. Good afternoon, everyone. On behalf of the Brookfield India Real Estate Trust, I extend a warm welcome to all participants joining us today for this conference call. Let me start with a brief overview of the Indian office market. The Indian office market continued to see strong demand in the quarter gone by, especially for high-quality commercial spaces. Gross leasing is tracking at a quarterly run rate of about 18 million sq ft, an increase of almost 48% over the same quarter last year. This demand is being driven by both domestic and global corporations, as well as GCCs, who continue to expand their footprint in India. The SEZ reforms have been a significant positive development for the industry and for our REIT.
We have already applied for the conversion of 1.5 million sq ft of SEZ space to non-processing area across our SEZ campuses. This includes 0.6 million sq ft at K1, which has already been converted and leased to HDFC Bank, 0.4 million sq ft at G2 and N2, for which we have in-principle approvals and which should get converted soon, and 0.5 million sq ft at G1, conversion of which we applied for during this quarter. These conversions should help attract a wider segment of tenants to our campus, and we already have a strong pipeline of prospective tenants for the space to be converted across all our campuses.
Also, the recent announcements in the budget, reducing the holding period for the long-term capital gains from 36 months- 12 months for REIT is a positive development and should boost investor appeal for REITs. We are pleased to inform that we have completed the acquisition of the 50% stake in North Commercial Portfolio from Bharti Group in June, having discharged the equity consideration of INR 12.3 billion through a preferential issuance at INR 300 per unit, at an 18.5% premium to the floor price. The transaction has added modern assets with Bharti front office tenancy to our portfolio, expanding our operating area by 3.3 million sq ft. The transaction is both NAV and NDCF accretive.
This transaction, along with the recent acquisition of Downtown Powai and Candor TechSpace G1, is in line with our stated strategy of adding accretive assets to the REIT and forms one of the key pillars of growth for our REIT. Let me now invite Ankit Gupta to take you through the key highlights for this quarter.
Thank you, Alok Aggarwal, and a very good afternoon, everyone. Let me touch upon our leasing performance during the last few quarters. As compared to our new leasing guidance of 2-2.4 million sq ft for five quarters from January 2024 to March 2025, we have already achieved 50%, that is 1.1 million sq ft, in the last two quarters, leading to our occupancy increasing by 400 basis points from 80% in December 2023 to 84% in June 2024. We achieved a gross leasing of 242,000 sq ft in Q1 2025, with the signed rentals at INR 135 per sq ft versus the in-place rent of INR 94 per sq ft. This has been possible due to strong demand for our high rental assets, with demand from other assets to follow in the subsequent quarters.
The tenants that have been signed in the last quarter include Amdocs, LanguageLine, Optum, and Mercer, among others. As mentioned earlier, we have also received the approval for conversion of 0.6 million sq ft SEZ area to non-processing area at K1 in the last quarter, which has been completely leased to HDFC Bank. The leasing transaction at our assets has been driven by strong demand from both SEZ tenants as well as non-SEZ tenants, such as HDFC Bank, and we continue to have a robust pipeline of 3 million sq ft for both these sets of tenants. With sequential occupancy improvement in the last three quarters, we have seen an increase in the same store NOI by 17% over the last nine months. This was also supported by the contractual escalations as well as the spreads achieving re-leasing and renewals.
We have achieved an 11.1% average escalation on 1.5 million sq ft during the quarter, and 13% re-leasing spreads. Building on our leasing performance from the previous quarters, and with the acquisition of the North Commercial portfolio, we have updated our leasing guidance for FY 2025 to 1.5-2 million sq ft. We have a relatively low expiry load in FY 2025, with 0.6 million sq ft of expected exits and 0.8 million sq ft of expected renewals. Given our strong leasing guidance and the low expiring load, we expect a sustained improvement in net leasing, and therefore our occupancy. We are guiding for an exit occupancy of 87%-89% by March 2025.
Backed by the continued strong leasing traction expected in FY 2025, we are giving a distribution guidance of INR 18.5 ±25% per unit for the year. Our distribution will be in line with the recently announced SEBI NDCF regulations. For our ongoing 0.6 million sq ft mixed-use development at K1, we have received recognition for our use of sustainable materials and processes. We have received the pre-certified platinum IGBC Green New Building Rating in June 2024, and the International Safety Award from the British Safety Council in April 2024. At our Noida assets, our green energy transition is progressing smoothly. We have already achieved our phase I goal of meeting 40% of tenant energy requirements through renewable energy, leading to a reduction of carbon emissions by 11,000 metric tons annually.
Our target is to achieve 100% transition by 2027 or sooner. Now, I would like to invite Amit Jain to provide the financial update.
Thank you, Ankit Gupta. Good afternoon, everyone. As Ankit Gupta mentioned, we have successfully consummated the acquisition of the North Commercial portfolio in the June quarter. With this transaction, we welcome the Bharti Group as a cornerstone investor in Brookfield India REIT, with an 8.5% stake held by them. Please note that the North Commercial portfolio is accounted for using the equity method of accounting, wherein we pick up our share in the profit and loss of the entity company instead of doing line-by-line consolidation. We have witnessed a growth in our operating lease rentals to INR 420 crore, 4% higher quarter-on-quarter, compared to INR 405 crore in the previous quarter, and 99% higher year-on-year, compared to INR 211 crore in the same period last year.
The Adjusted NOI for Q1 FY 2025 is at INR 475 crore, 3% higher QoQ, compared to INR 461 crore in the previous quarter, and 94% higher YoY, compared to INR 245 crore in the same period last year. The YoY growth has primarily been driven by the acquisitions of Downtown Powai and Candor TechSpace G1. We have achieved an NDCF of INR 217 crore this quarter, which translates to INR 4.52 per unit, and we are distributing INR 4.50 per unit this quarter. We are pleased to highlight that the dividend component of the distribution has increased from 9% to 11% this quarter. This increase in the dividend component is driven by the acquisition of North Commercial portfolio and the implementation of capital reduction scheme in Candor TechSpace N1.
On account of the capital reduction schemes in Candor TechSpace K1 and Downtown Powai, the dividend component is expected to improve further to 20%-25% over the next 4-6 quarters. Our current adjusted NOI revenue, including the North Commercial portfolio, is INR 2,408 crore on an annualized basis. We continue to have significant organic growth potential of over INR 250 crore in our portfolio, which can be achieved through the lease of vacant areas and margin recovery. 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. A majority of our loans are linked to the repo rate, which will benefit us as the benchmark rates begin to turn lower.
With that, I will request the moderator to open the floor for Q&A.
Thank you very much. We will now begin the Q&A session. Anyone who wishes to ask a question may press star and one on their touchtone telephone. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use handsets while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. The first question is from the line of Puneet Gulati from HSBC. Please go ahead.
Yeah, thank you so much, and, and, congrats on recent performance. My first question is with respect to your guidance of INR 18.5 of DPU. Can you also talk a bit where did it originate from? What is the NOI you are building in, and what are the cash flows you are building? Just to get a sense of how much can potentially come from the newer deposits and how much from just pure income growth.
Sorry, Puneet Gulati can you, can you just repeat the question one?
Yeah. So just wanted to understand the assumptions behind 18.5 DPU in terms of what would be your assumptions on NOI and cash flow from operations.
... Yeah. So, I would basically break this into two parts. One, as you have seen, with the leasing already done and the three quarters of increase in our overall occupancy, that in itself is providing us for a solid base, as we are today, in terms of our distributable income. Along with that, as we've given a leasing guidance over the next year, we expect our occupancy also to grow up, grow up from the 84% currently to 87%-89%. And that performance will also help give us the cash flow from operations to be able to achieve this distribution that we are giving a guidance on.
Any numbers you can share on the NOI part for that is needed for INR 18.5 DPU?
Yeah. So maybe we'll add on, right, to what Ankit Gupta said. Basically, what we are clocking right now, if you just take Bharti as a 100% share, is about INR 2,400 crores, right? At this point in time, we have a vacancy of give or take, about 3.5 million sq ft. What we are saying is that we'll do about 1/3 of that pickup, from 84% to 100%, we'll do about one third of that pickup in this financial year. You know, which is in total about INR 250 crores of NOI pickup. So we will see INR 80 crores of incremental NOI or INR 20 crores of incremental quarterly NOI flow through by end of the year, right, in the NOI numbers.
On a full year basis, this will be a distributed impact because bulk of this leasing, you know, is going to be in the second half of the year, that we're guiding you to.
Okay.
Does that answer your question?
Yeah, yeah, partly. We'll, I'll take it separately as well. But just on the CAM side, also, we are seeing an increase in CAM charges. Is it to do with a part incorporation of Bharti's portfolio as well, or is it just higher utilization rates?
So this is broadly seasonal impact as well. The power and fuel cost for the current quarter was higher as compared to the last quarter. But that's a pass-through cost to the tenant.
Yeah.
There were certain other repair and maintenance charges that were incurred, again, a pass-through. But to answer your question, the primary contribution is of the fuel and power cost, because of the seasonal impact.
Understood. So INR 153 crore is not the number, 1INR 131 crore is what? INR 130 odd crore is what One can convert typically on a quarterly basis.
Sorry, where are you getting the INR 130 crore from?
So over last two quarters, you were at INR 138 crore , INR 131 crore. It jumped to INR 153 crore. So just wondering.
Yeah. Like I had mentioned, these are also very seasonal impact. So the number will land somewhere in between, as an average for the full year.
Okay. And can you also comment upon what kind of underlying market rental growth you are seeing for your portfolio?
Yeah. See, I think we talked last time also, if you see really Capita, and I will take investment advice. If you see Capita, and because now, we are showing at 90%, but, you know, into the SEZ and entire space, right, not fully leased out. There are two elements to that. One is non-SEZ and one is the SEZ. Now in non-SEZ, what we have denotified, we always almost about INR 55 per sq ft, which is about 18% more than, you know, our kind of in-place rent. Because now our vacancy is very limited, we are also confident that even SEZ rentals, we should be able to, you know, kind of do it around that number.
Now, whether it's 18%, 16%, that's a matter of debate, but around 55%, so almost 82%-20% leases happen in Candor, and we are confident of maintaining that. Then when we come to Noida, Noida again, N1, N2, I mean, there's really, we are able to get about, mid-60% kind of an rental. Mid-60%- mid-70%, rentals have been, you know, flat from last two quarters, but also because we had a strong run-up in last one year. In N1, it was from 50% became 65%, N2, again, 55% became 65%. So rents are consolidating at that level. And N1, there's no vacancy. N2, as our vacancies move up, we are confident of able to push the rentals also higher. So that's, that we are there.
Then if you talk about Powai. Powai, we are hoping, depending on which building we are talking about, we are hovering between INR 110-INR 150 to even INR 180-INR 185, depending on which building, on space tends to take in. But it is a growth right now. I would say it's a flat, but I think we are consolidating. Gurgaon, both, if you take G1 and G2, again, you know, we would see the growth as occupancies move towards mid-85% to 90%. That is the time we should see the growth. Right now, rents are consolidating at early 80%- mid-80% in G1 and early 90%- mid-90% in G2. But you would appreciate, growth would come when we reach around...
More growth will come when we reach around, you know, late eighties or early nineties.
Understood. That's helpful. And for the Worldmark, et cetera, should one assume the last updated market rental, which you disclosed in the earlier presentation as the same number?
Yeah. Sorry, I missed that Worldmark. Yeah. Worldmark, you know, so we, we are like around 2%, 22%, or 25%, 5% annual growth. Again, in Gurgaon, 5% kind of annual growth, 4%-5% we should keep getting actually. At least, I'm thinking 5%, 6%, 4%-6% we see happening.
Okay.
Really above 90%, so not difficult to at least get 5%-6% rental growth.
Understood. That's helpful. Thank you so much.
Thank you. The next question is from the line of Kunal Tayal from Bank of America. Please go ahead.
Sure. Thank you. My first question, again, with the same goal of trying to get to what NOI could look like for the full year. Just want to check this updated leasing guidance of 1.5-2 million sq ft. Is that all organic or does it include Worldmark as well?
The distribution for this quarter includes a little bit more than INR 100 crore generated from Worldmark.
Okay. I was actually checking on the leasing guidance that you've put out, 1.5-2 million sq ft.
Yeah, that includes the entire portfolio. Now, like I mentioned, the 1.5-2 million sq ft is for the full year, and it includes the Worldmark portfolio as well.
Got it. Okay. The second one is just a quick check. I think you're just about one year shy now of the rental support in G1, sort of, you know, coming to maturity. Generally, you know, what are your thoughts or visibility on trying to replenish some of that?
Yeah. So if, if you really see G1, you know, we are seeing good leasing action. We have, we are hopeful of, you know, now, what's the number? That's something that we worked out, but we should- our occupancy should move up, you know, in a good measure, by end of this year. But if you really see, you know, what is, what is going to happen is our escalations and increasing NOI is going to more than offset if there's a shortfall, which may happen after the, after, let's say, from, Q1 in 2025 calendar year.
Got it. Okay,
Kunal, to that, right, our share of that income support is about INR 40 crore a year to the REIT. You know, so that's about, you know, about, I would say 80% of DPU on an annual basis. That's coming from that income support. As Alok Aggarwal said, I think we should be able to fairly offset it. You know, with one year of escalation, which is close to our portfolio, is about INR 85 crore on a 5%. You know, we should be able to more than offset it as our rents grow. Now, even if, you know, and leasing is on top of that.
Right. Got it. Got it. Okay, very helpful. Thank you.
Thank you. Ladies and gentlemen, you may press star and one to ask a question. A reminder to all the participants that you may press star and one to ask a question. As there are no further questions, I would now like to hand the conference over to the management for closing comments.
Okay, so, thank you everyone for joining today's call. We look forward to connecting with you next quarter.
On behalf of Brookfield India Real Estate Trust, that concludes this conference. Thank you for joining us, and you may now disconnect your line.