Ladies and gentlemen, good day. Welcome to the Second Quarter of FY 2027 Earnings Call for Brookfield India Real Estate Trust. Brookfield India Real Estate Trust released its financial results for the quarter ended and half- year ended September 30, 2026. Brookfield India Real Estate Trust has placed the financial results earning presentation in the investor sections of the website at brookfieldindiareit.in. Please note that the management may contain certain remarks during this call that could be considered forward-looking statements. Actual results may differ from these statements, and Brookfield India Real Estate Trust does not guarantee such outcomes nor undertake any obligation to update them. Any financial guidance or pro forma information shared today represents management's estimates based on the specific assumptions and has not been audited, reviewed, or independently verified.
We caution you against placing undue reliance on this information, as there can be no assurance of achieving the results discussed. As a reminder, all participant lines will be in the listener-only mode, and there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during this conference call, please signal an operator by pressing star then zero on your touch-tone phone. Please note that this conference has been recorded. On the call, we have the following persons with us: Mr. Shashank Jain, CEO and Managing Director; Mr. Rachit Kothari, Non-Executive Director; Mr. Saket Mehta, Head of Finance; Mr. Harris, Vice President Capital Strategy for Brookprop Management Services Private Limited; Mr. Shailendra Sabhnani from Brookfield. Now, I would like to hand over the call to the management. Thank you, and over to you, sir.
Thank you. Good morning, everyone. This is Shashank here, and very warm welcome to Brookfield India Real Estate Trust's FY 2027 Second Quarter's Earnings Call. Let me begin with a thank you to all our unitholders, all the analysts who are present on the call and otherwise, and the rest of the participants for joining us today. Let me begin with a brief update on the office market environment. The Indian office market has carried out a strong momentum through 2026. We have completed three quarters. Industry data indicates gross office absorption reaching record levels of 65, 66 million square feet in the first nine months of the calendar year, with GCCs continuing to take the lead, accounting for 40%-45% of the total take-up. The demand remained broad-based across sectors like BFSI, technology, flex operators, et cetera, and some of the other sectors.
From a geographical standpoint, Bengaluru continued to take the lead, followed by Hyderabad and Delhi NCR. They led the quarterly activity for the present quarter. Green-certified assets represented approximately 80%+ of this quarter's leasing, reinforcing occupiers' preference for high-quality, sustainable, and institutionally managed campuses. This market backdrop actually is directly aligned with the position of Brookfield India REIT. As of September 30, 2026, we have an operating area of 32.9 million square feet with a committed occupancy of 93% and an in-place rent of INR 107 per sq ft per month, with a long-dated WALE of 6.9 years. GCCs for us represent little over 45% of our occupier mix, and our top tenants account for only about 29, 30% of the gross contracted rentals. Our pan-India presence, high quality, and well-diversified tenant cluster, sustainability credentials position as well to capture continued demand from global and domestic occupiers.
Let me take you through our leasing and occupancy performance for the quarter. During the second quarter, we achieved a gross leasing of 1.6 million square feet, comprising of a little over 1 million of new leasing and 500,000 or 600,000 of renewals. The average rent on gross leasing was INR 98, with a WALE of 9.8 years and healthy leasing, re-leasing spreads of around 16%. In addition, we secured another 0.6 million square feet of commitments against future expiries within this quarter. The leasing demand remained broad-based for us across product categories, with GCCs accounting for little over 50% of the leasing activity of the quarter, including the advanced commitment that we have got. Our portfolio remained with a committed occupancy of 93%, despite some expiries that were due this quarter. 93% represents a 3% point higher occupancy on a year-on-year basis.
Very glad to tell you, on back of NPA conversions and robust demand from blue-chip domestic occupiers, our Gurugram properties saw increase in occupancy this quarter. G1 registered an occupancy of 93%, with a year-on-year growth of 9%, and G2 saw a 6% year-on-year growth at 84% occupancy. This quarter also reinforced the confidence GCC and global tenants have in our portfolio and established their stickiness to our high-quality campuses. A few examples for reference: At Ecoworld, a global investment management company took up additional 235,000 sq ft area, in addition to about 224,000 sq ft of renewals that they did. In our Downtown Powai SEZ, ERGO expanded by another 100,000 sq ft in addition to its 136,000 sq ft of renewals. Again, in Downtown Powai, in our IT commercial buildings- a large global financial institution completed an advanced renewal of almost 219,000 sq ft for an eight-year term.
This is actually in addition to their lease of entire 272,000 sq ft at One Downtown Central, which we secured last year. The institution continues to show trust and depth and relationship with us. Our expiry profile remained well staggered with only 4% of gross rentals due for expiry in the rest of the fiscal 2027, and approximately about 27% cumulatively through till FY 2030. Across the portfolio, we have now secured almost 1.2 million of commitment against renewals and re-leasing for future expiries of the second half of 2027 and full- year 2028. This proactive approach enhances cash flow visibility for us and reinforces the strength of our tenant relationships. Now, a little bit on growth and acquisitions.
Happy to announce that our GBKC floor transaction under a 50/50 JV with Prime Offices Fund of [NCW] has been closed just towards the end of the quarter on 29th September, and same is now part of our REIT portfolio. We have almost a 96% commitments, including the commitments that we have, looking at an occupancy of 96%. The asset strengthens our presence in BKC, one of the most established front office markets. Our sponsor group continues to own high-quality properties across gateway office markets. We are excited about the potential of participating in the process as and when they come up. We will continue to evaluate these opportunities with a disciplined focus on quality, accretion, and balance sheet capacity. Alongside the inorganic growth, continued lease-up, contracted escalations, mark-to-market opportunities across our existing portfolios provide a strong foundation of organic income and distribution growth to our REIT and unitholders.
On the ESG and sustainability front, it remains deeply embedded in our operating philosophy. Very glad to inform you for the fifth consecutive year, Brookfield India REIT received a five-star GRESB rating. We received a 100 out of 100 development score for our Baytown project in K1 and achieved a standing investment score of 94.9 out of 100 with a recognition as a global sector leader. During this period, our N2 campus achieved IGBC Green Existing Building Platinum rating. Ecoworld was recognized as the best office park for the year at RICS South Asia Awards 2026. A majority of our properties received five-star rating as Sword of Honour from British Safety Council for Occupational Health and Safety. We will take you through our financial performance for the quarter now. I will hand it over to Saket to help us take you through the numbers.
Thank you, Shashank, and good morning, everyone. Let me now take you through the financial highlights for Q2 FY 2027. Operating lease rentals and NOI for the quarters were INR 7.2 billion and INR 7.7 billion respectively, representing a growth of 52% and 51% year-on-year. The growth is mainly on account of acquisition of Ecoworld, which we completed in December 2025. Same-store NOI for the quarter increased by 8%, driven by higher operating lease rental, improved occupancy, contractual escalation, and MTM. For Q2 FY 2027, we declared distribution of INR 5.7 per unit, an increase of 9% year-on-year. Total distribution for the quarter were approximately INR 4.7 billion, taking the distribution of H1 FY 2027 to INR 11.3 per unit.
We are very happy to announce that the share of dividend component in our DPU have doubled on a year-on-year basis, from INR 0.83 per unit or 16% share in Q2 FY 2026 to INR 1.72 per unit or 30% share of DPU in Q2 FY 2027. The combined contribution from dividends and shareholder loan repayment represented approximately 69% of DPU. As you are aware, we had earlier filed for capital reduction schemes in N2 and Downtown Powai, and once these schemes get approved, the dividend share in our DPU is expected to increase to 38%. Post the scheme implementation, seven SPVs in our REIT will turn CAD positive along with having positive reserves. Further, any incremental growth in income through lease-up escalation and MTM will translate into higher dividend to the unitholders.
We would also have additional reserve balance of INR 4.8 billion, providing potential to further enhance the dividend component in the distribution over the next two to three years. Our balance sheet remains robust and well-positioned to support disciplined growth. As at September 30, 2026, gross asset value was approximately INR 604 billion, and the net asset value was INR 392 per unit. Our LTV, excluding shareholder instruments, stood at 26.7%, providing balance sheet headroom for pursuing inorganic growth opportunities, with a dry powder of INR 34 billion at a threshold LTV of 32.5%. The average interest rate remained at 7.3% for the quarter. Our gross debt comprises of 87% floating rate and 13% fixed rate debt. Our debt maturity profile remains long-dated, with average debt maturities approximately nine years for portfolio assets and 13 years for non-commercial portfolio, providing strong liquidity visibility and limited near-term refinancing risk.
We also maintain strong credit profile with dual AAA credit ratings from CRISIL and ICRA. With that, I will hand the call back to the Moderator for questions.
Thank you very much. We will now begin the question-and-answer session. Anyone who wishes to ask a question may press star and one on the 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 Karan Khanna from Ambit Capital. Please go ahead.
Yeah, thanks, team, for the opportunity, and congrats on the high single-digit DPU growth for the quarter. Couple of questions from my side. My first question to you, Shashank, is on the tenant mix. Tech services still account for 18% of rent and accounted for 63% of Q1 renewals. Accenture, TCS, and Capgemini combined account for about 14% of rent. In your discussions with these tenants, let's say over the next five years, how much could AI productivity reduce the space each of these tenants could potentially require? Are you seeing it yet in this category of tenants' expansion plans, seat density, or these tenants seeking contractual rights at renewals? On the other side, how sustainable is the GCC demand, and could it potentially reach 55%-60% of the rentals in next few years?
Thank you, Karan. Happy to sort of take this question. Let me talk about the IT services first. I mean, if we look at the industry reports, the conventional IT services have accounted for almost 38%-40% of the total leasing. Our assessment and industry reports indicate that IT sector should continue to increase by about 3%-5% in the current fiscal years. While, yes, AI and digital technologies, all the IT companies' bases are discussions with our key occupier. They are looking at increasing adoption of some of these newer technologies. They are all looking at these as opportunities for them, as their global clients and enterprises invest in transformation, modernization, infrastructure, cloud, data engineering, et cetera.
As far as our conversations with some of our large occupiers are concerned, we haven't got any indications of any pullbacks that any of them are looking at or any reset that they're looking at on the contract that they have with us. Having said that, yes, everybody is a little cautious on the way they're approaching this evolving landscape, but we haven't got any indications for short to medium- term as of now.
Sure. Second question, Saket, is on slide number 23. With 87% share of floating rate debt and 83% of debt coming up for renewal only post FY 2030, how are you thinking about interest rate sensitivity towards your distributions in the event we see another 25 to 50 basis points sort of a rate hike in coming quarters? You've mentioned that impact is expected post 2Q FY 2027. If you can help quantify the same, and is that INR 32 crores annual or INR 8 crore quarterly impact a fair assessment of the sensitivity?
Okay. Let me start, and then Saket and Harris can chip in, Karan. Broadly, yes, 25 basis points increase in interest rate translates to about INR 29 odd crores of annual impact, which is roughly about INR 0.08 per quarter DPU impact that we are looking at. Now, we are confident that this potential increase in the interest rate would easily get offset by two things. One, the tax advantages pursuant to the recent change in regulations that we have. We have a max saving of almost INR 100 odd crores every year, plus our BAU growth in our NOIs that will continue to accrue across the portfolio. While yes, there is an impact of about INR 0.08 per quarter per unit on the DPU, but we're comfortably positioned, and this should get offset with some of the tailwinds that we have in our portfolio at overall level.
Sure. This is helpful. Yeah, sorry.
Sorry.
And then, Karan, just to kind of add on to your question on the fixed versus floating. You are right that we have 85% of our loan portfolio as floating rate and the remaining being fixed. But compared to this, the peer set has roughly 40% floating and 60% fixed. But if you kind of look at it in a more nuanced way, out of the 60% which is fixed, 30% is coming for re-rating in FY 2028. So, vis-a-vis by rate, where we have an 85% floating, the peer set will have roughly 70% of their loan as a loan component which will get impacted through the interest rate changes. So, across the peer competitive set, the impact on interest rates will be similar across the competitive peer sets as far as interest rate changes are concerned.
Sure. This is helpful. And last question, that is FY 2027 and 2028 exit occupancies at 96%, 97%, that leaves you with contracted escalations of about 5% a year, and mark-to-market on roughly 10% area turning each year as guided last quarter. This suggests 6%-7% organic NOI growth. So, how should one think about incremental growth beyond, let us say, FY 2028, 2029, once you reach peak occupancies?
So that is a, I would say, a broader question, Karan. It has two, three limbs to it. So one, obviously, our portfolio should reach to that kind of a stabilized occupancy that you have mentioned, and then mark-to-market and contracted rents would come in. I think beyond that, there are multiple elements to it, both from, as I touched upon, both organic and inorganic growth. On the organic growth side, we have development potential about 4 million to 5 million across our portfolios. Our 600,000 development is coming to a close by early 2028 in Kolkata. That should come in the market. Across our some of the Candor portfolios, we are looking at another 3.5 million to 4 million of development potential. We have the land and we have the FSI.
Then there are potential like in G1, the current policy facilitates buying out and building out incremental about half a million additional GLA there. Plus, some of our campuses like Ecoworld will have, or we are exploring redevelopment potential in some of our buildings. So overall, there is enough scope that we have for organic growth in terms of development. And as I said, we will continue to be opportunistic and look for acquisitions as and when there is a opportunity in the market, both on the sponsor pipeline side, as well as there are third parties available, third-party assets available.
Great. This is helpful. Thank you, and greetings to the entire team for the festive season.
Thank you, Karan. Same to you.
Thank you. The next question is from the line of Girish Choudhary from Avendus Spark. Please go ahead.
Yeah. Hi, good morning. Thanks for the opportunity. Firstly, I would just would like to know a bit more in terms of your acquisition strategy, right? While you mentioned about the strong sponsor pipeline, but given the environment of rising interest rates and also the units trading at discount to NAV, right? How does this change your approach to inorganic growth? Also just extending this, are the assets sellers, I mean, might still be anchored to historical valuations, right? Would you wait for pricing to adjust, or you think that there are compelling opportunities that justify acquisitions today as well?
As I have mentioned, Girish, we will be opportunistic. We will obviously look at opportunities which are accretive to yield and accretive to the overall portfolio. We are not looking at, to put it simply, very expensive buys here. We are mindful of that. We will be judicious in use of capital and allocation of capital. Sponsor pipeline, as you have seen, there are some good marquee assets in the pipeline, new developments, first-generation leasing. Some of them have a mixed-use feature which complements with our existing portfolio as well. To that extent, we will be selective, and wherever it is accretive, we will sort of would like to go for it.
As far as other third-party assets are concerned, as and when they are in the market, we will evaluate carefully and we will only participate or bid for it wherever we think, or at a price where we think these are accretive. Now, I think the other element also would be, I just want to add here is, if private markets today are trading at better multiples, right? We would actually be open to evaluate if there is any opportunity for us for any divestment, to make sure that we are able to recycle capital for getting better yields. That is also one option that we will sort of look at. Open to various tracks to see how do we increase our portfolio in an accretive way.
Got it.
Just to add, Girish, that from our perspective, again, interest rate volatility will happen in markets every two to three years. I think we are very focused on total return. We have always come out and said that we will target 16%-17% equity return. Maybe in this environment, we will gun for a little bit more, but we will be guided by that as opposed to short-term interest rate movements dictate our long-term strategy. I think that cardinal rule for us of targeting 16%-18% equity return doesn't change. Any opportunity we look at or any capital decision that we look at, whether it is a divestment or fundraising or an acquisition, I think we will be guided on a in total basis, keeping that target in mind.
Got it. That is pretty helpful. Secondly, on the 360 ONE transaction into the Ecoworld, just wanted to understand the accounting treatment a little better, because when I see the notes to account, there has been a loss, accounting loss of around INR 71 odd crores, which was reported. Could you just walk us through exactly where that loss arises? Is it attributable to SPV or the REIT? Also, in terms of implications, does it have any implications for future in DCF?
Right. Girish, this has been done in compliance with the accounting requirements, Ind AS 32, which requires us to account for the put option. If I were to take you back, 360 ONE has a put option for three years, starting March 28, which requires us to account for the potential obligation that may arise for the put option. Simply put, it is an accounting entry on the liability side, which, on one hand, has made us record a put option financial liability, which has got offset by an entry on the NCI reserve. To that extent, it is a purely accounting entry on the liability side, a plus and minus. It does not impact the portfolio or the asset commercially in any manner, whether it is NAV, whether it is NOI, or DPUs, et cetera.
It is a pure accounting entry on the liability side, which has a compensating effect.
Got it. Thanks for the clarification.
Thank you. The next question is from the line of Sumit Kumar from JM Financial. Please go ahead.
Hi, good afternoon. Thanks for the opportunity. My first question is on the dividend proportion in the distribution that has moved to 30% and expected to grow to about 40% post the capital reduction schemes. The first question is on, what is the timeline of this capital reduction scheme being completed and flowing through to our distributions?
Right. We have filed the scheme. It is in the process. What we are expecting is by this fiscal year end or the first quarter of 2028, we should have these schemes flow through, which should result in an incremental component of the dividend. Just to step back, from 16%, 17%, we have gone up to 30%. We expect post these two schemes coming into force, we should get to about 38%, 39%. Thereafter, two more levers that we have. We have a fair bit of reserves that we have on our books, which we will continue to use over next few quarters to give some incremental payout in form of dividend. Thereafter, I think all the organic growth, if you look at seven SPVs, where we will have the ability to distribute in form of dividend. The entire organic growth will flow through in form of dividend.
We are very hopeful that this percentage should inch up further.
Any target number you have given? There would be positive operating leverage coming from growth. Over the medium- term, how sustainable that would be, and what is the target number?
We are at the moment very comfortable with achieving about 40%-odd in the next two to three quarters. Thereafter, with organic growth coming in, we possibly would be about 45%-odd easily, in the coming years.
Sure. My second question is on the dry powder comment. That has actually been revised downwards, and the LTV assumption has also been revised downwards. Is it related to the hike in interest rates or the expectations?
We just wanted to be, in the current environment, for our own guidance, we just wanted to be a little conservative. I know we were earlier looking at some 34%-odd , if I.
Yeah, 34.7. Yeah.
We just wanted to be a little conservative, about 32.5% odd. At that LTV also, that gives us enough dry powder, considering that we are at some 26.5%, 27%. That gives us enough headroom from an availability of capital perspective.
Sure. One last question, if I may. It's a follow-up on the lease expiry schedule. If I look at page 17 of the presentation, you have the expiries for H2 and FY 2028. The MTM spread is about 8%-10%. In terms of your discussion with the tenants, are you seeing realizations lower, higher to this number, or what's the sort of current take on this?
I think the guidance that we've given on MTM spread, we are hopeful that the actual MTM spread that we'll be able to realize could be a bit higher than this, given that most of our portfolios are reaching near saturation or stabilized occupancy levels. These are large campus formats that we have. We are pretty positive and hopeful that at the time of lease renewals, the actual spreads could be a notch higher than what we've indicated here.
I'll just add to Shashank Jain's answer, Sumit Kumar, right? If I can just take you.
Yeah.
To 27 of our presentation, which has the detailed schedule on expiries.
Yeah.
I will just focus on two of our top assets, which is about 50% of our attributable value. This is Ecoworld and Powai. I think each of these have 1.5 million square feet churning over the course of next three to three and a half years. Let us take an example. We just signed something in Ecoworld at close to a 130 number. But our average expiry rent over this three years is just 110. So even if I take a very modest inflationary growth, just the three-year MTM potential on Ecoworld is worth INR 60 crore -INR 65 crore. Very similarly, Powai, we are already touching INR 200, but our average churn is happening at INR 180 -INR 185. Again, with some inflation, we will look to clock another INR 60 crore, INR 65 crore here.
Just two assets are adding INR 130 crore, which is INR 1.5 on DPU. With just these two. Of course, our estimates on page 17 are based on what value was put out, but what we are achieving in the market is, I would say, tad better, and these numbers will surely be outperformed.
Sure, that is very helpful. That is all from my side. Thank you, and all the best.
Thank you. The next question is from the line of Mohit Agrawal from IIFL Capital. Please go ahead.
Yeah, good afternoon, everyone, and thanks for the opportunity. My first question is on the DPU growth outlook in the near- term. This quarter, you have delivered almost 9% year-on-year. Last quarter, this number was about 6.7%, and at that time, you had guided that this will remain in the 7%-8% range. How do you see this going forward, as in, given the leasing pipeline and the rentals mark-to-market that you have been realizing? Do you see a meaningful pickup over the next two to three quarters in terms of DPU growth?
Last quarter, we were about INR 5.6 distribution DPU. This year, this quarter, we are at INR 5.7. We expect this trajectory to continue, with the construct of our portfolio. And some positives coming out of the favorable changes on the tax side, both on the MAT credit and effective tax rate, et cetera, going down. To that extent, we expect a further positive fillip to our DPU numbers.
Okay. The growth part, which has that 8%, 9% growth would continue. You spoke about MAT credit, so from a cash tax perspective, you think that number could go down further? Because right now also, that number is actually 1%-2% of your EBITDA.
Yeah, so we are looking at, just at a broad level, an annual MAT saving over the at least for next two to three years, in the range of INR 100 crores-INR 110 crores annually. That's the ballpark number that we have, which will result in an annual saving for the next two to three years.
Okay. Understood. My second question is on the When I look at your lease terms, the new leasing that is happening typically is at about a 10-year lease tenure for the last two quarters. Is that by design, or is it that the incremental GCCs are asking for longer tenures? If you could comment a little bit about how the escalations with these kind of Is it the similar 15% three-year escalations, or are these contracts now moving to more like an annual escalation?
So it's a mix there. It's a market phenomena. Some of the markets, in down south, the market is moving towards more an annual escalation. Some of the markets up north continues to be at a 15% reset every three years. That's more a market phenomena, I would say. In some cases, yes, we are able to pivot to an annual increase, and that's the intent that we have as much as possible that we can do that. As far as the long tenure of the lease is concerned, that will always be our preferred approach to get to our longer-term leases with our tenants. Because we do understand, any rethink on your occupancy or office location, et cetera, requires a lot of mitigating a lot of moving elements, including occupiers, your employees, et cetera. So our intent would always be to go in for long tenure leases.
I would say just to.
Great
Obviously, new leasing, and the way we define new leasing is actually the first-time take-up, right? Every time somebody takes space for the first time, they would invest significantly in their fit-out. For that reason, they will always want a longer tenure, Mohit. Renewals may be a shade lesser. So you are right, last two quarters, our average tenure on new leases is 10 years. Renewals would be, call it eight years, because at the time of a renewal, a tenant is just signing up for the second generation of the leasing, right? So they may want to keep some flexibility, but the first-time take-ups are typically 10 years. We like it, like Shashank said, because it just secures cash flows for a much longer duration.
Perfect. That answers my question. Thank you, and wish you all a very happy Diwali.
Thank you. Same to you.
Thank you. The next question is from the line of Pritesh Sheth from Axis Capital. Please go ahead.
Yeah, good afternoon, and thanks for the opportunity. First question is on the occupancy trajectory from here on. I know you have a target around 96%-97% kind of occupancy over the near- term. If you can just further down, how should we think about the occupancy at end of FY 2027-2028, considering that it's just now 2 million square feet odd, which is coming up for expiry, which is what we need to lease out. So targets on the occupancy.
Sure. See, if you broadly look at space, we have about 2% vacant area on our NPA, converted or applied area, which has a very robust demand across our SEZ portfolio. I think that should easily happen. Thereafter, if we look at some of our portfolios, Ecoworld continues to be in high demand. We have some occupancy there where we are very bullish that. If you look at our Gurugram campuses, I mentioned, we are seeing some positive traction there. Both of them have moved up. G2 has moved up to 84%. There is a positive news today. We were very pleased to welcome Maruti in our campus with their engineering center that they've announced today. It's a 2,000-seater center. Once they have come in, there would be a pivot to take up more space by them or similar players there.
Overall, we are hopeful that we should be in the zip code of about 96% by the end of this fiscal. Thereafter, would look at stabilizing the occupancy in the subsequent year by another 100-150 basis points.
Got it. Very helpful. In terms of organic development, I think beyond the 4-5 million square feet that you already disclosed, you mentioned about 3-4 million square feet of another potential. C an you elaborate on that? Is it part of the existing assets? Those lands are sitting with sponsors or within the REIT? Just some more details on that.
Okay. Let me clarify. What we are looking at is three specific levers. One is about 600,000 of development, which is nearing completion, which is Baytown in Kolkata. That should come up by early fiscal 2028. Thereafter, we have existing incremental development potential in N1, N2, and the balance in K1, which is roughly about 3.5 million-4 million, for which we have the land and which we have the FSI. On these two additional levers, what we are potentially looking at, trying to take benefit of the change in policies. For example, in G1, we could look at buying TOD FSI for another 500,000 . The fourth element is potential redevelopment opportunities, let's say, in Ecoworld, which could be another million or so.
That's the broad portfolio of potential redevelopment that we are looking at across our campus, which obviously we'll evaluate and see how do we pick it up in a phased manner.
Sure. Got it. That's helpful, and thanks for that clarification. Just one last, I think this quarter we had 8% NOI growth and 9% DPU growth. 9%, I mean, it's actually higher than the NOI growth. Are there levers to maintain this, or I mean, maintain this DPU growth higher than NOI growth, or on a more longer horizon, it would be aligned in that sense?
Yeah, I think the primary reason for that is that we have got some saving in the interest expenses. Last quarter, we mentioned we will repay the loans, which we have done that. So that has resulted in that saving for us. It's a perpetual saving as we planned earlier. But as we mentioned in the earlier call, there is obviously an interest rate hike. So we'll see how this plan together. But overall picture is that tax cash savings is also there. So it's a combination which will continue.
See, directionally, I think at some stage, these two should converge. There obviously would be working capital element that will be in play, whether it is security deposit, refunds, and new security deposits coming in, or interest rate movements, et cetera. So there could be some variation here and there, but directionally, the two should move in tandem.
Sure. Just one last, sorry. This put option loss that we recognized, will this happen every time when we are revaluing the asset? This MTM will keep coming, or how should one think about it?
Yes. Every time there is a revaluation of the portfolio, these numbers will undergo a change. Both the numbers which have a compensating impact will move in tandem. The net impact would be zero.
Got it. Helpful. Thanks. That is it from my side, and all the best. Happy Diwali to the team. Thank you.
Same to you. Thank you.
Thank you. The next question is from the line of Yashas Gilganchi from DAM Capital Advisors. Please go ahead.
Good afternoon, team. Thank you for taking my question. How do you expect your average cost of debt to evolve over the financial year? I understand that a limited amount of outstanding debt expires through FY 2029. However, do you expect to change the composition of your debt? I mean, the split between fixed and floating. Lastly, does the incremental access to capital from banks change how you think about funding?
Okay, so two parts to your question. One is the composition of interest rate. As of now, we are not specifically looking at refinancing or moving any floating into fixed. As and when there is a reset, as and when there are renewals coming up, we will take a call at that point of time. But to your specific point, we are not looking at immediately refinancing any of our portfolios moving to a fixed- rate regime.
Yeah, I will just add. If you look at the average cost of debt today, we are at 7.3%. About 85% of the portfolio is floating. Of that, there are two benchmarks. One is linked to repo. There are some loans which are linked to the bank benchmarks. Part of the portfolio resets to repo as and when the repo rate moves, and the balance will be linked to as the MCLR will move for the respective benchmarks. The portfolio will keep getting reset accordingly, and that is how you should think about interest rate increases going ahead. We have already outlined some numbers in terms of the actual impact with respect to the cost versus the 25 basis points rate hike that has already happened. In terms of the fixed component, that was a bond that we had taken in December last year, so that is a five-year tenure.
We are currently at about 26%-27% LTV. The incremental borrowing that we do take, we will continue to evaluate between fixed- rate and floating rate structures. Today, as you see, with where bonds are priced today, they are priced at about a 40- 50 basis points higher yield versus where 15-year LRD loans would be priced at. As and when we think about future leverage that we need to add in, whether it is for an acquisition or otherwise, we would look at both of these options and evaluate and do what is best at that point in time. In terms of refinancing, less than 5% of our portfolio is coming up for maturity in the next couple of years, so there is not much to be done there. Hope that addresses your question.
Yes. Thanks. That is clear. Are you actively pursuing any acquisitions? How do you describe the market for institutional office assets now in terms of demand and supply? What are the cap rates you observe, and at what cap rate does an asset become a potential target for acquisition?
I will just say that, of course, there are opportunities with the sponsor group. There are a few interesting ones which are newly built properties in highly complementary markets, which we think are a right fit for the portfolio we have. We continue to stay close to those, but there are also third-party opportunities that we are seeing in the market that we evaluate from time to time. I would say we are not anchored to cap rates, like I described earlier during the call. I think we are focused on a 16% - 18% total return. There can be opportunities that offer higher growth, which may merit a tighter, I would say, entry yield, and there can be opportunities that offer less growth and may merit a higher, I would say, entry yield.
We are not judging opportunities by cap rates, but by the return potential, and I think that will be the lens we continue to apply as we move along.
Got it. Thank you very much.
Thank you. The next question is from the line of Sarvesh Gupta from Maximal Capital. Please go ahead.
Good afternoon, sir, and thank you for the opportunity. As I understand, this 100 basis point of impact would impact your DPU by around 5%-6%, right? 32 basis point on 5.7%. On your NAV, what would be the similar impact, sir, for every 100 basis point?
There will be no impact on NAV, and I will give you context. When we started the interest rate declining scenario in the last one and a half, two years, interest rates decreased by about 150 basis points. The cost of debt that was taken as part of the valuation assumptions has, through this period, only got impacted or reduced by 25 basis points. So interest rates have to really rise for it to make a meaningful difference, to change the cost of debt assumption as part of the valuation working. Do note that when the valuers are making these assessments, they are doing this for the industry as a whole. All REITs are typically using, say, or the valuers of the REITs, which are all independent valuers, they are all using similar assumptions. That is how you should probably think about it.
Maybe if it does move beyond, say, a percentage or so, at best, maybe you could think of a 25 basis points kind of an impact at best. Again, Shashank, you want to add this?
Yeah, and just to add to it, our free cash flows would see a positive impact because of these favorable regulatory changes like MAT that we spoke about, which we are then confident should offset any potential downside we could experience because of rising interest rates.
Okay. Broadly, basically, you are saying that the valuers would not take this rising interest rate into scenario unless there is a significant increase. So the valuation would not change because in the previous cycle, they did not increase the valuation when the interest rates were going down.
Look, valuers would definitely take into account any changes in the interest rate when they compute the WACC and other things, because that's a reality. I think the follow-on or the counter impact would be that, yes, there is an interest rate that has gone up. That will get factored, and that will impact their assumptions, so some of the financial assumptions. The counter would be the organic growth that we are looking at and some of the positive changes which will help us in our cash flows, which we are hopeful will then offset any downside there.
Just adding, look, while our cost of debt today is 7.3%, the assumption taken by the valuers is already 8%. Right. If you think about it that way, the valuers are doing this math, they are thinking about through the cycle interest rates versus necessarily how rates are moving through the cycle.
Okay. When you are acquiring a new asset now, let's say if you have to acquire from the sponsor, now for you, cost of debt would have gone up, especially on the new debt that you will be taking, it will come at a higher cost. So, in your discussions for the potential opportunities, have you also seen a similar decrease in the overall valuation of the properties to compensate you for the higher interest rate that you will have to bear going forward?
The way, Sarvesh, I will answer this is it's a little more nuanced approach to it rather than painting it with the same brush to say, okay, the interest rate goes up and hence the cap rate goes up and hence the impact on the valuation. I think every investor, every acquirer, including us, will take a differentiated approach asset by asset. What's the composition of asset, positioning of the asset, front office, mixed use, how accretive it is to our geographical location, existing portfolio, et cetera, potential on upsides going in, et cetera, and then take a view on what should be the pricing there. That's an approach I would assume every investor would follow, not just us.
No, that is all right, sir. But like, for example, today, six months back to now, for the same asset, would you pay lower or would you not, given that you will have to bear a higher interest rate cost.
For the time, theoretical answer for something like that would be, yes, we'd like to pay lower, right. But the fact of the matter is that you also have to, again, the assumption in your question is that all acquisitions are only debt financed. You also have to see what is the amount of equity you have available, what is the amount of equity that you can raise, and actually look at that full capital structure mix and see what is it that you can deliver to the equity guy. In India, it is unfair to compare cap rates with interest rates because all your leases come with a 5% contracted rent growth, right. So even if you, let's say, buy something at an 8%, the reality is you are getting a 13% contracted return because you are going to get 5% escalations, right.
Now, you have to compare your cost of debt versus that 13% and take a decision as to how much do you want to pay for an asset, not just purely looking at the interest rate as the sole metric. So that's the only thing I'll say. But yes, the answer, in a situation where interest rates go up by 1%, would you want to pay the same amount for the asset. The answer would be no, right. You'd ideally want that five year of interest expense that you will incur extra to be passed on to the seller as opposed to being borne by the buyer.
Okay. Finally, this 16%-17% equity returns, which is your potential target. So what is the starting base for this. Is it the IPO date or how do you look at, because, for example, now we have seen a lot of decrease in the price. So now 16%, 17% might look more achievable. So how do you compute this 16%-17% target and how do you judge yourself against it.
Yeah, so that's a determination we make for the cash, equity cash that we use at the REIT. It has nothing to do with the stock price. The way, if we have cash available in the REIT, we want to use it to make 16%-17% return. The stock price movement can give you a different return. In today's environment, if you ask me, they may give you a higher return, right? But when we have cash available at the REIT, we want to at least generate 16%-17% from it.
Understood, sir. Thank you, sir. All the best.
Thank you.
Thank you. The next question is from the line of Gaurav Goel from Kotak Mahindra Bank. Please go ahead.
Yeah, thank you for the opportunity. My question is with respect to your N1 asset in Sector 62, Noida, how do you assess the current rental market dynamics in this micro market? Given the evolving office leasing environment, what is your outlook on market rental growth over the medium to long- term, and what factors do you believe could drive rental appreciation in this location?
On N1, if you can look at slide number 12, we have given that our in-place rents are at INR 66, and the recent leasing that we have done in this asset is roughly at INR 75. We have a very positive outlook, and we presume, we believe that we will be able to get these mark-to-markets in this asset as and when these leases will come for expiry. The N1 asset and the Noida market, Sector 62, have been performing very well for us. We see going forward, the rentals to look upwards in our N1 asset.
Just to add on to it, you also have to look at the micro market. If you look at that micro market, Sector 62 and around, there isn't any supply in the near- term that's coming up in a big way. Most of the supplies have been focused on the expressway side. This is a large campus format development, which again, we really don't have a peer set there in that micro market. To that extent, as Harris said, we do see rentals moving up.
Sure. Just a follow-up question on the 75 number that you just mentioned. Is that 75 a [bare] shell rental or is it like a fitted out rental number?
[Bare] shell rental.
[Bare] shell rental. Thank you. Similarly, can you just provide a view on the K1 asset that you have, the micro market in which K1 asset is located? With the change in the political scenario there, do you see the market rentals to go even further up vis-a-vis the previous scenario?
Again, I think in K1, our in-place is about INR 50, INR 51, and the recent leasings have been at about INR 60 odd, that zip code. Again, very similar situation for us. That is almost 98%, 99% leased. From a supply perspective, not too much supply coming in from a similar campus format development. We are looking at, as I said, exploring options of potentially developing the FSI that we have there. As far as the on-ground sentiments are concerned, for us, since our leases have all been locked in and campus is full, while there is general improvement in the sentiment, the re-rating would happen in due course as and when the renewals come up.
Got it.
I'll just add that in case commerce increases in the state generally, and of course, there's a lot more inbound business, I think the only thing that really changes for us is we are sitting on a huge amount of development potential. Our ability to consume that will be much faster, should there be demand at scale that is available. In fact, the good news is we already have 500,000 sq ft already built that we are seeing some interest in conversations on, and we can totally see a difference in the kind of clientele that we're already beginning to attract. So yes, knock on the wood, if all goes well, we may be able to actually deliver our development plan much faster in this asset.
Got it. That answers my question. Thank you so much.
Thank you. Participants who wish to ask questions may press star and one at this time. Ladies and gentlemen, in order to ask a question, you may press star and one now. As there are no further questions from the participants, I now hand the conference over to the management for closing comments.
Thank you so much. I really appreciate the time that everybody's taken, and on behalf of the entire team here, I do wish to convey a very happy Diwali and season greetings to all of you. Thank you so much.
Thank you. On behalf of Brookfield India Real Estate Trust, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.