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We attended Brookfield India REIT’s (BIRET) analyst meet and site visits in NCR and Mumbai where the company reiterated its strategy and business outlook for its office assets including: 1) overall portfolio physical occupancy (footfalls) which was 21% in Apr’22 has improved to 50% in Oct’22 and continues to see a steady rise; 2) the REIT manager maintains its target of 18% embedded NOI growth from annual run-rate of Rs9.6bn currently to Rs11.4bn in the medium term through vacant area lease-up, mark-to-market on renewals and margin recovery; 3) sponsor RoFO assets of 6.4msf across Gurugram, NCR and Powai, Mumbai may drive inorganic growth; and 4) the REIT manager continues to invest in refurbishment and upgradation of operational assets to attract more high quality tenants at enhanced rentals. We retain our ADD rating with an unchanged target price of Rs318/unit which factors in asset level adjustments and balance sheet adjustments for N2 asset infusion. Key risks are slower-than-expected ramp up in office occupancies and lease rentals and rising interest rates globally and in India.

* BIRET portfolio poised to benefit from pickup in office leasing over medium term: Our site visits to the REIT’s operational assets (including RoFO assets) across Gurugram and Noida in NCR and Powai in Mumbai brought out the REIT manager’s focus on asset upgrades (refurbishment/upgradation and more retail areas) and tenant engagement to attract high quality tenants over the medium term. Overall portfolio physical occupancy which was 21% in Apr’22 has improved to 50% in Oct’22 and continues to see a steady rise. While the near-term fresh leasing outlook has been impacted as asset owners/occupiers await clarity on the outcome of the DESH Bill (relating to existing SEZ/non-SEZ areas), any positive development on the same along with global occupiers going ahead with their expansion plans from FY24E onwards may flow into organic NOI growth over the medium term through vacant area lease-up, mark-to-market on renewals and margin recovery.

* H2FY23 expiries a key monitorable: H2FY23 scheduled expiries stand at 1.0msf of which the REIT manager expects to renew 0.3msf of area and 0.6msf of exits. Against these exits, the REIT manager expects to backfill at least 0.5msf from its lease discussion pipeline of ~1msf which implies flattish portfolio occupancy in H2FY23. While the REIT manager continues to focus on bringing back portfolio occupancy levels to over 90% in the medium term, it is also targeting to achieve higher rental rates across the portfolio to drive NOI/NDCF growth. In Q2FY23, the REIT manager has announced distribution of Rs5.1/unit (same as Q1FY23) resulting in H1FY23 distribution of Rs10.2/unit. For FY23 overall, the REIT manager has given a distribution guidance of Rs20.25/unit (I-sec estimate of Rs20.3/unit) which implies H2FY23 distribution of Rs10.05/unit which is marginally lower than H1FY23 owing mainly to rise in average interest costs at portfolio level to 7.45% from 7.1% earlier.

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