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The Brookfield India REIT (BREIT) saw Q1FY23 NOI rising 10% QoQ to Rs2.3bn owing to full quarter contribution from N2 asset which was infused in Jan’22. Overall committed portfolio occupancy remained flat QoQ at 83% (89% economic occupancy with N2 rent support). For the remainder of FY23E, the REIT portfolio has expiries of 1.0msf of which Kensington, Powai asset accounts for 45% share with expiry due in H2FY23E. The REIT manager expects to achieve enough new leasing in FY23E to offset any FY23E exits considering the improved leasing outlook going ahead with 1.1msf of ongoing leasing discussions and is targeting to cross committed portfolio occupancy of over 90% by Mar/Sep’23E. For Q1FY23, the REIT manager has given distribution of Rs5.1/unit which is in line with its guidance for Rs10.2/unit of distribution in H1FY23 vs. I-sec FY23E DPU estimate of Rs20.9/unit. We retain our HOLD rating with an unchanged target price of Rs318/unit. Key upside risk is faster-than-expected ramp up in office occupancies and lease rentals while key downside risk is rising interest rates globally and in India.

Steady Q1FY23 performance, FY23E expiries a key monitorable: The BREIT achieved Q1FY23 operating lease rentals (OLR) of Rs2.0bn (up 10% QoQ) as N2 asset infused in Jan’22 contributed Rs468mn of incremental OLR (Rs355mn in Q4FY22) while NOI stood at Rs2.2bn (ex N2 rent support) and adjusted NOI stood at Rs2.35bn (with N2 rent support of Rs178mn). While Q1FY23 saw minimal exits of 0.02msf, for the remainder of FY23E, the REIT has scheduled expiries of 1.0msf of which ~45% is from the Kensington, Powai asset. As per the REIT manager, discussions are on at an advanced stage with the existing tenant in Kensington to renew the lease which is due in H2FY23. The REIT manager expects to achieve enough new leasing in FY23E to offset any FY23E exits considering the improved leasing outlook going ahead with 1.1msf of ongoing leasing discussions and is targeting to cross committed portfolio occupancy of over 90% by Mar/Sep’23E vs. current levels of 83% (89% with 100% economic occupancy in N2 asset). For Q1FY23, the REIT manager has given distribution of Rs5.1/unit which is in line with its guidance for Rs10.2/unit of distribution in H1FY23 vs. I-sec FY23E DPU estimate of Rs20.9/unit. Physical occupancy across parks is currently ranging between 35-50% across assets in various cities.

G1 asset addition call option may not be exercised by Aug’22:At the time of REIT listing, the REIT manager had proposed to acquire the N2 (Noida) and G1 (Candor Techspace, Gurugram) assets by Aug’22 (expiry of call option). While the N2 asset acquisition was approved and completed in Jan’22 and infused into the REIT, the call option on the G1 asset which expires in Aug’22 is unlikely to be exercised as per the REIT manager. The primary reason cited is the current occupancy at G1 being at 77% and the REIT manager will continue to evaluate the asset as it remains with the Brookfield sponsor group.

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