Knowledge Realty Trust Q1 FY27 earnings call

Knowledge Realty Trust delivered a strong Q1 FY27, with both revenue and Net Operating Income (NOI) growing 15% year-on-year, reaching INR 1,243 crores and INR 1,112 crores respectively. The company announced a distribution of INR 1.7 per unit for the quarter, totaling INR 752 crores, which represents a 5% sequential growth. This performance underscores the company's operating momentum despite the backdrop of global uncertainty^🌐.

The company's occupancy rate increased to 93% in Q1 FY27, up from 92% in the previous quarter. This improvement was driven by 1.4 million square feet of gross leasing, which included 0.7 million square feet of new leasing and 0.7 million square feet of renewals. Notably, 93% of the new leases incorporated annual escalations, and 58% of new leasing originated from existing tenant expansions, indicating strong client retention and growth.

Management highlighted the structural resilience of its portfolio, particularly against the perceived impact of AI on office demand. This resilience is attributed to a significant GCC (Global Capability Centers) exposure, minimal reliance on traditional IT services, and a strong front office portfolio. The Mumbai portfolio, for instance, achieved 92% occupancy, a 3% increase from the last quarter, showcasing robust demand in key markets.

Early lease terminations, such as a client exit in Exora, were strategically utilized to achieve significant repricing. The company realized an average spread of 35% on new leasing and 29% on renewals, leveraging a sizable 25% mark-to-market potential across its portfolio. For example, a Hyderabad asset was leased at INR 122 per square foot, a substantial increase from the previous in-place rent of INR 80.

KRT's future growth is supported by several embedded levers, including contracted escalations, occupancy ramp-up, and the delivery of under-construction assets. The pipeline includes a 1.4 million square foot development in Global City, Bangalore, expected by FY29, and 6 million square feet across four ROFO (Right of First Offer) assets. Additionally, the 1.6 million square foot Image Tower in Hyderabad, completing construction next year, is expected to be offered to the REIT in FY27.

The company optimized its financing profile by raising INR 500 crores through commercial paper and INR 600 crores through non-convertible debentures at a blended rate of 7.2%. This increased the fixed rate debt portion to 30% from 0% at listing, with a target to reach 40% or higher. KRT is actively pursuing accretive third-party acquisition opportunities, expecting to close deals within the next 12-24 months, leveraging its strong balance sheet and low leverage.

The economic occupancy stood at 88% at the end of the quarter, with a 5% gap to the committed occupancy of 93%. This gap is primarily due to staggered space take-up by large clients in Hyderabad and Global City, with management expecting normalization to a 3% delta by Q4 FY27. The Bangalore portfolio, particularly Exora, is recovering from a temporary dip caused by a client exit, with occupancy now at 82% from 78% last quarter, presenting significant repricing opportunities.