Improving traction in commercial leasing to aid Brigade Enterprises

In the nine months of FY23, the company has leased 1msf and has 1.44msf of active pipeline. In Q3, the company’s net leasing stood at 0.33msf in Q3FY23. This was driven by conversion of hard options at Tech Garden and WTC Chennai, the management said. The company is looking to achieve a similar run rate in Q4. Over the next three quarters, the management expects to surpass 90% occupancy and also aims to lease out the entire vacant area.

The management expects demand for office space and technology talent to continue to rise. Even if a global slowdown hits, outsourcing activities tend to see increased demand, which should buoy demand for office spaces, it added. IT companies are among the key clients for real estate companies for leasing office spaces.

According to analysts at ICICI Securities Ltd, any finalisation on DESH bill relating to SEZ space may act as a catalyst for leasing demand, especially in Tech Gardens, Bengaluru asset. “We expect Brigade to clock 20% rental net operating income (NOI) CAGR over FY22-25E to Rs6.8bn owing to incremental rentals from Tech Gardens, Bengaluru and Twin Towers office project becoming fully operational in FY25E,” said analysts at ICICI Securities Ltd. 

In FY22, the company achieved new leasing of 1 msf with exit rental NOI of Rs500 crore, added the ICICI Securities report. CAGR is compound annual growth rate.

Meanwhile, the company’s stock performance has been muted following its Q3FY23 earnings announced last week. On Tuesday, the stock was trading down around 2% on the NSE at Rs475.

Lower revenue recognition in the residential segment was a key disappointment and has led to earnings downgrades. “With better-than-expected pre-sales performance and healthy launch pipeline for Q4FY23, we raise our FY23E pre-sales by 8% to Rs3800 crore. However, lower recognition in Q3FY23 leads to 5%/8% decline in FY23E EBITDA/PAT, respectively,” said analysts at Motilal Oswal Financial Services Ltd.