In good position to secure third-party acquisitions for REIT: Knowledge Realty Trust

One BKC is part of the Knowledge Realty Trust

Blackstone and Sattva Group-backed real estate investment trust Knowledge Realty Trust's management said in an interaction with Moneycontrol that while the REIT has a significant pipeline of assets from its sponsors' under-construction and planned projects, it also plans to pursue third-party acquisitions to add to what is slated to be India's largest REIT.

Ahead of its Rs 4,800-crore initial public offering (IPO)—which is to be entirely an issue of new shares—the trust's management said that it is better placed than peers due to its lower leverage, and that it also kept its branding "neutral" to attract more developers and asset owners.

"We think that we are well-placed to pursue third-party acquisition opportunities for the KRT portfolio, with our low leverage. We have the lowest loan-to-value for our assets, at around 19 percent, compared to our listed peers, and we are structured by design to be a brand-agnostic platform. That is why we consciously chose not to keep the platform aligned to either Sattva or Blackstone," said Quaiser Parvez, chief operating officer, Knowledge Realty Trust.

Parvez as well as CEO Shirish Godbole said that it remains insulated from recent challenges in the IT services industry, with industry leader Tata Consultancy Services announcing its intention to shed 2 percent of its workforce. Around 4 percent of the REIT's properties are occupied by traditional IT services firms, with the trust's managers focusing on leasing for front offices by corporates, or strategic operations like global capability centres by multinational companies.

Knowledge Realty is said to have a portfolio of 46 million square feet (msf), including around 9.5 msf under construction or in the pipeline. The trust, whose IPO opens on August 5, reported a net operating income of Rs 3,432 crore for FY25, an increase of 19 percent year-on-year.

Blackstone, which will have sponsored four of the five REITs in India once KRT lists later in August, has rolled nearly all of its owned office-led commercial portfolio under Nucleus Office Parks into KRT, with some of its key assets including the 1.5 msf One BKC development at Bandra Kurla Complex in Mumbai, as well as the One International Center and the One World Center properties at Prabhadevi.

Sattva, on its part, has placed a number of its marquee assets, especially in Bengaluru and Hyderabad, in the trust. Parvez added that developers will be well-placed to roll their assets into the trust, given the complexities of direct ownership and management of real estate.

"It takes years to build projects together, and if a developer joins the REIT as a partner, they are able to keep their local legacy and also be part of the growth story of a large operational umbrella. They are also able to get rid of the operational headache of filling out the buildings or maintaining them, and navigating the taxation-related implications," said Parvez. He added that the REIT will be interested in assets across the top six to seven major office markets in India, with strategic buys possible in Tier-II markets as well.

On average, the REIT charges around Rs 90 per square foot per month  by way of rent, although variations are wide according to geography. However, the management said that there is a large upside possible in the rentals, with low vacancies across most geographies, and new deals being executed at large premiums over existing ones.

"Our average rent is around Rs 90 (per square foot per month) and the mark-to-market is 23 percent more than that. But real estate is a local play. In Hyderabad, the in-place rents are around Rs 78-79, while the new deals are happening at around Rs 105-110. Similarly, at a property like One BKC in Mumbai, the current in-place rentals are at around Rs 280-290. New leasing, which is marginal, is at around Rs 420-430. So there is a huge upside available in our portfolio against where our rents are," Parvez noted.