IPO Note - Brookfield India Real Estate Trust Ltd By Angel Broking
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Institutionally managed Real Estate Vehicle
The Brookfield REIT is India’s only institutionally managed public commercial real estate vehicle. Sponsored by an affiliate of Brookfield Asset Management (“BAM”), one of the world’s largest alternative asset managers with approximately US$575 billion in assets under management, as of September 30, 2020, their goal is to be the leading owner of high quality income producing commercial real estate assets in key gateway Indian markets, which have significant barriers to entry.
Positives: (1) 75% of Gross Contracted Rentals contracted with multi-national corporations such as Accenture, Barclays, RBS, TCS and Cognizant. (2) REIT has mark-to-market headroom of 36% to achieve further organic growth through contractual lease escalations. (3) Exposure only to commercial office space which is the least impacted segment in real estate due to Covid-19 outbreak.
Investment concerns: (1) Increase in Work from home (WFH) can lead to higher vacancy in key market geographies and can create slowdown in demand for commercial space in near term. (2) Highly concentrated on Gurugram market, 42% of overall rent comes from Candor Techspace G2, Gurugram. (3) REIT will take long time to increase it revenue as REIT has under development property of 0.1 msf only along with this 92% of committed property has already been leased out.
Outlook & Valuation: Though the REIT has incurred losses in FY20 and has not paid out any dividends, they expect to pay a yield of 7.5% in FY23 which we believe is aggressive and may be difficult to acheive. Post the IPO there will also be a debt reduction of ~ ₹3,575 crore for the company which will bring down the overall debt. However due to the current uncertainties around Covid-19 and proliferation of work from home we expect that demand for commercial real estate to be muted. Given the uncertainties, weak financials and high debt on book we would recommend a “Neutral” rating on the issue.
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On the higher side, immediate resistance is seen around 36000 - 36200 levels - Angel One
