IGI Logo

Growth story on track

The Brookfield India REIT (BREIT) manager has proposed to acquire the N2 call option asset in Noida, NCR having 4.5msf of saleable area at an EV of Rs39.7bn in Jan’22. While the asset has a committed occupancy of 83% on the completed area of 3.6msf as of Sep’21, the REIT sponsor (Brookfield Group) will offer a rent support of up to Rs1.5bn over Jan’22 to Mar’24 to the REIT which assures a 100% economic occupancy until leasing momentum revives. As per our estimates, at the proposed acquisition price of Rs39.7bn, the REIT’s NDCF yield will remain largely flat as compared to the existing yield profile of ~8% over FY23-24E. We maintain our ADD rating with an unchanged target price of Rs317/unit pending the completion of the N2 asset acquisition in Jan’22. Key risks are the large-scale adoption of Work-fromHome by occupiers over the long term and rising interest rates globally.

Quality Noida asset to be injected in REIT portfolio:

The REIT manager has exercised its right to acquire, Candor TechSpace N2 (“N2”), in Noida with 4.5msf gross leasable area. The REIT manager has agreed to purchase 100% stake in N2 for a total acquisition price of Rs 39.7bn and is proposed to be financed through a combination of preferential issue of Rs 9.5bn at a price of Rs 294.25/unit, and a property level debt issue of Rs 29.1bn at 6.78% per annum. The preferential issue amounting to Rs 4.95bn will be allotted to third party investors and Rs 4.55bn will be allotted to Brookfield Group. The asset has 3.6msf of completed area with 83% committed occupancy, upcoming area of 0.2msf and 0.8msf of future development.

Rent support from sponsor a key positive:

Keeping in mind the current Covid-related uncertainties on the back-to-office plans of corporate occupiers, the REIT manager has negotiated a rent support for the N2 asset infusion from the Sponsor, i.e. the Brookfield Group. While the current occupancy of the completed portion of the N2 asset stands at 83%, the Sponsor has agreed to provide a cumulative maximum rent support of up to Rs1.5bn over 1st Jan’22 to 31st Mar’24 (11 quarters) on a quarterly basis to the N2 asset. This mitigates the risk to cash flows for Brookfield India REIT investors until the asset stabilises to over 90% occupancy possibly sometime in FY23-24E and provides cash flows to REIT unitholders at a 100% economic occupancy post infusion.

Isec View:

As per our estimates, at the proposed acquisition price of Rs39.7bn, the overall NDCF yield will remain largely flat at the REIT level as compared to the existing yield profile of ~8% over FY23-24E. A quicker-than-expected leasing pickup, higherthan-expected rental growth and monetisation of the future development area of 0.8msf in the N2 asset may lead to higher yields post FY24E when the rental support period ends. We maintain our ADD rating with an unchanged target price of Rs317/unit pending the completion of the N2 asset acquisition by the REIT manager in Jan’22.

To Read Complete Report & Disclaimer Click Here

or More ICICI Securities Disclaimer https://www.icicisecurities.com/AboutUs.aspx?About=7

Above views are of the author and not of the website kindly read disclaimer