IGI Logo

Yield play on Indian consumption story

We initiate coverage on Nexus Select Trust (Nexus) REIT with BUY rating based on Mar’24E DCF-based target price of Rs126/share. As of Dec 31, ’22, Nexus owns and operates 17 Grade A urban consumption centres or retail malls with total leasable area of 9.2msf, two complementary hotel assets (354 keys) and three office assets (1.3msf). We expect Nexus REIT’s net operating income (NOI) CAGR at 10.4% over FY23-26E to Rs18.8bn based on the expected ramp-up in occupancies in existing assets, annual rental escalations and mark up of leases that are expiring. At CMP of Rs107, we expect Nexus REIT to deliver NDCF distribution yield of 7.1% in FY24E, 7.7% in FY25E and 8.2% in FY26E. We expect ~65-70% of distribution to be in the form of dividends/principal repayments that are tax free. We believe upsides from mark-to-market opportunity, portfolio rental appreciation of 5-6% beyond FY26E and any value-accretive acquisitions may enable the REIT to deliver annual capital appreciation of 6-7% over and above the distribution yield. Key risks: Slowdown in discretionary consumption, and fall in occupancies and rentals across portfolio assets.

* Quality retail asset portfolio across tier I/II Indian cities: Nexus, which listed on the exchanges on May 19, ’23 is India’s first retail REIT with 17 urban consumption centres (retail malls) with total leasable area of 9.2msf, two complementary hotel assets (354 keys) and three office assets (1.3msf) as of Dec 31, ’22. As of Dec 31, ’22, Nexus has 96.2% average committed occupancy across its portfolio with a weighted average lease expiry (WALE) of 5.7 years, a 11.0% CAGR in tenant sales from FY18 to FY20, and 7.5% CAGR in marginal rents across its portfolio from CY16 to CY19. The Trust’s portfolio has a tenant base of 1,044 domestic and international brands with 2,893 stores as of Dec 31, ’22 and is well diversified across cities with no single asset and tenant contributing more than 18.3% and 2.8% of its total gross rentals for the month of Dec, ’22, respectively. The Trust owns high quality assets in major cities such as Delhi, Navi Mumbai, Bengaluru, Pune, Hyderabad and Chennai, and has strong presence in other prominent cities such as Chandigarh, Ahmedabad and Bhubaneswar.

* Strong NOI CAGR of 10.4% over FY23-26E: The Trust’s assets have demonstrated strong growth over FY20-9MFY23 by leasing 4.2msf and achieving average re-leasing spreads of 19.2% on approximately 2.9msf of re-leased space. Furthermore, it has a strong track record of delivering inorganic growth through accretive acquisitions of stabilised assets and turnaround of underperforming assets. Hence, we estimate Nexus’ NOI CAGR of 10.4% over FY23-26E to Rs18.8bn based on the expected ramp up in occupancies in existing assets, annual rental escalations and mark-up of leases that are expiring.

To Read Complete Report & Disclaimer Click Here

For 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