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Mindspace REIT (Mindspace) reported a healthy quarter (1QFY25) as gross leasing came in at 1.1msf, while committed occupancy improved 50bps sequentially to 89.1%. Asset revenue grew 11% YoY to INR 6.2bn (+2% QoQ) while Net Operating Income (NOI) was INR 5.0bn (+9% YoY; +4%QoQ) aided by contractual escalations and operating leverage. Mindspace was able to re-lease 68% of the 0.9msf expiries in 1QFY25, and has visibility of re-leasing at least 0.7msf of the balance FY25E expiries of 1.1msf. The company declared distributions of INR 5.04 per unit (up 5% YoY; JMFe: 5.2) in 1QFY25 which at an annualised run rate would be INR 20.2 per unit. Mindspace has announced plans to build a new office tower of 1.5msf at Mindspace Airoli East, as it seen strong traction in the micro-market, post the SEZ policy reform announced in Dec’23. We maintain ‘BUY’ with a Mar’25 TP of INR 385.

* NOI growth driven by higher occupancies: Mindspace reported revenue of INR 6.2bn (+11% YoY; +2% QoQ) with NOI and EBITDA coming in at INR 5.0bn (+9% YoY; +4% QoQ) and INR 4.7bn (+8% YoY; +4% QoQ) respectively. On similar lines, NDCF also grew 5% YoY to INR 3.0bn, which translates to a DPU of INR 5.04. Revenue growth was aided (i) by rent commencement in new area/leases across Madhapur, Airoli (East) and Porur (ii) 16.4% MTM achieved over 4.4msf re-leased since last year and lease rent escalations of 8.6% across 3.1 msf.

*  Leasing demand remains healthy, no meaningful addition to potential expiries: Gross leasing stood at 1.1msf (0.6msf of releasing + 0.5msf of new area and vacant area leasing), with an average rent of INR 72psf / month. Mindspace achieved re-leasing spread of 23.9% on 1.0msf of area (includes leasing of vacant area). Committed occupancy improved by 50bps due to the healthy gross leasing seen across properties (including the Pocharam asset). Going forward, expiries in 9MFY25 / FY26 are minimal with area of 1.1msf / 0.9msf expiring, contributing ~4.0% / 4.9% of annual portfolio rentals.

*  Robust development pipeline: Mindspace plans to build a new office tower of 1.5msf at Mindspace Airoli East, where it has seen strong, post the SEZ policy reform announced in Dec’23. Excluding the new asset, the company has 4.4msf of on-going developments, with 1.3msf set to be completed in the current financial year. Major additions will happen at Commerzone Kharadi (1.0msf of leasable area by 3QFY25E), data centre at Airoli West (0.3msf by 4QFY25E) and an experience centre at Madhapur (0.13msf by 1QFY26E). Subsequently, B1 (1.3msf) in Madhapur, Hyderabad is expected to be commissioned by 1QFY27E, while B8 (1.6msf) will be completed by end-FY27E. The organic opportunity is of c. 9.5msf, including vacant area lease up of 2.3msf, under construction projects of 4.4msf and future development opportunities of 2.8msf.

*  We maintain ‘BUY’ with a Mar’25 TP of INR 385: We maintain ‘BUY’ with a Mar’25 TP of INR 385 (total return potential of 18.7%; 6.3% dividend and 12.4% capital appreciation). At CMP, the stock trades at 6.3% / 6.8% FY25E / FY26E yield.

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SEBI Registration Number is INM000010361