Buy Mindspace Business Parks REIT Ltd For Target Rs. 440 By JM Financial Services
Mindspace Business Parks REIT (Mindspace) reported a healthy 1QFY26 performance as NOI/NDCF grew 24%/18% YoY to INR 6.2bn and INR 3.5bn respectively. Excluding the impact of the Raidurg acquisition, NOI grew 18% YoY on a same-store basis, while DPU was up 11%. During the quarter, Mindspace achieved gross leasing of 1.7msf, which included 1.2msf of re-leasing and 0.5msf of new/vacant area leased. Committed occupancy at portfolio level stands steady at 91.9%, with occupancy at Airoli West crossing 90% for the first time. Actual occupancy stood at 88.8% and is likely to converge with committed occupancy in the coming quarters offering high visibility on FY26E NOI growth. We have revised our TP upwards by 8% by lowering the cap rate in our DCF calculations. We maintain a ‘BUY’ rating with a Mar’26 TP of INR 440 (total return potential of 10.3%; 5.6% dividend and 4.7% capital appreciation).
* NDCF grows 11% YoY on a same-store basis:
In 1QFY26, Mindspace reported asset revenues of INR 7.5bn (+21%YoY, +11% QoQ) led by (1) rental income from new area/leases in Madhapur, Airoli West, Pune and Porur (2) 25% MTM achieved over 5.0msf re-leased since 1QFY25 and (3) rental escalations of 8.6% YoY across an area of 4.6msf. NOI grew 24% YoY to INR 6.2bn, ahead of revenue growth. Distributions for the quarter stood at INR 3.5bn (98% tax-free) which translates to INR 5.79 per unit (+15%YoY, - 10% QoQ). Revenue from operations came in at INR 7.4bn (+18% YoY; +9% QoQ) while EBITDA was INR 5.5bn (+22% YoY; +13% QoQ), which was 5% above our estimates.
* Committed occupancy stable at ~92%: Gross leasing stood at 1.7msf, which included 1.2msf of re-leasing and 0.5msf of new/vacant area leased, with an average rent of INR 78psf / month. Committed occupancy at portfolio level stands steady at 91.9%, with occupancy at Airoli West crossing 90% for the first time. Actual occupancy stood at 88.8% and is likely to converge with committed occupancy in the coming quarters. Of the total 2.2msf area expiring in FY26E, the management expects to retain c.1.5msf, of which 0.9msf has been retained as of 1QFY26. Going forward, FY26E / FY27E expiries are at comfortable levels of 1.4msf / 2.1msf, contributing 6.2% / 7.2% of the annual rentals respectively. The management is targeting c. 95% overall occupancy by end-FY26 (excluding Pocharam).
* Development update: Mindspace has de-notified c.2.3msf of SEZ space in its portfolio, out of which 1.6msf has already been leased. It is working to further de-notify some areas in Airoli (0.35msf) and Madhapur (0.25msf). Mindspace has concluded the acquisition of ‘Q-City’ (~0.81msf commercial asset located in Financial District, Hyderabad), at an EV of INR 5.1bn (9.9% cap rate on stabilised NOI). The asset will be rebranded as ‘The Square, 110 Financial District’. The management mentioned on the call that there is redevelopment opportunity in this asset, as 0.8msf is built on a 6-acre land parcel and there is potential to increase the total area to 2.5msf. It is also actively working on an under-construction pipeline of 3.7msf, a significant portion of which is pre-leased.
* Maintain ‘BUY’ with a Mar’26 TP of INR 440: We have revised our TP upwards by 8% by lowering the cap rate by 25bps in our DCF calculations. We maintain a ‘BUY’ rating with a Mar’26 TP of INR 440 (total return potential of 10.3%; 5.6% dividend and 4.7% capital appreciation). At CMP, the stock trades at 5.6% / 6.1% FY26E / FY27E dividend yield.
* Distributions: In 1QFY26, Mindspace declared distributions of INR 3,527mn / INR 5.79 p.u with c. 98% being tax-exempt, while interest constitutes 2%.
Conference call Highlights
- Net absorption in top 7 cities for 1H stands at 23msf with single digit vacancy in most key markets. The REIT achieved leasing of 1.7msf during the quarter and committed occupancy reached 93.7%. Management is targeting to increase it to 95% by year end
- The recent exit of a pharma MNC at Hyderabad park provided an opportunity to increase rentals from sub INR 50 psf to INR 95 psf
- The new retail offering spread across 60k sft will be key USP in attracting new clients at Airoli East. The REIT will undertake refurbishing at various buildings and is also planning a hotel development in the park
- The REIT has entered financial district (FD) market in Hyderabad by acquiring a 3rd party asset spread across 0.8msf. Given that there is significant supply crunch in Madhapur market, prospective tenants will have to look at Grade A assets in FD micromarket - The acquisition was funded through debt and the LTV now stands at 26%, providing enough headroom to undertake more acquistions
- Of the 30msf office stock in FD market, only 10msf is Grade A which has 17% vacancy
- So far, the REIT has demarcated 2.3msf area to non-SEZ and has already leased 1.6msf
Please refer disclaimer at https://www.jmfl.com/disclaimer
SEBI Registration Number is INM000010361
