REIT analysis: Brookfield India REIT

India’s only institutionally managed public commercial real estate vehicle and sponsored by an affiliate of Brookfield Asset Management, Brookfield India, is planning to raise up to Rs 3,800 crore through a REIT IPO. This will be the third REIT in India after Embassy Office Parks (EOP) REIT and Mindspace REIT. The price band is fixed at Rs 274-Rs 275. The entire issue consists of fresh issues. The net proceeds will be utilised for partial or full pre-payment or scheduled repayment of the existing indebtedness of the asset special purpose vehicles (SPVs). The market lot is 200 shares, which means that the minimum investment required would be Rs 54,800  at the lower price band and Rs 55,000 at an upper price band. It is not a normal IPO and there is no retail category as such, and one has to apply in NII or non-institutional investor category. 

All bidders, other than anchor investors, are required to mandatorily utilise the application supported by the blocked amount (ASBA) process by providing details of their respective bank accounts, which will be blocked by Self-Certified Syndicate Banks (SCSBs), to participate in this issue.  

*At the upper price band  

About the company

Brookfield India Real Estate Trust (Brookfield REIT) is India’s only institutionally managed public commercial real estate vehicle. It is sponsored by an affiliate of Brookfield Asset Management (BAM), one of the world’s largest alternative asset managers with approximately USD 575 billion in assets under management (AUM) as of September 30, 2020. They own an initial portfolio of four large campus-format office parks, which are located in Mumbai, Gurugram, Noida & Kolkata. Their initial portfolio totals 14.0 million square feet (msf), comprising 10.3 msf of completed area, 0.1 msf of under-construction area, and 3.7 msf of future development potential.

Their initial portfolio’s completed area has the same store committed occupancy of 92 per cent (and an 87 per cent committed occupancy, which includes the recently completed 0.5 msf at Candor Techspace N1). These properties are leased to marquee tenants with 75 per cent of gross contracted rentals contracted with multi-national corporations such as Barclays, Bank of America Continuum, RBS, Accenture, Tata Consultancy Services and Cognizant. While a 7.1-year weightage average lease expiry (WALE) provides stability to the cash flows of their initial portfolio for the medium term.   

They intend to leverage Brookfield Group’s real estate holdings in India by entering into agreements that provide rights to acquire their existing properties in their markets. They have the exclusive right at their discretion, to acquire the identified assets, one office park in each of Gurugram and Noida, similar to the office parks in the initial portfolio that is near-stabilisation and currently owned by the members of Brookfield Group. The identified assets encompass 8.3 msf of office space. The initial portfolio, identified assets, and right of first offer (ROFO) combined to create a potential for them to almost double their initial portfolio’s leasable area to 28.9 msf.  

Brookfield India REIT did not face significant disruptions in their operations due to COVID-19 during the financial year 2020 and the six months ended September 30, 2020. They collected 98 per cent, 98 per cent, 99 per cent, 99 per cent, 97 per cent and 98 per cent of the gross contracted rentals for the months of April, May, June, July, August and September 2020, respectively.   

The company has not availed any deferments or moratoriums with respect to any of their financial commitments including debt servicing.  

Financials   

Over FY18-20, the total income increased by 7.9 per cent CAGR to Rs 956.71 crore. Net operating income (NOI) and EBITDA increased by 7 per cent and 2.5 per cent CAGR, respectively in the same period. As per the valuer, the pre-issue fair value of the assets is around Rs 11,407.4 crore.   

Valuation & recommendation

Peer comparison and valuation: At the higher price band of Rs 275 per share, Brookfield REIT’s unit is valued at 88.4 per cent of its net asset value (NAV), as compared to Embassy Office Parks (EOP) REIT and Mindspace Business Parks REIT, which is trading at 93.6 per cent and 98.9 per cent of its NAV, respectively. Thus, the issue seems to be reasonably priced as earlier REITs were offered at a similar discount to their NAVs. The majority of the income from REITs is not in the form of capital appreciation but in the form of a dividend. It is expected that the issue will give you a dividend yield of around 7 per cent.

Looking at the subdued interest rate in the economy and anticipating it to remain low for a while, the projected yield from this REIT seems to be attractive. Therefore, the issue is suitable to only those investors who want to diversify their investment and can invest that part of their portfolio that they would be parking in debt component or real estate.