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Mindspace Business Parks REIT Financial Analysis (Subscribe for Long Term)

Mindspace REIT IPO  Fundamental Analysis

Introduction to REIT

A REIT is a pool of real estate assets that generate regular income and is operates like a mutual fund. REIT collects money from retail and institutional investors and invests in real estate assets. These real estate assets are offices and shopping malls that generate regular rental income. In a way, they are a method of securitizing real estate receivables. REITs are required to distribute 90% of their earnings in the form of dividends to the REIT investors.

Strengths of Mindspace REIT

  • Well diversified portfolio across key commercial markets.
  • Experienced management with KRC group support.
  • Consistent financial performance.

Weaknesses of Mindspace REIT

  • REITs operate under strict Regulatory Framework. The regulatory framework governing REITs in India has been recently formed and is relatively untested.
  • As per the RHP, Mindspace REIT may not be able to make distributions to the unitholders in the manner described in the offer or the quantum of distributions may decrease.
  • The Formation Transactions, ROFO arrangement, and the management framework of the portfolio will be given effect to after the Bid/Offer Closing Date. Any inability to consummate these transactions might impact the offer.

Mindspace Business Parks REIT IPO Details

Mindspace Business Parks REIT(Mindspace), backed by Mumbai-based real estate firm K Raheja; Corp and private equity firm Blackstone is coming up with public issue to raise up to Rs 4,500 crore. Blackstone and K Raheja Corp will offload units worth Rs 3,500 crore and the REIT will sell fresh units of about Rs 1,000 crore in the issue. It would have a fixed price band of Rs 274-Rs 275Mindspace has already received Rs. 1125 crore worth application from strategic investors ahead of IPO in the month of June 2020 from the overall issue size. Thus the current issue will be for Rs. 3375 crore. 75% is reserved for institutional investors and the rest 25% is for non-institutional investors (i.e. retail investors).

This is the second IPO of a REIT, the first one came in the year 2019 (Embassy Office Park)

Performance of the Embassy IPO

  • IPO priced at Rs 300, listed at Rs 314 (closing price on listing day).
  • The stock was quoting at Rs 443 (50% premium)at pre-COVID levels on Feb 20 last week
  • Stock is currently quoting at Rs 360 (20% premium).

Objects of the issue:

  • Partial or full pre-payment or scheduled repayment of certain debt facilities of the Asset SPVs availed from banks/financial institutions (including any accrued interest and any applicable penalties/ premium);
  • Purchase of NCRPS of MBPPL; and
  • General purposes.

Operating Review

Mindspace is one of the largest Grade A office portfolios in India. It has quality commercial properties in Mumbai, Hyderabad, Pune, and Chennai. As on March 31, 2020, the portfolio has a total leasable area of 29.5 msf which comprises 23 msf of completed Area, 6.1 msf of the under-construction area and 3.6 msf of the future development area.

The business parks in Mumbai are Mindspace Airoli East Business Park, Mindspace Airoli West Business Park, Paradigm Mindspace Malad, and The Square, BKC(2).

The properties in the Pune include Commerzone Yerwada Business Park, Gera Commerzone Kharadi Business Park and The Square, Nagar Road. The Chennai property of the company is Commerzone Porur. And, the office parks in Hyderabad are Commerzone Pocharam and Mindspace Madhapur.

The scale and quality of the portfolio give the market-leading position for Mindspace and replicating a similar portfolio of large-scale by other players may be challenging due to long development timelines and a lack of similar-sized aggregated land in comparable locations.

There is an increased demand for quality office space from multinational as well as large domestic corporations because India is emerging as a leading hub for technology and corporate services due to its favorable demographics, large talent pool and competitive cost advantage in providing value-added services.

Tenant base is a mix of multinational and domestic corporates which is well-diversified with 173 tenants and no single tenant contributed more than 7.7% of the gross contracted rentals.

Financial performance

The total income generated for FY 2020 has increased to Rs 2026 crores from Rs 1680 crore in FY 19. PAT is Rs 514 crore and has remained stable since the last two years. Total assets have grown to Rs 11222 crore as on 31st March 2020 (Rs 9144 crore in FY 19). Financial performance has remained consistent since the last three financial years.

Current market scenario

The economy is going through a slowdown and its effect on real estate cannot be ruled out. Revenue for Mindspace is dependent on the demand of commercial real estate by foreign MNC’s, employment levels, availability of financing among various other economic and market factors. The nationwide lockdown has affected the normal business operations of the tenants which might affect their ability to pay rent. Though Mindspace has collected 99.4% of their gross contracted rentals for the month of March 2020 but some of the properties were not occupied for the month of April and May 2020. The impact could be seen in the form of uncertainty in demand for larger space in upcoming quarters and there could be a probable rent correction in rentals of assets quoting at a premium.

Also, the lockdown has forced people to work from home and the organizations are already exploring the cost and benefits of remote working; if it can be embedded partly in the work culture then it will save their operating costs! Having pointed out the risk factors, the picture would be clearer only when the pandemic gets over.

Conclusion and Investment strategy

Revenues and profits for Mindspace have shown consistent growth since the last three years. It has a PAN India presence and has a quality portfolio in major cities. However, the current economic and market conditions and uncertainty in a prolonged tenant base might result in limited benefits to investors. One should be extra cautious for investing in this IPO.

Further, there are risk factors attached to the commercial real estate and there might be a demand-supply mismatch. So, only those investors who want to participate in earning of recurring rental income through investment in REIT might opt for it unlike those who are expecting a capital appreciation.

Reviewer recommends Subscribe for Long Term to the issue.

Review By CA Priyanka Choudhary on 23rd Jul 2020

Review Author

About CA Priyanka Choudhary

CA Priyanka Choudhary, a freelance chartered accountant

Priyanka Choudhary Jain is a Chartered Accountant and an experienced credit analyst. She has worked with CRISIL as Senior Credit Analyst on ratings assignments including business and financial analysis in Corporates as well as the Public Finance Sector.

Email: [email protected]

DISCLAIMER: No financial information whatsoever published anywhere here should be construed as an offer to buy or sell securities, or as advice to do so in any way whatsoever. All matter published here is purely for educational and information purposes only and under no circumstances should be used for making investment decisions. Readers must consult a qualified financial advisor prior to making any actual investment decisions, based on information published here. Any reader taking decisions based on any information published here does so entirely at own risk. Investors should bear in mind that any investment in stock markets are subject to unpredictable market related risks. Above information is based on RHP and other documents available as of date coupled with market perception. Author has no plans to invest in this offer.



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