India’s 2nd REIT IPO soon as Mindspace gears up for public issue with revised draft; should you invest?

Some of the tenants of the company include Accenture, Qualcomm, Barclays, JP Morgan, UBS, and Amazon.

Mindspace Business Parks REIT, after filing a revised draft prospectus with the Securities and Exchange Board of India (SEBI), has made it clear that it is not looking to hold back on its proposed initial public offering (IPO). The IPO will include a fresh issue of Rs 1,000 crore, and an offer for sale (OFS), where existing shareholders will part with some of their holdings. Mindspace Business Parks REIT is a joint venture owned by real estate developer K Raheja Group and private equity firm Blackstone Group. Earlier the company had filed a draft prospectus with SEBI in December last year.

In the revised draft, Mindspace Business Park REIT informed about the business disruption due to the coronavirus pandemic and the way forward. “Since April 01, 2020, approximately 0.7 msf area has been leased out to tenants across various properties, where the weighted average rent achieved was higher than the Market Rents estimated for such area,” according to the addendum filed. Making plans clear for the near future, the company is positive on completion of 25.67 msf projects by the end of financial year 2023. At the end of the previous fiscal, the total leasable area stood at 29.5 msf of which 92% is committed for occupancy. Giving projections for the future, the addendum says that a 10.6% growth in revenue from operations is expected this fiscal while the same is expected to clock at 23% in financial year 2022. 

Although Mindspace Business Parks REIT was able to collect 99.4% of their Gross Contracted Rentals for the month of March 2020, properties were not fully occupied by their tenants for the months of April and May 2020. “While the COVID-19 pandemic has affected majority of the industries, the ones that have been severely impacted by this pandemic include aviation, education, entertainment and events, food and beverage, co-working, and hospitality. During the months of March, April, and May 2020, 1.0% of our Gross Contracted Rentals were attributable to these industries,” according to the addendum. The company is not letting the pandemic hinder operations and continues to enter into commitments with potential tenants for securing pre-leasing and lease-up of vacant space.

Mindspace Business Park REIT comprises five integrated business parks and five independent offices, totaling 29.5 msf of Total Leasable Area. Some of the tenants of the company include Accenture, Qualcomm, Barclays, JP Morgan, UBS, and Amazon. Mindspace Business Parks REIT will be the second REIT listing for Indian stock markets. Prior to this Embassy Office Parks REIT has been listed on the bourses. Interestingly, Blackstone is also an investor in Embassy Office Parks.

Given the weakness in the real estate market, analysts advise caution when it comes to REITs. “In this situation when the retail prices are likely to be weak, and when the outlook for the commercials have come down, it does not look to be a very positive time to look into this,” Vinod Nair, Head of Research, Geojit Financial Services, told Financial Express Online. Nair added that REITs do carry their risk and only those who have the ability to handle risk should look to invest. “REIT has lost its interest, as the risk is high. In the near future, maybe six months to two years we have this issue, maybe if investors want to hold for more than three years but in the short-term, it is not looking positive,” he added.

However, some do find REITs to be an attractive investible asset class. “In the current moderating interest rates environment in India, REITs is an attractive investible asset class, offering 7%+ dividend returns, in addition to capital growth, potentially giving double-digit overall returns over 3-5-year period,” said Anurag Mathur, CEO, Savills India. REITs provide an opportunity for investors to participate in the commercial office asset class. “Investors can potentially benefit from a multi-decadal growth cycle in commercial real estate as India reaches where several developed countries are today,” he said.