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    Mindspace REIT IPO subscribed 38% on Day 1

    Synopsis

    The price band of the issue is fixed at Rs 274-275 per unit. Investors can make for a minimum of 200 units and in multiples of 200 units.

    IPO
    The issue attracted bids for 19,23,600 units compared with 6,77,46,400 units on the clock.
    NEW DELHI: The initial public offering (IPO) by Mindspace Business Parks REIT IPO received 38 per cent bids on the first day of the bidding process on Monday.

    The issue attracted bids for 19,23,600 units compared with 6,77,46,400 units on the clock.

    The price band of the issue is fixed at Rs 274-275 per unit. Investors can make for a minimum of 200 units and in multiples of 200 units. At the upper end of the price band, investors need to invest a minimum of Rs 55,000 in the issue. Analysts said the IPO is a play on a stabilising rent-yielding office portfolio.

    The "Mindspace REIT’s unit is valued at 87.1 per cent of its net asset value (NAV), as compared with Embassy Office Parks (EOP) REIT, which is trading at 98.1 per cent of its NAV.

    "The issue seems to be attractive," Choice Broking said, which has a 'subscribe with caution' rating on the IPO.

    REITs or real estate investment trusts are companies that own or finance income-producing real estate. The stockholders of a REIT earn a share of the income produced through real estate investment.

    Mindspace Business Parks REIT is looking to raise up to Rs 1,000 crore through issuance of fresh units and up to Rs 3,500 crore through an offer for sale. On Friday, the REIT raised Rs 2,644 crore from anchor and strategic investors, with HSBC Global, Fidelity and Nomura Trust, Capital Income Builder and Cohen & Steers among major investors.

    Analysts noted that the company, which originally filed a draft offer document with SEBI on December 31 and again filed a new offer document with SEBI on July 17, has reduced its market-to-market (MTM) expectations on upcoming lease renewals. In the original draft offer document filed by the company, the MTM spread for FY21 and FY22 was 40 per cent and 44 per cent, respectively. This spread expectation has been reduced to 34 per cent and 40 per cent for FY21 and FY22, respectively.

    That said, analysts find the issue interesting and have a subscribe rating on the issue.

    Mindspace's completed portfolio of 23 million square feet is 88 per cent occupied, with 6.4 million square feet of brownfield development likely to accrue over the next 5-7 years. If succeeded, Mindspace would be the second REIT to list on stock exchanges after Embassy Office Parks REIT in March 2019.

    IIFL said Mindspace REIT is a play on the stabilised rent-yielding office portfolio, spread across Hyderabad, Mumbai Metropolitan Region (MMR), Pune and Chennai markets.

    "The REIT is projecting a distribution yield of 7.5 per cent for FY22, largely through the tax-efficient mode of dividends. Even as the ongoing Covid-19 poses risks to the near-term projections, we believe that over time, Mindspace REIT would offer a steady double-digit total return structure, on a steady and growing dividend-income stream. We recommend subscribing to the issue," the brokerage said.

    The brokerage noted that the Mindspace REIT portfolio has delivered an in-place rental of 6.7 per cent compounded annually over FY17-20, outpacing markets, and added 6.6 million square feet capacity. For FY20-23, the REIT has projected 17 per cent growth in net operating income (NOI), on the back of 4-5 per cent contracted lease escalations, increasing occupancy from vacant lease up and 2.8 million square feet sqft of new construction, and MTM potential.

    "The portfolio and tenant base are diversified and well-positioned; 85 per cent of the tenant base involves MNCs, and 44 per cent from technology and 22 per cent from financial services," IIFL said.

    Nirmal Bang, which attended an analyst meet by the REIT, suggested the company did not face significant disruptions in the operations from Covid-19 during the financial year ended March 31 and collected 99.4 per cent of gross rentals for March.

    "The properties were not fully occupied by the tenants for the months of April and May. As of May 31, committed occupancy of the portfolio was 92.4 per cent and in-place rent across the portfolio was 52.5 per square feet. The company derived 99.4 per cent of the gross rentals from leasing of office premises and has not witnessed a significant decline in the rent receipts during April and May. It collected 97.8 per cent and 95.2 per cent of gross rentals for the months of April and May, respectively," the brokerage said.

    Tenants from the technology sector have traditionally comprised the largest tenant base for the REIT, but the share of non-technology sector tenants has increased by 1,020 basis points over the last three fiscal years. As a result, the contribution of the technology sector to the gross rentals has decreased to 44.4 per cent as of March 31, 2020 compared to 54.6 per cent as of March 31, 2017.

    The REIT's consolidated debt stood at Rs 7,382 crore as on March 31, which primarily includes lease rental discounting loans in various SPVs. A sizable amount of debt is proposed to be pre-paid through IPO inflows. ICRA noted that the consolidated debt is expected to be Rs 3,614 crore post listing. The incremental debt drawdown for the under-construction assets will increase the debt to some extent by FY2021 end.

    "ICRA estimates the debt/net operating income to remain comfortable in the range of 2.75-3.15 times in FY2021 and LTV (loan-to-asset value) in the range of 15-17.5 per cent. Low initial leverage provides financial flexibility to fund the future construction and acquisitions," it said.






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    (What's moving Sensex and Nifty Track latest market news, stock tips and expert advice, on ETMarkets. Also, ETMarkets.com is now on Telegram. For fastest news alerts on financial markets, investment strategies and stocks alerts, subscribe to our Telegram feeds .)

    Download The Economic Times News App to get Daily Market Updates & Live Business News.

    Subscribe to The Economic Times Prime and read the Economic Times ePaper Online.and Sensex Today.

    Top Trending Stocks: SBI Share Price, Axis Bank Share Price, HDFC Bank Share Price, Infosys Share Price, Wipro Share Price, NTPC Share Price

    ...more
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