Global investment firm Blackstone-sponsored Nexus Select Trust REIT's (real estate investment trust) IPO opens today, May 9, 2023, and will close on May 11, 2023. It has fixed a price band for its initial public offering at ₹95-100 per share.
This is India's first REIT IPO and the third REIT to be sponsored by Blackstone. Also, Nexus is the first RIET in the Indian retail consumption space.
REIT is a popular investment vehicle that allows you to invest in income-generating real estate assets. They are registered with the Securities and Exchange Board of India (SEBI) and are managed by a trustee. It helps you generate income from rent or capital appreciation of the underlying real estate assets, which are distributed among the investors in the form of dividends.
The total size of the public issue is ₹3,200 crore, which includes fresh issue of units worth up to ₹1,400 crore and offer for sale (OFS) of up to ₹1,800 crore.
Earlier, the company had planned to raise up to ₹4,000 crore from its proposed REIT public issue. Later, it reduced the size as units are being issued at a discount in the public issue as against the net asset value of ₹127 per unit.
Post IPO, the shareholding of Blackstone in Nexus Select Trust will come down to 43 percent from 60 percent. Select City Walk promoter's stake will reduce slightly to 24.3 percent from 25 percent.
The company's total income for the first nine months of 2022-23 stood at ₹1,498.35 crore and "we are projecting our net income to grow by 17 percent in 2025-26", said Nexus Select Mall CFO Rajesh Deo.
Anchor Investors
Ahead of the IPO, the Nexus REIT raised ₹1,440 crore from anchor investors including HDFC Mutual Fund (MF), SBI MF, HDFC Life Insurance, SBI Life Insurance, Prusik, Morgan Stanley Asia (Singapore) Pte and Tata Investment Corporation, among others.
Objectives
The company's net debt is ₹3,600 crore. The funds raised through the capital will be utilised to pay ₹1,050 crore towards debt. ₹27 crore will be used for acquisitions of a 27 percent stake in Treasure Island and the rest for corporate expenses.
About The Firm
Nexus Select Trust is India’s largest retail (malls) platform of 17 high-quality assets, strategically located in dense residential catchments across 14 prominent cities and is 96 percent leased.
Nexus Select Trust has a portfolio of 17 operational shopping malls, including Delhi's premium Select City Walk, across 14 major cities covering a 9.8 million square feet area. It operates two hotels with 354 keys, and also office spaces as part of mixed-use development.
There are around 3,000 stores across 17 shopping malls while the number of brands is nearly 1,100. The average rental of its retail portfolio is ₹123 per square feet per month, with a maximum rent at nearly ₹500 per square feet at Select City Walk in Saket, South Delhi.
What Brokerages Say:
Most brokerages have assigned a 'subscribe' rating to the REIT IPO on the back of its continued growth, healthy yield potential, marquee tenant base, one-of-a-kind REIT, and reasonable valuations.
Choice Securities - SUBSCRIBE
Nexus has expanded significantly in the last three fiscal and is well-positioned to report continued growth in the future by expanding the tenant base and taking advantage of market opportunities. According to the management, following the utilization of the net proceeds, its leverage will be in a comfortable position, thereby providing it with the flexibility to pursue value-accretive acquisitions in the future, noted the brokerage.
"Based on the fair asset value of ₹25,444 crore, the calculated net asset value per unit is ₹120.9, which is 20.9% higher than the ceiling price of the issue. At a higher price band (i.e. Rs. 100), the calculated pre-tax yield on the investment is around 8 percent (based on FY24E NDCF).
However, as guided by the management, with quarterly 100 percent distribution of NDCF, compounded pre-tax yield is around 8.2 percent, which seems to be reasonable considering the early deflationary trend in the economy. Thus we assign a “SUBSCRIBE” rating for the issue," it said.
ICICI Direct - SUBSCRIBE
"Nexus Select is a quasi-play on consumption through its high-quality retail assets. At the upper band of | 100/unit (the market cap of ₹15150 crore), the issue is at a Price/NAV of 0.78x (December 2022 NAV at ₹127.7/unit).
It is offering a pre-tax yield of 8 percent in FY24, at the upper price band. We assign SUBSCRIBE rating on the back of a) healthy yield potential, b) organic growth opportunities on rent escalation/repricing/releasing and tenant sales and c) potential inorganic growth through assets addition," explained ICICI Direct.
It further stated that the company is well-positioned for strong organic growth through a combination of contractual rent escalations, increased tenant sales leading to higher turnover rentals, re-leasing at higher market rents & lease-up of vacant areas. Nexus is strategically located in prime in-fill locations with high barriers to entry, it added.
Geojit Financial Services - SUBSCRIBE
According to the brokerage, as one of the leading consumption center platforms in India (by completed area), NST’s portfolio is well-positioned to capitalise on strong consumption growth, powered by a marquee tenant base and consumer outreach initiatives. Over the last four years, NST has leased 4.2 msf with the addition of 408 new brands, and achieved an average re-leasing spread of 19.2 percent on 2.9 msf, it further informed.
"The current offering appears to be reasonable at a NAV (Net Asset Value) of Rs.18,310cr (as of Dec 31, 2022) with a current dividend yield of 8 percent, which is higher than fixed deposits & G-sec. Considering the strong growth story in the consumption space, healthy projected net operating income (NOI) growth of 17 percent over FY24-26E, capital appreciation prospects, and healthy balance sheet with a lower LTV ratio, we assign a “Subscribe” rating on a long-term basis," said the brokerage.
BP Equities - SUBSCRIBE
"Nexus Select Trust is the owner of India’s leading consumption center platform of high-quality assets that serve as essential consumption infrastructure for India’s growing middle class. The company’s portfolio offers an attractive opportunity to capitalize on India’s consumption growth through a robust business model and diversified asset base that can serve as a natural hedge against inflation. Further, the quality, scale, and reach of their pan-India portfolio, the superior shopping experience, and holistic retail offering have enabled them to achieve a market-leading position, which makes most of their portfolio assets destinations of choice for leading brands that are looking to expand in India," explained the brokerage.
Moreover, considering the three listed office REITs, Nexus Select Trust offers a differentiated exposure to investors due to its retail assets, it added.
Marwadi Financial Services - SUBSCRIBE
As per the brokerage, the IPO is priced conservatively at a 22 percent discount to the Net Asset Value (NAV) of the units. Post-IPO, the equity value of the trust will be ₹1,51,500 mn and NAV per unit in relation to the offer price shall be 0.78 at the upper price band, it mentioned. Also, based on the pricing, investors would get an ongoing return of 8.3 percent pre-tax and 7.1 percent post-tax in terms of the distributions made by the REIT, observed the brokerage.
"We assign a “Subscribe” rating to this IPO as the company has India’s largest platform of best-in-class assets with a presence in 14 of India’s key consumption cities and strategically located in prime in-fill locations with high barriers to entry. There are no listed real estate investment trusts in the retail sector in India comparable to that of this business," it said.
Risks
- General slowdown in the economic activities
- Unfavorable government policies & regulations
- Sustained higher inflation levels and interest rates
- Lower than expected net distributable cash flows
- Unfavorable cash flow distribution-mix
- Delay or difficulty in expanding the portfolio assets under management
- Competition
