We initiate coverage on Brookfield India REIT (BREIT) with a Obtain rating based on March 2022 DCF based target value of `296/unit. BREIT is sponsored by the Brookfield Group and has 91% committed very same -shop occupancy and in-location rent of just Rs 65/psf/month. We like the organization provided 9% estimated NOI CAGR more than FY21-23E and with just .1msf of beneath-building assets, the REIT gives a defensive yield play along with organic development in its operational assets. The REIT’s low initial leverage of .3x net debt/equity leaves headroom for injection of new assets in the REIT portfolio. At CMP of Rs 239, we estimate NDCF yield of 9.1% in FY22E and 9.5% in FY23E. Key dangers to our thesis are the big-scale adoption of Work-from-Home by occupiers more than the extended term and increasing interest prices globally.
Quality asset portfolio in tier I workplace markets: BREIT’s initial portfolio of 14.0msf of leasable region contains 10.3msf of completed region, .1msf of beneath improvement region with balance region of 3.7msf for future improvement. The portfolio contains 4 completely integrated workplace parks. The portfolio is spread across 4 cities, namely, The Mumbai Metropolitan Region, Gurugram, Noida and Kolkata. The portfolio is stabilised with 91% Same-Store Committed Occupancy and a Weighted Average Lease Expiry (WALE) of 6.6 years. The REIT has 125 tenants with top rated 10 occupiers contributing 75% of gross contracted rentals. The technologies (50%), economic services (18%) and consulting (18%) sectors account for majority of the REIT’s tenants.
Healthy NOI development CAGR of 9% more than FY21-23E: We count on BREIT’s Net Operating Income (NOI) to develop at a 9% CAGR more than FY21-23E based on the anticipated ramp up in occupancies in current assets, annual rental escalations (4-5% annual escalation in current contracts) and mark-up of leases which are expiring. This excludes any injection of get in touch with choice/RoFo assets. The REIT has reported resilient rental collections of 99% in 9MFY21 (Apr-Dec’20) post onset of Covid-19 (in line with listed peers) and is on track to close .10msf of new leasing in Q4FY21. Further, the REIT is engaged in active conversations on 3.7msf of leasing prospects vs.1.4msf of general initial portfolio vacancy.
India’s extended term positive aspects stay as a higher-high-quality workplace hub. While COVID- 19 will probably influence FY22E leasing activity, our view is that the Indian workplace industry retains quite a few positives such as Limited quantity of 8-10 pan-India developers capable of developing high-quality rental assets India remains one of the more very affordable workplace markets in the world, with typical rentals for Grade A workplace markets in peripheral/suburban markets hovering about 1 USD/psf/month or Rs 70-75/psf/month India leads in STEM (Science, Technology, Engineering, Mathematics) talent for technologies assignments with more than 2 million students graduating each year.