While collections remained steady, rental escalations continued, and vacancies enhanced by 370bps on a SS basis. We think MPPL presents a dilemma, with an chance to lease at one hundred% larger rent at the expense of enhanced vacancies. Maintain ‘buy’, but reduced TP to Rs 380 (from Rs 390).
The great: Rent collections for FY21 remained steady at 99.8%. Rental escalations have remained smooth in FY21, with c8.4msf of region attaining 13% escalation and there is nonetheless space for one more 10% mark-to-marketplace (MTM) on existing marketplace rent for these new rentals. EOP has simplified the holding structure of Manyata (MPPL) SPV, which has resulted in an enhanced share of distribution in the type of dividends, resulting in 78% of the distribution now becoming tax-free of charge for unitholders vs 55% earlier. Two-year forward provide estimates by CBRE continue to come down, now at c89msf, of which EOP believes only 13msf is in comparable/competing markets.
The complicated: Manyata—The crown jewels or crown of thorns. MPPL accounts for c36% of adjusted NOI. From just about a nil vacancy price six quarters back, its vacancy price has enhanced to 6.5%. Over FY22 and FY23, one more 14% of the region leased is up for expiry. There is one more 1msf (despite the fact that c60% pre-committed) that is below building and now most likely to be completed by December 22 (earlier June 22). This implies a total region that will require to be leased more than the next two years of upwards of 3msf. The expiring leases of legacy tenants had typical rentals of Rs 40psfpm vs existing marketplace rentals of Rs 90psfpm, supplying a one hundred% MTM chance for this portion of the portfolio. MPPL was amongst the most sought soon after workplace places and therefore commanded rentals larger than the Bangalore typical. The essential challenge is irrespective of whether to fill up rapidly at low rentals or wait to reach marketplace rentals for this marquee asset. We assume vacancy prices rise to c14% by FY23e for MPPL.
The ugly: 4QFY21 taking total vacancy enhanced by 170bps q-o-q (370bps q-o-q on a similar-retailer (SS) basis) to 11.1% (and 13% on a SS basis). Further, the organization has guided that out of 6% of rentals that are up for expiry, only 2% are most likely to be renewed and the balance will have to be leased out fresh.