New leases are expected to come at higher rents given a 22.5 per cent difference between existing rents and market values.
Mindspace Business Parks Real Estate
Investment Trust (REIT) is a play on higher yields from a steady rent-generating portfolio. The REIT, promoted by K Raheja Corp Group (KRC Group), has a completed commercial portfolio of 23 million square feet across key office markets
of Hyderabad, Mumbai, Pune, and Chennai. The company generated net operating income (NOI) of Rs 1,225 crore for FY20. It has grown its NOI at 11-14 per cent over the past two financial years. For FY21, it has indicated a net distributable cash flow (NDCF) of Rs 574 crore for the second half of FY21. NDCF is the amount available to the REIT
for distribution in the form of dividends to unitholders; the REIT
has to distribute at least 90 per cent of NDCF on a semi-annual basis. For FY21, on an annualised basis, the yield in the Rs 274-275 price band works out to 7 per cent. The REIT
estimates yields to be at 7.5 per cent in FY22 and 8 per cent in FY23. Returns from rental assets are a function of increasing NOI. Over the FY20-23 period, the company expects this metric to increase 17 per cent annually to just under Rs 2,000 crore, from the FY20 level of Rs 1,225 crore.
Increase in rentals of existing lease contracts by 12-15 per cent over a three-five-year period, forms the largest chunk of revenue growth at 40 per cent. Leasing of existing vacant premises, assets under development and contract renewals are the other sources of revenue growth over the next three years.
New leases are expected to come at higher rents given a 22.5 per cent difference between existing rents and market values. While a quarter of the rental contracts expiring over FY21-23 period could offer a mark-to-market re-leasing opportunity, given the weak market conditions, getting tenants to opt for escalations could be a tough ask. While MNC clients tend to be sticky, are particular about security issues and the outsourcing trends continue to be steady, the work-from-home trend for some staff could put downward pressure on new leases. Mohit Agrawal of IIFL Securities believes that a persistent pandemic will be a key risk to rental growth and vacancies, especially for contracts that are nearing expiry.