Mindspace Business Parks REIT IPO

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Mindspace Business Parks is coming up with an IPO in the form of Real Estate Investment Trust. This would be the second REIT to be listed in India after Embassy Park got listed in 2019. The issue price of Embassy was 300 and as on 20.07.2020,it is trading at 344. Moreover, it has also paid regular dividend of total Rs. 8.12 till date from listing. So overall returns are quite good. As per SEBI rule, all the InviT has to distribute 90% of their net income to all the eligible shareholders.

REIT concept is very easy to understand.
Suppose, there is a very famous place near by your house where if mall is constructed, it will give huge footfalls and can be a good source of earning for developer. Now you also want to invest in this mall and want to earn a share of revenue which will come once this mall becomes operational. Now, if you simply go the builder and say, look i want to invest 1Lakh in your project, there is 100% chance that he will not take your investment because there is no structure involved here.

So, what is the solution?

The solution is REIT.

REIT will collect money from the shareholders, invest in the real estate projects, develop it and start earning rental income from it. In REITs, 90% of the rental income left after deducting all the operational expenses to manage trust will be distributed among shareholders. A REIT gives investors, big or small, the golden opportunity to hold shares of the real estate investment trust by investing in it, thereby benefiting them through good returns on the investment.

Portfolio of Mindspace:
1. They own a quality office portfolio located in four key office markets of India.

2. The Portfolio has a Total Leasable Area of 29.5 msf and is one of the largest Grade-A office portfolios in India.

Out of this 29.5 million square foot, leaseable area, 12million sqf. is in Mumbai and 11.6 million sqf. is in Hyderabad. So, their lease property is mostly concentrated in these two regions.

3. The portfolio comprises 23.0 msf of Completed Area, 2.8 msf of Under Construction Area and 3.6 msf of Future Development Area, as of March 31, 2020.

The Portfolio is located in the Mumbai Region, Hyderabad, Pune and Chennai which are amongst the key office markets of India.

As of March 31, 2020, the Portfolio is well diversified with 172 tenants and no single tenant contributed more than 7.7% of the Gross Contracted Rentals. Furthermore, as of March 31, 2020, approximately 84.9% of the Gross Contracted Rentals were derived from leading multinational corporations and approximately 39.4% from Fortune 500 companies. The tenant base comprises a mix of multinational and Indian corporates, including affiliates of Accenture, Qualcomm, BA Continuum, JP Morgan, Amazon, Schlumberger, UBS, Capgemini, Facebook, Barclays and BNY Mellon.

Revenue from Regions

Property Location Revenue Property Value
Mumbai 660 Crores 9202 Crores
Hyderabad 623 Crores 9057 Crores
Pune 482 Crores 4268 Crores
Chennai 0 Crores 594 Crores

Team that will manage REIT
REIT will be managed by Mr. Vinod Rohira, the chief executive officer, who has approximately 20 years of experience in the real estate industry and supported by a seven-member core team with experience in operating, developing, leasing and managing commercial real estate in India. The Sponsors are part of the KRC group, a leading real estate company in India with approximately four decades of experience in developing and managing real estate in India.

3 Important Factors to look in REIT as an investor.
1. CAGR growth in the rental income over the years.

As per RHP, rentals in the Top Six Indian Markets have grown at a CAGR of 5.0% between 2014 and Q1 2020, which is pretty decent looking at the problems faced by real estate.

2. Vacancy level of the property. It is the difference between the supply of units and the demand for units.

The vacancy level which was around 15% in 2015 has been reduced to 10.2% in Q1FY20. This shows that the mismatch between supply and demand is reducing.

3. Appreciation in the price of the property.

40% of Mindspace property concentrated in Hyderabad and the real estate market of Hyderabad is growing well. So this will augur well in the future.

Objects of the Mindspace Business Parks REIT IPO:

1. Initial Offer aggregating up to ₹ 4500 Crores which consist of fresh issues of ₹ 1000 Crores, and the Offer for Sale of up to 3500 Crores. 2. Money raised via IPO proceeds will be utilized for partial or full pre-payment or scheduled repayment of certain debt facilities of the Asset SPVs availed from banks/financial institutions.

Mindspace Business Parks REIT IPO Details:

Open Date: Jul 27 2020
Close Date: Jul 29 2020
Issue Type: Book Building
Lot Size: 200 Shares
Issue Price: ₹ 274-275 Per Equity Share
Listing At: NSE,BSE
Listing Date: Aug 12 2020

Promoters And Management:

In REIT, there is a concept of the sponsor, who runs and manages the REIT. 1. Sponsors of Mindspace REIT are ACL and CTL. Both the Sponsors are LLPs incorporated under the LLP Act, at Mumbai, Maharashtra, India. 2. Both ACL and CTL form part of the KRC group, which is one of India’s leading real estate development and retail business groups, with experience of over four decades in developing and operating assets across commercial, hospitality, retail, malls and residential segments. KRC group has acquired and/or developed properties across various businesses of approximately 28.5 million square feet of commercial real estate, as of March 31, 2020.

Financials of Mindspace Business Parks REIT IPO:

(figures in crores)
Year Revenue EBITDA OPM PAT NPM NW RONW
2018 1,502.20 1,024.90 68% 161.00 11% 1,357.30 12%
2019 1,679.70 1,261.40 75% 515.40 31% 1,847.00 28%
2020 2,026.20 1,371.80 68% 513.90 25% 2,291.50 22%
CAGR 16% 16% 79%

Comparison With Peers:

As per RHP, there is only one REIT that is listed in the market i.e. Embassy Office Parks REIT. Embassy Office has an NAV of 374 per share.

Recommendation on Mindspace Business Parks REIT IPO:

Review and Recommendation of InvestorZone are 5/10. 1. Mindspace REIT's current NAV as on 31.03.2020 stands at 319.5 per share. The issue price is available at a discount of 15% to this NAV. 2. The minimum lot size is Rs. 54800 (200 lot size * 274). So this might be the issue for retail investors. 3. Mindspace ~40% property in Hyderabad augur well for the company. The real estate market of Hyderabad is doing well. And property prices aren't appreciated much as compared to other property markets like Delhi or Mumbai. So price appreciation scope is available for the Mindspace. 4. With Covid-19 and WFH announced by many IT companies, we may see a fall in demand for office space of these REITs. But on the contrary, post-covid, the better and good hygiene buildings will come in demand. Therefore, the next 6 months will tell the actual picture of the demands for these REITs. 5. As an investor, it is a good opportunity to invest in an alternate segment of the commercial Real estate through REIT as 90% of the cash flow has to be distributed among unitholders. So, dual advantage, dividend, and price appreciation.

Registrar of Mindspace Business Parks REIT IPO:

  1. Kfin Technology Private Limited

Discussion on Mindspace Business Parks REIT IPO:

    Listing gain of 10%… Congrats to all the investors.

    Only 3.2% or 1.9 Crore units are with individuals as per the new shareholding pattern. Those who got the allotment shouldn’t sell in hurry. Just a friendly suggestion. All the best for tomorrow’s listing!!

    Symbol- MINDSPACE
    Name of the Entity- Mindspace Business Parks REIT
    Series- RR
    ISIN -INE0CCU25019
    LISTING TOMORROW
    Pre open- 9am to 10am
    Issue Price for the current public issue Rs. 275/- per Unit

    Mindspace REIT Listing on Friday..7th August 2020.

    Mr. M Wizard sir, any idea about no. of applications received in NII category?

    In non-institution, we can have more than 10x subscription

    There is no special quota for HNI or Retail in Mindspace.

    They all will get shares on proportionate basis. And minimum lot size is 200.

    There is hardly any grey activity in this issue.

    Those who wants to take risk can apply under HNI category to get allotment..

    But yes, we have to see the subscription figure on final day to be more clear on that front.

    1. Offer Size- 4500 Crores

    2. Strategic Investors – 1125 Crores

    3. Offer Size – 3375 Crores

    4. QIB = 75% quota

    5. Other Investors = 25% quota

    Tomorrow morning I will complete all the details.

    Due to Covid-19, the real estate is facing a lot of issues for both the Residential and Commercial sectors.

    Short-term Problem

    1. Uncertainty of demand for larger space to continue for the upcoming three to six quarters.

    2. Construction delays to affect future market supply.

    Positives in Long-term

    1. Preference to operate from secured office environments because of concerns of data security in work from home.

    2. India could be a beneficiary of some of the global business relocation due to cost advantages – Low rentals and availability of large talent pool.

    3. Densification of occupancy to reduce due to safe distancing norms may lead to incremental demand in the medium term.

    Mindspace REIT was registered with SEBI on December 10, 2019, at Mumbai as a REIT

    As on the date of this Offer Document:

    1. CTL and ACL are the sponsors of Mindspace REIT.

    2. K Raheja Corp Investment Managers LLP (held by Mr. Ravi C. Raheja and Mr. Neel C. Raheja, as the
    partners) has been appointed as the Manager to Mindspace REIT.

    3. Axis Trustee Services Limited has been appointed as the Trustee to Mindspace REIT.