Kotak Institutional initiates coverage on Mindspace REIT with ‘Add’ rating


Kotak Institutional Equities has initiated coverage on India’s second real estate investment trust Mindspace Business Parks REIT with an ‘Add’ rating at a fair value of Rs 330 per share due to its 6.7% yield and expectation of a sustainable growth trajectory over the next decade.

Mindspace REIT was trading down 0.12% at Rs 305.6 in afternoon trade.

Mindspace REIT offers investors an opportunity to invest in 29.5 million square feet of office space spread over four markets of Hyderabad, Mumbai region, Pune and Chennai.

The brokerage is projecting a 15% compounded growth in net operating income between FY20 and FY23 to Rs 1,700 crore.

“Mindspace REIT had revenues of Rs 15.5 billion (Rs 1,550 crore) in FY2020 that is estimated to accelerate to Rs 24 billion (Rs 2,400 crore) by FY2023, consequently leading to improvement in NOI to Rs 17 billion (Rs 1,700 crore) by FY2023 from Rs 12 billion (Rs 1,200 crore) in FY2020,” said Kotak Institutional Equities.

“Contractual rent escalations coupled with re-pricing of expiring leases and addition of another 3.5 mn sq. ft of leasable area on an extant asset base of 23 mn sq. ft drives improvement in earnings,” said the brokerage.

Highlighting risks to its call, the brokerage said that a structural weakness in the service sector growth in India or over-investment in commercial real estate leading to a drop in occupancy levels, and slower-than-expected growth in rental incomes may pose a risk for the growing annuities such as those of Mindspace REIT.

Regulatory changes that may increase the tax incidence or hinder further property development pose an additional risk to the commercial real estate portfolio of Mindspace REIT, said Kotak Institutional.


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