Nexus Select Trust REIT IPO: Analysis

India’s first retail REIT, Nexus Select Trust opens for subscription on 9th May. The company is looking to raise up to Rs 3,200 crores through the public issue. Here are the details:

Nexus Select Trust REIT IPO Details:

• Nexus Select Trust REIT IPO Date: 9th May - 11th May 2023
   
• Nexus Select Trust REIT IPO Price band: Rs 95 - Rs 100
   
• Nexus Select Trust REIT IPO Issue Size: Rs 3,200 crores (Fresh Issue of Rs 1,400 crore and Rs 1,800 crore OFS)
   
• Reservation: QIB - 75% NII - 25% (QIB - Qualified Institutional Buyers, NII - Non - Institutional Investors)
   
• Minimum Order Quantity: 150 shares

Nexus Select Trust REIT IPO: Issue objective

Nexus Select Trust REIT expects to utilize the net proceeds from the IPO to:

• Make part or full repayment or prepayment and redemption of certain financial indebtedness.
• Acquisition of stake and redemption of debt securities in particular Asset Special Purpose Vehicles.
• Other corporate general purposes.

Nexus Select Trust REIT IPO : About Nexus Select Trust REIT

• Nexus Select Trust REIT is India’s first retail REIT. REITs are Real Estate Investment Trusts which invests in rent yielding properties and has a mandate to distribute up to 90% of its income as dividend to shareholders. In the case of Nexus Select Trust, it invests in rent yielding commercial and retail properties to generate value for shareholders.
   
• Nexus Select Trust REIT manages retail properties in 14 cities across India. Notable among them being the Select Citywalk in New Delhi, the Nexus Elante in Chandigarh and Nexus Koramangala in Bengaluru.
   
• Some of the notable tenants in Nexus Select Trust’s properties include Reliance Trends, Marks & Spencer, Shoppers Stop, Pantaloons and PVR Cinemas among others.
   
• As of June 30, 2022, the REIT’s total Leasable Area stood at 9.8 million square feet. This included two complementary hotel assets having 354 keys and three office assets covering an area of 1.3 million square feet.
   
• The Nexus Select Trust REIT is backed by one of the largest asset managers and real estate investors in the world, Blackstone. Notably, as of September 30, 2022, Blackstone’s real estate assets across the globe stood at $319 billion.

Nexus Select Trust REIT IPO : Industry Overview

• Nexus Select Trust remains bullish about the prospects of the Indian economy in the future years which will be characterized by an affluent public and a rising per capita income. Notably, the rising middle class of India over the years has led to higher discretionary spending and this trend is expected to continue which is expected to benefit Nexus in the long term.
   
• The management of Nexus Select Trust remains of the opinion that its properties will continue to witness higher footfall from the younger population of India. With a 27.4% population in the age group of 15-29, the management remains of the opinion that they are more positively disposed to higher consumption and newer trends and Nexus’ tenants precisely caters to this cohort.
   
• Ultimately, the management believes that the company will benefit from the rising urbanization in India too. The urban population of India has risen by 35% at the turn of the millennium to about 57% in the 20 years after. Nexus Select Trust’s properties remain well positioned to serve this rising populace effectively with its high quality tenants offering products and services which have high brand recognition, according to the company.

Nexus Select Trust REIT IPO : Listed Peers

REITs as an asset class are very new in India. However, in recent years some REITs have listed in India in the office space. Interestingly, the other two office REITs are also backed by Blackstone. Let’s have a look at how Nexus Select Trust stacks up against them.
 

(as of June 30, 2022)

Nexus Select Trust IPO: Risks

Low Rental Levels: To attract tenants, Nexus Select Trust offers lower rents to its anchor tenants. However, any adverse company specific development or macroeconomic concerns can hurt demand for these tenants’ products. This in turn can hurt their rent paying ability and negatively impact the rental yields of the properties owned by Nexus.

Concentration Risk: A large proportion of Nexus Select’s properties generate revenue from a handful of tenants. This may give the tenants a leverage in terms of pricing power which can hurt the profitability of Nexus Select. Further, attempts at diversification of tenants may not be fruitful as the new tenants can belong to one of the larger conglomerates, essentially discounting the diversification ploy.

Slowdown in Real Estate Market: A slowdown or recession in the real estate market can adversely affect the operations of Nexus Select Trust. Although, currently the prospects of the real estate market looks promising due to the burgeoning capex cycle in the country, a persistently high interest rate and a subsequent peaking and an eventual downturn in the real estate growth cycle can act as a dampener for the company’s operations.

This is not investment advice. Investments in the securities market are subject to market risk, read all the related documents carefully before investing. Past performance is not indicative of future returns.