Updated: Apr 14, 2022
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Real Estate Investment Trusts or REITs are a relatively new concept in India. REIT is an attractive product for investors seeking an alpha on fixed deposits with return being dividend plus price appreciation. Currently, there are 3 REITs in India, namely Embassy Office Parks, Mindspace Business Parks and Brookfield India Real Estate Trust and a fourth one by the name of DCCDL is around the corner.
Out of these, Brookfield India REIT is the only institutionally managed public commercial real estate vehicle in India. The REIT is sponsored by Brookfield Asset Management, which is one of the world’s largest asset management companies, with nearly USD 626 billion in assets under management. With nearly 150,000 employees working for the company in more than 30 countries, it is safe to say that they have quite the global presence. Listed on the New York and Toronto stock exchanges, the company has a market capitalization of over USD 80 billion.
Brookfield India REIT enjoys ownership of high quality office parks in key locations such as Powai, Mumbai and Rajarhat, Kolkata. Cumulatively, the company has nearly 29 million square feet of assets, out of which 22 million is operational and 7 million is set to be developed. Another 18 million square feet of area in Bangalore under Brookfield Asset Management might get transferred to the REIT as well.
Pipeline additions to the portfolio include assets in Gurgaon, Noida, Mumbai and Bangalore. Once the acquisition of identified assets is complete, Brookfield REIT would have a presence in 6 out of the top 7 office cities of India. This massive presence across the country helps in the tenant management of large firms like TCS, Accenture, and Cognizant.
With an average portfolio rental price of 65 rupees per square feet each month, the REIT’s assets operate at price points that attract bulk of the office tenants in India and have a significant lease life and hence risk of sudden jump in vacancy levels is low.
So, what is our view on the company valuation?
If the COVID situation does not cause an increase in vacancies, Brookfield REIT can deliver a 8% dividend yield, which is excellent for investors.. Unit price appreciation has led to yield compression from 9% at the end of last quarter to 8% currently and hence capital appreciation in unit price over the next 2-3 quarters may be limited.
The potential of another 25 million square feet being added to the operational portfolio can however, allow the REIT to grow to a large cap stock.
As for the risks to the analysis, Interest Rates hardening could pose a problem for the REIT. Unit prices could fall due to a decline in the extra yield over fixed deposits. COVID and permanent work from home patterns also pose a huge problem, as it could stagnate the growth in revenues for the REIT.
So, would you invest in Brookfield India REIT?
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