Mutual Funds Commodities Research Tax Planning IPO Our Team Contact Us  
Google
Web www.equitybulls.com
Research

| More

Real Estate - REITs: On the cusp of a rebound - ICICI Securities

Posted On: 2021-08-18 06:06:23 (Time Zone: UTC)


Indian REITs saw strong rental collections of over 99% in Q1FY22 and were able to achieve healthy re-leasing spreads along with contractual escalations. However, overall portfolio vacancy levels increased by another 100-200bps QoQ owing to continued Work-from-Home and second Covid wave leading to deferment of leasing decisions by occupiers. While vacancy levels may rise further in Q2FY22, we expect this trend to reverse from H2FY22E assuming that the pick-up in vaccinations is accompanied by a gradual return to offices. Factoring in incremental vacancy levels rising by 200-300bps in H1FY22 and building in a recovery towards the end of Q3FY22 (Dec'21), we expect the three REITs (Embassy/Mindspace/Brookfield) to offer distribution yields of 6-9% over FY22-24E along with 12-18% capital appreciation as per current Isec target prices. While a rise in global interest rates is the key risk, cumulative potential returns of 20-24% provides adequate valuation cushion, in our view.

- Vacancy levels rise further by 100-200bps in Q1FY22: Post the onset of the first Covid wave in India from Mar'20 (Q1CY20), pan-India Grade A vacancy levels across India's top 7 cities have risen by over 300bps till June'21 (Q1FY22) to 16.6%. In line with industry trends, portfolio vacancy levels had risen by 400-600bps on same-store basis for Embassy REIT, Mindspace REIT and DLF in FY21 while Brookfield REIT retained flattish occupancy levels in H2FY21. This was owing to exits by tenants for scheduled expiries and early exits as well. In Q1FY22, overall portfolio vacancy levels increased further by 100-200bps QoQ on same-store basis for Brookfield REIT, Mindspace REIT and DLF, while Embassy REIT retained flattish occupancy levels.

- Recovery on the cards from H2FY22: While the second Covid wave may lead to further rise in vacancy levels in Q2FY22, we expect this trend to reverse from H2FY22E assuming that vaccinations pick up accompanied by a gradual return to offices and possible pick up in international travel. Commentary from REIT managers and other large office developers indicate that leasing discussions which were on hold owing to the second Covid wave have now been revived again with existing occupiers talking about potential expansion and tenants who were looking to surrender space earlier looking to retain and possibly expand space.

- REITs offer attractive yields of 6-9% over FY22-24E: We have factored in a fall in occupancy levels of 200-300bps for the REITs in FY22E but expect the same to reverse by the end of Q3FY22 (Dec'21) with a full-fledged recovery from FY23E. We expect the three REITs to offer distribution yields of 6-9% over FY22-24E along with 12-18% capital appreciation as per current target prices. While a rise in global interest rates is the key risk, cumulative potential returns of 20-24% provides adequate valuation cushion, in our view.

- Conversion of ZCBs to coupon bearing debt to optically impact Embassy REIT yields: The Embassy REIT had issued zero-coupon bonds (ZCBs) of Rs36.5bn in May'19 at an annual coupon of 9.3%. While these ZCBs were due for maturity in Jun'22 and the REIT manager's earlier intent was to refinance these as a ZCB on maturity (amortized cost of Rs47bn), the REIT manager has now indicated its intent to convert these ZCBs into a coupon bearing debt in Nov'21 at ~7% annual coupon. While our revenue/NOI/SPV NDCF estimates remain unchanged, the conversion of Rs45bn of ZCBs (fully amortized cost) to a coupon bearing bond will result in lower REIT NDCF distribution of Rs1.4bn in FY22E (Rs1.5/unit) and Rs3.2bn each in FY23E and FY24E (Rs3.3/unit).


Source: Equity Bulls

Click here to send ur comments or to feedback@equitybulls.com


Disclaimer:The article above is a gist / extract of the original report prepared by the research firm / brokerage firm. This article is not to be considered as an offer to sell or a solicitation to buy any securities. This article is meant for general information only. www.equitybulls.com, its employees or owners or the research firms, its employees or owners won't be responsible for any liability that may arise from information, errors or omissions in these articles. www.equitybulls.com or its employees or owners / the research firms or its employees or clients or owners may from time to time hold positions in securities referred in this article. For detailed research reports, please contact the concerned research firm directly.


Other Headlines:

Automobile Sector - Monthly Quick View - Aug'21 - Mixed Performance across Segments - Reliance Securities

Axis Securities initiating coverage on ICICI Securities

Company Update - Minda Corporation - Q1FY22 - ICICI Direct

Quant Pick - PVR Ltd - ICICI Direct

Quant Pick - ONGC - ICICI Direct

Peak in the headline wholesale inflation is behind us - WPI August 2021 - Acuité Ratings

Sansera Engineering - IPO - Strong Outlook with Steady Cash Flow - Reliance Securities

APL Apollo Tubes - Journey from a semi-commodity player to a branded one - HDFC Securities

Nazara Technologies Ltd - Upbeat in medium-term, Uncertain over Long-term - YES Securities

IPO Review - Sansera Engineering Ltd - ICICI Direct

Overall index is still 0.3% lower than the pre-pandemic levels - IIP July 2021

YES SECURITIES on Monthly General Insurance & Mutual Funds Data

India urban logistics spaces expected to cross 7 million sq. ft by 2022: JLL

Neogen Chemicals - Breaking into the next orbit with a bang - HDFC Securities

Gladiator Stocks - Bharti Airtel Ltd - ICICI Direct

Gladiator Stocks - V-Guard - ICICI Direct

Balkrishna Industries - Industry export growth accelerates - ICICI Securities

HDFC Life Insurance - Exide Life Acquisition - Maintain ADD - YES Securities

Gladiator Stocks - Grindwell Norton - ICICI Direct

Gladiator Stocks - Godrej Properties - ICICI Direct

Monthly Auto Volumes - August 2021 - ICICI Direct

Stock Tales - Easy Trip Planners - ICICI Direct

IPO Review - Vijaya Diagnostic Centre Ltd - ICICI Direct

AU Small Finance Bank - Attrition at top level remains key challenge; business momentum sustained in Jul/Aug'21 - ICICI Securities

Gladiator Stocks - State Bank of India - ICICI Direct

Gladiator Stocks - PNC Infratech - ICICI Direct

Vijaya Diagnostic Centre Ltd - IPO Note - YES Securities

Consumer Durables Sector - Lockdown mars performance yet again - Institutional Research Desk at HDFC Securities

75% of the employees today want to be in office at least once a week as compared to 52% in October 2020: JLL

Gladiator Stocks - Safari Industries - ICICI Direct

Gladiator Stocks - Interglobe Aviation - ICICI Direct

IPO Review - Ami Organics Ltd - ICICI Direct

Q1FY22 GDP - 31st Aug 2021 - Acuité Ratings & Research

Avanti Feeds - Higher input prices hurt margins - ICICI Securities

Company Update - Restructuring - Aarti Industries - ICICI Direct

Q1FY22 Company Update - MM Forgings - ICICI Direct

Company Update - Arvind Fashions - ICICI Direct

Zomato - Can margins and multiples surprise? - ICICI Securities

Ujjivan Small Finance Bank - Top management change and lumpy provisioning concern to weigh on valuation in near term - ICICI Securities

Bharat Dynamics - Guided missile systems to drive orderbook and profit growth - ICICI Securities

Economy - Continued accommodation necessary despite inflationary risks: MPC minutes - ICICI Securities

InterGlobe Aviation - Annual report analysis: Liquidity management remains the mainstay in anticipation of traffic recovery - ICICI Securities

General insurance - Health remains dominant growth driver; Strong all-round performance by Bajaj Allianz - ICICI Securities

Earnings Wrap Q1FY22: Resilient earnings, limited impact of second Covid wave - ICICI Direct

Fine Organic Industries Results Review - In-line performance - HDFC Securities

Power Plus Sector Update - July witnessed strong ~10% generation growth - HDFC Securities

Information Technology Sector Update - 'Hit Refresh' - HDFC Securities

Maintain ADD on JK Cement - Healthy performance - HDFC Securities

Maintain BUY on Star Cement - Margin recovers on pricing gain - HDFC Securities

Maintain BUY on Sadbhav Engineering - Long road to recovery - HDFC Securities


Website Created & Maintained by : Chennai Scripts
West Mambalam, Chennai - 600 033,
Tamil Nadu, India

disclaimer copyright © 2005 - 2020