IPO Review - Mindspace Business Parks - ICICI Securities

Mindspace Business Parks REIT (Mindspace) owns a quality office portfolio located in four key office markets of India. The portfolio has a total leasable area of 29.5 million square feet (msf) and is one of the largest Grade-A office portfolios in India (Source: C&W Report). 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 trust intends to use a combination of rent commencement from leased out space, which is contracted and has not generated rental income for the full year, contractual rent escalations, lease-up of vacant area, re-leasing at market rents and on-campus development of existing business parks to continue the growth of the portfolio. The portfolio's NOI is projected to grow 59.2% over the projection period (FY23 over FY20), primarily due to these factors.

Investment Rationale

Portfolio with significant scale

Its assets are distinguished by its scale as well as infrastructure and are strategically positioned in locations with strong tenant demand. It further benefits from proximity and connectivity to major business, social and transportation hubs. Some of the business parks are among the largest in their respective portfolio markets - for instance, Mindspace Madhapur and Mindspace Airoli East with a total leasable area of 10.6 msf and 6.8 msf, respectively, are the largest parks in their respective portfolio markets.

Stable cash flows, strong growth potential

The asset portfolio is stabilised with 92.0% committed occupancy (240 bps higher than portfolio markets) and 96.5% same store committed occupancy, as of March 31, 2020. It has demonstrated strong growth over the last three fiscal years, with 7.6 msf of total leasing - with 4.6 msf of new area leased and 3.0 msf of existing area re-leased at a re-leasing spread of 28.9%. The total market value of the portfolio, which comprises market value of the portfolio and the facility management division, as of March 31, 2020, as per the valuer is Rs. 23,675.1 crore.

Diversified, quality tenant base with long-standing relationships

As of March 31, 2020, the trust had 172 tenants, with a weighted average lease expiry (WALE) of 5.8 years, which provide stability to the portfolio. The tenant base is well-diversified with no single tenant contributing more than 7.7% of gross contracted rentals, as of March 31, 2020. In terms of gross contracted rentals, as of March 31, 2020, ~84.9% is attributable to multinational corporations and ~39.4% to Fortune 500 companies.

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Source : Equity Bulls

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