Nexus Select Trust REIT IPO envisages to raise Rs 3,200 which comprises fresh issue of units up to ₹1,400 crore and an offer for sale of up to ₹1,800 crore. The company has fixed the price band at Rs 95 per unit to Rs 100 per unit. Nexus Select Trust REIT will be the 4th REIT to list on the bourses. Unlike the three currently listed REITs i.e. Embassy, Mindspace and Brookfield India that own office spaces, Nexus Select Trust REIT is into retail spaces. Nexus REIT’s Sponsor is a portfolio company of Blackstone real estate funds. Blackstone is among world’s leading investment firms with exposure multiple alternate asset classes including real estate, private equity, infrastructure, life sciences, growth equity, credit, real assets and secondary funds.
| IPO opens | May 9, 2023 |
| IPO Closes | May 11, 2023 |
| IPO Size (Rs.) | ₹ 3,200 Cr (Fresh Issue ₹1400 Cr & OFS ₹ 1800 Cr) |
| IPO Size (units) | 32 Cr Units |
| Face Value: | ₹10 |
| IPO Pricebin Rs : | ₹ 95 – 100 |
| Minimum Lot | 150 Units |
| Institutional Investors | Not more than 75% |
| Non-Institutional Investors | Not less than 25% |
| Lead Manager | Axis Capital, BofA Securities, Citigroup Global, HSBC Securities, IIFL Securities, JM Financial, J P Morgan India, etc. |
| Sponsor: | Wynford Investments Ltd (a portfolio company of a Blackstone Inc REIT.) |
| Manager: | Nexus Select Mall Management Pvt Ltd Pvt Ltd |
| Trustee: | Axis Trustees Services Ltd |
| Registrar | Kfin |
Basis of Allotment
Allocation to Bidders in all categories, except Anchor Investor Portion, shall be made on a proportionate basis within the specified investor categories and the number of Units Allotted shall be rounded off to the nearest integer, subject to minimum Allotment in accordance with the REIT Regulations and the SEBI Guidelines.
Nexus Select Trust REIT IPO: Anchor Investors
Nexus Select Trust has raised Rs 1,440 crore from anchor investors, which included many mutual fund and insurance companies. Nexus Select Trust allotted shares to 20 anchor investors which included names like HDFC Trustee Co., SBI Life Insurance Co., ICICI Prudential,, HDFC Life Insurance Co., Reliance General Insurance Co. and Morgan Stanley etc. HDFC group overall has subscribed about 30% of the anchor issue (includes insurance arm)
About REIT
REITs are investment vehicles that can be used by real estate players to attract private investment, while investors (both retail and institutional) can gain dividends generated from income-producing real estate assets like office buildings, shopping malls, etc. They are similar to mutual funds which provide opportunity to invest in equity stocks, whereas REITs allow one to invest in income-generating real estate assets.
Sebi had notified REIT’s regulations in 2014, allowing setting up and listing of such trusts, which are popular in advanced markets. SEBI requirements mandate
- REIT must invest not less than 80% of the value of its assets in completed and rent and/ or income generating properties.
- Not more than 20% of the value of its assets may only be invested in certain permitted forms of investments which include, among other things, under construction properties, completed but not rent generating properties, listed or unlisted debt of companies etc.
- A minimum of 90% of net distributable cash flow to be compulsorily distributed among unit-holders, once every 6 months. The existing REITs have been following quarterly distributions.
About Nexus Select Trust REIT:
- Portfolio comprises 17 best-in-class Grade A urban consumption center’s with a total Leasable Area of 9.2 msf, two complementary hotel assets (354 keys) and three office assets (1.3 msf) as of December 31, 2022.
- The Nexus Select Trust portfolio is located in prominent cities of India (Ahmedabad, Amritsar, Bengaluru, Bhubaneswar, Chandigarh, Chennai, Delhi, Hyderabad, Indore, Mangaluru, Mysuru, Navi Mumbai, Pune and Udaipur) which includes key metropolitans, financial hubs, capital cities, education hubs, major tourist and technology hubs. These cities contribute to 30.0% of discretionary retail spend in India. as an example its Select Citywalk in Delhi generates the highest sales per sq ft in the country and is home to some of the top brands in the country.
- Nexus Select Trust Portfolio has a tenant base of 1,044 domestic and international brands with 2,893 stores as of December 31, 2022 and is well diversified across cities with no single asset and tenant contributing more than 18.3% and 2.8% of the total Gross Rentals for the month of December 31, 2022, respectively.
- Post listing, Dalip Sehgal, who is the CEO of Nexus Malls, will head the REIT and Arjun Sharma, the promoter of the Select Group, will join the board of the REIT.
The relationship between the Nexus Select Trust, the Trustee, the Manager and the Unitholders (which includes the Sponsor
and the Sponsor Group)
Nexus Select Trust REIT: Financials
| Financial performance/ (Rs. cr) | 9MFY23 | FY22 | FY21 | FY20 |
| Revenue from operations | 1,463 | 1,318 | 907 | 1,622 |
| Expenses | 564 | 540 | 435 | |
| EBITDA | 934 | 858 | 613 | |
| Finance costs | 421 | 524 | 553 | |
| Depreciation & amortization | 175 | 243 | 251 | |
| Profit before tax | 343 | 94 | -194 | |
| Tax | 99 | 78 | 39 | |
| Profit after tax | 257 | -11 | -199 |
Nexus Select Trust REIT : Pros
- The portfolio is well diversified across cities, with no single asset and tenant contributing more than 18.3% and 2.8% of the total Gross Rentals for December 31, 2022, respectively.
- It leased 4.2 msf, added 408 new brands to their tenant base and achieved average Re-leasing Spreads of 19.2% on approximately 2.9 msf of re-leased space
- Nexus Select Trust portfolio is highly stabilized, with a committed occupancy of 96.2% and 5.7-year WALE (weighted average lease expiry) as of December 31, 2022.
- It has consistently maintained over 90% Same-store Committed Occupancy between January 1, 2018 and June 30, 2022.
- Achieved 11% CAGR3 in tenant sales between FY18 to FY20 through strong marketing and consumer outreach initiatives;
- It has Increased the Portfolio by 4.6 msf through strategic acquisitions and accretive build-outs of their urban consumption centres;
- Undertook strategic initiatives to upgrade their urban consumption centres, including 8 food courts, 5 atriums and 6 facades. They also proactively engaged with tenants resulting in tenants incurring significant capital expenditure to upgrade over 283 stores totaling 1.8 msf;
- Implemented over 50 ESG initiatives including renewable power plants and COVID-19 vaccination campaigns, which resulted in their Portfolio receiving a Global Real Estate Sustainability Benchmark (GRESB) score of 76% as of 2022, and obtained Platinum/Gold Indian Green Building Council (“IGBC”) ratings across 16 urban consumption centres and 2 hotel assets in their Portfolio as of March 31, 2023
Nexus Select Trust REIT: Cons
- In an rising interest rate scenario, there would be pressure faced due to high financial cost.
- A decline in footfalls in its urban consumption centres has in the past, and may in the future, adversely affect its revenues.
Nexus Select Trust REIT: Yield Guidance
- As per indication given be management the distribution on the IPO price is likely to be in range of 8.25% .p.a. for FY24 (. about 3/4th is likely to be tax-free. Mangement has indicated 7.1 % post tax returns.
- For FY25E, the expected return is 8.6% pa.
- Nexus plans to distribute 100% of the net distributable cash flow (NDCF) among the unit holders, at quarterly intervals in line with other listed REITs and against regulatory requirement of minimum 90% distribution at semi-annual intervals.
Nexus Select Trust REIT : Assessment
- REIT is an investment tool that owns and operates rent-yielding real estate assets and allows individual investors to make investment in this platform and earn income.
- REIT IPO should not be viewed like other IPOs as the product is close to a a fixed income product with return usually better than FD & and a very small possible uptick like equity.
- This is the 4th IPO of a REIT in the country, the first one Embassy REIT came in the year 2019 and second was Mindspace Business Parks REIT in 2020. The last one was Brookfield REIT.
- They did reasonably well on bourses till they were spooked by rising interest costs and finally by union budget few months back. some changes in Union budget were later relaxed through amendments.
- Nexus Select Trust has first mover advantage in the retail consumption space.
- The Indian market is under-penetrated with organised brick-and-mortar retail forming 7.3% of overall retail in FY22.
- The segment is expected to grow at 23 % CAGR until FY25.
- This REIT is s well-positioned to benefit from the consumption tailwinds of India’s growing middle class and rapid urbanization as owner of India’s leading consumption centre platform of high-quality assets in a country with growing middle class.
- Bulk of the offer-for-sale component amounting to ₹1,800 crore is from the main sponsor Blackstone.
- The company’s retail portfolio includes Select Citywalk Mall in South Delhi, which is one of the most successful shopping malls in the country with the highest performing assets based on tenant sales per square foot.
- For 9 months of FY23 ended on December 31, 2022, it earned a net profit of Rs. 257.02 cr. on a turnover of Rs. 1498.35 cr. and has thus overshot FY20’s full year’s net. This also indicates a good trend going forward with the changed consumer sentiments after the pandemic and good growth in retail consumption in India.
- Company’s total net operating income (NOI) is projected to grow organically by 17 per cent to Rs 1,897.1 crore in 2025-26 from Rs 1,619.8 crore in 2023-24. In the first nine-month of the last fiscal, the NOI stood at about Rs 1,050 crore.
- Further the company is well-positioned to scale inorganically driven by strong balance sheet.
- Key Net Operating Income (NOI) growth drivers and indicated trend is depicted below:
- Nexus REIT has been assigned an issuer rating of Provisional [ICRA] AAA (Stable) by ICRA Ltd and a corporate credit rating of Provisional CRISIL AAA (Stable) by CRISIL
- REIT prices decline in the scenario where interest rates rise and vice versa. Since interest rates may now be near to the peak there is less risk of capital decline over the medium few years for the REIT.
- Out of the net proceeds of the fresh issue, Nexus Select Trust will use Rs. 250 cr. cr. for partial or full repayment/prepayment of debt securities, Rs. 1050 cr. for the acquisition of stake and redemption of debt securities in certain Asset SPVs, and the rest for general corporate purposes.
- investor-friendly gesture of low pricing and convenient minimum lot 150 shares.
- Based on the pricing, investors would get ongoing return of 8.25 per cent pre-tax and 7.1 per cent post-tax in terms of the likely distributions made by the REIT.
- With the projected annual net profit growth in the near term expected at 8-9 per cent, this could potentially translate into a commensurate upside for the investor every year as capital appreciation.
- It is gathered that there no substantial activity in Grey Market for Nexus Select Trust REIT IPO issue. The GMP reported at some places is Rs. 5/-.
- I am likely to subscribe to the Brookfield REIT IPO. This is primarily to diversify one’s portfolio, Tax benefits in future as dividend will tax free and provide some exposure to this instrument which is a proxy to investment in income generating commercial real estate sector. There is need to keep watch on subscription figures while doing so.
- I intend to apply in Nexus Select Trust REIT IPO. This is primarily to diversify one’s portfolio and some tax benefits which make it attractive. I expect the Nexus Select Trust REIT IPO to be subscribed fully on Day 2 and based on this intend to apply on Day 3 to decide on the quantum of application to be put in this IPO.
- Listing gains are not certain but my expectation is of low single digit listing gain on listing of Nexus Select Trust REIT IPO.
- Nexus Select Trust IPO is suitable to those investors who want to diversify their investment and can invest that part of their portfolio that they would otherwise be parking in debt Mutual Funds, FD or in real estate.
- Like other REIT IPOs, there is no separate quota for retail in Nexus Select Trust REIT IPO and is clubbed with Non Institutional portion with allotment being in proportionate method.
- Among the alterative investments, Invits like Indigrid, IRB Invit, Powergrid Invit are bound to offer superior yields due to difference in underlying assets. Still this REIT offers good diversification and tax structure helps to bridge some gap.
- Other listed REITS like Embassy, Mindspace, Brookfield India, are trading at yields of 6.0-7.2% which gives some edge to Nexus Select Trust REIT IPO.
Standard disclaimer: I am not a SEBI registered analyst and above analysis is for educational purpose only. Iam a postgraduate in engineering & Management . Also Certified in some exams like NISM-Series-V-A: Mutual Fund Distributors Certification, NISM-Series-X-A: Investment Adviser (Level 1) Certification and NISM-Series-X-B: Investment Adviser (Level 2) Examination. This post is my view on the subject matter and is only academic and exploratory in nature. It is not meant to influence investment decisions of investors. I may have bias/vested interest in covered Stock/Mutual Funds/NCD etc. due to my own investment or leaning. Further my understanding of the areas on which I write may be imperfect or incomplete and data could be wrong due to limited time and resources at my disposal. Please do your own due diligence as stock market/MF investments have high degree of inherent risk.