TCS, Accenture and Barclays’ landlord, Brookfield REIT IPO, has received a mixed response from brokerages — here’s what they have to say

• Global investment firm, Brookfield Real Estate Investment Trust’s (REIT), public issue has hit the capital market today (February 3) to raise up to ₹3,800 crore.
• The company provides commercial space on rent to multinational corporations such as Barclays, Bank of America Continuum, RBS, Accenture, Tata Consultancy Services and Cognizant.
• The company has incurred losses in FY20 and has not paid out any dividends.
• Check out the latest news and updates on Business Insider.

Global investment firm Brookfield Real Estate Investment Trust’s (REIT) public issue has hit the capital market today (February 3) to raise up to ₹3,800 crore. The company is the third trust in India to go for an initial public offering (IPO) — the other two being Embassy Office Parks REIT and Mindspace Business Parks REIT.

However, the issue hasn’t received any major response in the first three hours of opening. According to the stock-exchange data, the total subscription stood at 2% of the total offer value. Even in the grey market, it failed to garner any response, and it suggested a discounted listing.

The company on Tuesday raised ₹1,710 crore from anchor investors such as HDFC AMC, SBI Life, Tata AIG, HDFC Life, Kotak Mahindra AMC and others, ahead of its public issue.

Brookfield REIT, the country's only 100% institutionally managed public, commercial real estate vehicle has set the price band at ₹274-₹275. The real estate investment trust is sponsored by an affiliate of Brookfield Asset Management (BAM), one of the world’s largest alternative asset managers with approximately $575 billion in assets under management, as of September 2020.

Street view on Brookfield REIT IPO

All you need to know about Brookfield REIT IPO:

• Bids can be made for a minimum lot of 200 units and in multiples of 200 units thereafter by bidders other than the units subscribed for by anchor investors.
• The units are proposed to be listed on BSE and NSE.
• The public issue's net proceeds will be utilised for partial or full pre-payment or scheduled repayment of the existing debt of asset special purpose vehicles.

From marquee multinational clients to weak financials, high debt on books and potential slowdown in demand for commercial space — here's what analysts have to say about the IPO

TCS, BoA, Barclays and Accenture are some of its tenants!

Brookfield REIT’s initial portfolio consists of four large campus-format office parks, located in Mumbai, Gurugram, Noida and Kolkata. And it has a list of marquee tenants -- Barclays, Bank of America Continuum, RBS, Accenture, Tata Consultancy Services and Cognizant -- that have leased the commercial space with 75% of gross contracted rentals. According to Axis Capital, its initial portfolio's completed area has a same-store committed occupancy of 92%.

But the concern could be from the fact that a significant portion of revenue being derived from a limited number of tenants and sectors.

And the operations of the company may be adversely affected if one or more of these large tenants seek to prematurely terminate lease or any of the sectors in which the tenants of its initial portfolio are concentrated.

Mark-to-market headroom provides cash stability

The company has a weighted average lease to expiry 7.1 years, which provides stability to its initial portfolio's cash flows. Other than that, it is also well-positioned to achieve further organic growth through a combination of contractual lease escalations,36% mark-to-market headroom to in-place rents, lease-up of vacant space.

The mark-to-market headroom practice involves adjusting the value of an asset to reflect its value as determined by current market conditions.

Concerns: Weak financials, muted growth and high debt on books

The company has incurred losses in FY20 and has not paid out any dividends, they expect to pay a yield of 7.5% in FY23, which according to Angel Broking is “aggressive” and may be difficult to achieve.

“Post the IPO there will also be a debt reduction of ₹3,575 crore for the company which will bring down the overall debt. However due to the current uncertainties around Covid-19 and proliferation of work from home we expect that demand for commercial real estate to be muted,” the brokerage said. The report further added that it would take a long time for the company to increase its revenue as REIT has under development property of 0.1 marginal standing facility only along with its 92% of committed property which has already been leased out.

The commercial spaces could see slowdown in demand

Commercial office space was the least impacted segment in real estate amid the COVID-19 outbreak. However, other reports have highlighted that the increasing trend in work from home (WFH) can lead to a higher vacancy in key market geographies and can create a slowdown in demand for commercial space in the near term.

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