Brookfield India REIT sees tepid listing; what should investors do?

"Though the REIT has incurred losses in FY20 and has not paid out any dividends, they expect to pay a yield of 7.5 percent in FY23, which we believe is aggressive and may be difficult to achieve," he said.

Brookfield India REIT, India's only institutionally managed public commercial real estate vehicle which is sponsored by an affiliate of Brookfield Asset Management, raised Rs 3,800 crore through its public issue during February 3-5.

After the IPO, there will also be a debt reduction of around Rs 3,575 crore, said Yash Gupta.

"However, due to the uncertainties around COVID-19 and proliferation of work from home, we expect that demand for commercial real estate to be muted," he added.

This was pointed out by other brokerages which Moneycontrol spoke to as well.

Choice Broking, which recommended subscribing to the issue for long-term, had said uncertainties on the duration and long-term impact of the COVID-19 pandemic and higher adoption of the work-from-home operating model by the tenants post COVID-19 could be among key risks going ahead.

"We believe investing in REITs kind of product is still at a very nascent stage for Indian investors compared to global markets and one should understand it better before investing," said  Prashanth Tapse, AVP Research Mehta Equities

REITs are long-term investment products through which investors or unit holders can own income-generating commercial buildings and office spaces properties which they otherwise can’t afford to invest in directly.

"Hence, those who are looking to diversify and want to invest in high yielding commercial realty may go for buying and investing in REITs. REITs, unlike equity, are bought by investors not only for the unit price appreciation but also for dividend yields which can be higher than bank FD’s. Hence considering Brookfield’s positive long term outlook with long-term gains from yields distribution and capital appreciation seems to be attractive. Thus considering the above points, we advise allotted investors to hold Brookfield REIT post listing," he added

Brookfield owns a portfolio of four large campus-format office parks located in some of India's key gateway markets - Mumbai, Gurugram, Noida and Kolkata. The portfolio totals to 14.0 million square feet (msf), comprising of 10.3 msf of completed area, 0.1 msf of under-construction area and 3.7 msf of future development potential.

Over FY18-20, its rental income increased by 8.8 percent CAGR, while income from maintenance services increased by 5.7 percent CAGR. These income streams contributed an average of 61.2 percent and 35.2 percent, respectively, to the top line during the period. Consequently, topline increased by 7.9 percent CAGR (over FY18-20)  to Rs 956.7 crore in FY20. Net operating income (NOI) and EBITDA increased by 7 percent and 4.5 percent CAGR, respectively, with an average margin of 70.9 percent and 63.4 percent during FY18-20.

Based on the projections provided in the red herring prospectus, "topline is likely to increase by 4.8 percent CAGR, while NOI and EBITDA are expected to increase by 6.6 percent and 8.8 percent, respectively, over FY20-23. CFO is also forecasted to rise by 14.4 percent CAGR during the period," Choice Broking said.

"Incremental business growth over FY20-23 is likely to be aided by - income from already leased areas, contractual escalations, lease-up of vacant & under construction areas and MTM benefits," the brokerage added.

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