The Rs 4,500-crore public offer of Mindspace Business Parks REIT has been fully subscribed on July 28, the second day of its bidding, driven by the demand from non-institutional investors.
The issue has seen a 1.20 times subscription as it received bids for 8,13,75,200 units against IPO size of 6,77,46,400 units (excluding anchor and strategic investors' portion), the data available on the exchange showed.
The portion set aside for non-institutional investors has been subscribed 1.65 times while institutional investors' book saw 83 percent subscription.
The second public issue in the REIT segment after Embassy REIT's Rs 4,750 crore IPO in March 2019, consists of a fresh issue of Rs 1,000 crore and an offer for sale of Rs 3,500 crore.
Mindspace REIT, backed by K Raheja Corp and Blackstone Group, has already received a commitment of Rs 2,643.74 crore from strategic and anchor investors. Hence, the net issue is now reduced to Rs 1,856.26 crore.
The issue will close on July 29 and the bids can be made for minimum 200 units and in multiples of 200 units thereafter.
Over the last two decades, India has emerged as a leading hub for technology and corporate services due to its favourable demographics, large talent pool and competitive cost advantage in providing high value-added services. This has led to an increased demand for quality office space from multinational as well as large domestic corporations.
"As per the valuer, the pre-issue fair value of the assets is around Rs 17,784.6 crore. This is an indicative value of the asset and would be realised if it is monetised. Post-issue, after utilising the net proceeds, net asset value comes around to Rs 18,718 crore. Consequently, post-issue NAV comes to around Rs 315.6 per unit. At a higher price band, the Mindspace REIT issue is at 87.1 percent of its NAV, as compared to Embassy REIT, which is trading at 98.1 percent of its NAV. Thus, the issue seems to be attractive," said Choice Broking.
"Based on the projected distribution schedule, pre-tax yield comes out to be 6.5 percent in FY22 and 7 percent in FY23. Considering the subdued interest rate in the economy and anticipating a further decline in the rates, the projected yield from this REIT seems to be attractive," it added.
Mindspace REIT owns a quality office portfolio located in four key office markets (Mumbai, Hyderabad, Pune and Chennai region) of India. Its portfolio has a total leasable area of 29.5 msf (million square feet) and is one of the largest Grade-A office portfolios in India.
As of March 31, 2020, the portfolio comprised 23 msf of completed area, 2.8 msf of under-construction area and 3.6 msf of future development area. Of the under-construction area, around 2.6 msf is likely to be delivered by FY22.
Its portfolio has five integrated business parks with superior infrastructure and amenities (such as restaurants, crèches and outdoor sports arenas) and five quality independent offices.
However, the brokerage feels that there are certain risks associated such as uncertainty over the aftereffects of the COVID-19 pandemic on the economy and falling real estate prices. All these issues might impact the future rental income of MBP REIT.
Embassy REIT was the first REIT to be listed in the domestic market and the issue price was Rs 300 per unit. Before COVID-19, it was trading above Rs 430 per unit (i.e. around 40 percent higher from the issue price). However, the gains reduced with the emergence of the COVID-19 pandemic. Currently, it is trading 20.7 percent above the issue price.
"On the taxation front, investors incur tax only on the interest component of the REIT distribution. There is no tax on REIT distributions in the form of dividends," Choice Broking noted.Disclaimer: The views and investment tips expressed by investment expert on Moneycontrol.com are his own and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.