Nexus Select Trust REIT IPO opens today. Here's what brokerages say

Blackstone-backed Nexus Select Trust's primary offering for REIT (Real Estate Investment Trust) opens for subscription on Tuesday, May 9. The owner of India's largest mall assets is likely to raise via Rs 3,200 this issue by selling its units in the price band of Rs 95-100 apiece, which concludes on Thursday, May 11.

The offering consists of fresh issues of 14 crore units worth Rs Rs 1,400 crore and an offer for sale (OFS) of 18 crore units of Rs 1,800 crore. The total issue is for 32 crore units. Nexus Select is India’s maiden retail assets-led Real Estate Investment Trust (REIT).

Nexus Select Trust is India's leading consumption centre platform with 17 Grade-A best-in-class Urban Consumption Centres spread across 14 cities with a total leasable area of 9.8 million square feets (msf), two complementary hotel assets (354 keys), and three office assets of 1.3 msf as of December 31, 2022.

The company has curated a healthy mix of tenants across sectors such as apparel and accessories, hypermarket, entertainment, and food and beverages. It serves 14 cities in India including Delhi, Navi Mumbai, Bengaluru, Pune, Hyderabad, and Chennai, which constituted 30 per cent of India's total discretionary retail spending in FY20.

A day ahead of its issue, Nexus Select Trust has raised over Rs 1,440 crore through its anchor book that is fully-subscribed by a total 16 institutional investors, including various domestic and global funds, who were allocated 14.39 crore units at an issue price of Rs 100 per unit.

The net proceeds from the fresh issue will be utilised towards partial or full repayment or prepayment and redemption of certain financial indebtedness of the Asset SPVs and the investment entity; acquisition of stake and redemption of debt securities in certain Asset SPVs; and general purposes, the company said in RHP.

Axis Trustee Services is the Trustee for the Nexus Select Trust, while Wynford Investments, a portfolio company of Blackstone real estate funds is the sponsor for it, while Nexus Select Mall Management is the manager.

Nexus Select Trust reported a net loss of Rs 10.95 crore for the year ended on March 31, 2022 with a total revenue of Rs 1,398.52 crroe, which was a net loss of Rs 199.11 crore and a revenue of Rs 1,047.97 crore in the year ago period. However, it clocked a net profit at Rs 257.02 crore with a revenue of Rs 1,498.35 crore for the period ended on December 31, 2022.

It has reserved 75 per cent units of the net offer for qualified institutional bidders (QIBs), while remaining 25 per cent of shares are allocated towards non-institutional investors (NIIs). The units will be listed at both BSE and NSE.

BofA Securities India, Axis Capital, Citigroup Global Markets India, HSBC Securities and Capital Markets (India), IIFL Securities, JM Financial, JP Morgan India, Kotak Mahindra Capital Company, Morgan Stanley India Company and SBI Capital Markets are lead managers to the issue, while KFin Technologies is the registrar for it.

Majority of the brokerage firms have suggested subscribing to the issue citing its reasonable valuations, rising urban consumption, healthy yields and growth potential after acquisition. However, they have cited decline in footfalls at urban centres, dependence on large tenants or their business and debt levels as the key risks for the investors.

Here's what various brokerage firms suggest about the real estate investment trust's (REIT) primary offering for the Nexus Select Trust:

ICICIDirect Research

Rating: Subscribe

Nexus Select is a quasi-play on consumption through its high-quality retail assets. At the upper band of Rs 100 per unit (the market cap of Rs 15,150 crore), the issue is at Price/NAV of 0.78x (December, 2022 NAV at Rs 127.7 per centunit). It is offering pre-tax yield of 8 per cent in FY24, at the upper price band, said ICICIDirect Research.

"We assign 'Subscribe' rating on the back of healthy yield potential; organic growth opportunities on rent escalation, repricing, releasing and tenant sales; and potential inorganic growth through assets addition," it added.

Geojit Financial Services

Rating: Subscribe

Consumption accounted for 60 per cent of India’s GDP in FY22 and has grown at 10 per cent CAGR between CY14-21, led by strong tailwinds like young population, growing middle class, and rapid urbanisation. As one of the leading consumption centre platforms in India, Nexus Select Trust's portfolio is well-positioned to capitalise on strong consumption growth, said Geojit.

"The LTV is expected to reduce 20 per cent as a part of the net IPO proceeds will be utilised for debt reduction. This provides flexible headroom for future acquisitions. Considering the strong growth story in consumption space, healthy projected net operating income growth of 17 per cent over FY24-26E, capital appreciation prospects, and healthy balance sheet with lower LTV ratio, we assign a 'subscribe' rating on a long term basis," it said.

Marwadi Financial Services

Rating: Subscribe

The IPO is priced conservatively and based on the pricing, investors would get ongoing return of 8.3 per cent pre-tax and 7.1 per cent post-tax in terms of the distributions made by the REIT. Post-IPO, the equity value of the trust will be Rs 15,150 crore, said Marwadi Financial Services.

"We assign 'subscribe' rating to this IPO as the company has India’s largest platform of best-in-class assets with a presence in 14 of India’s key consumption cities and strategically located in prime in-fill locations with high barriers to entry. There are no listed real estate investment trusts in the retail sector in India comparable to that of this business," it added.

Choice Broking

Rating: Subscribe

Based on the fair asset value of Rs 25,444 crore, the calculated net asset value per unit is Rs 120.9, which is 20.9 per cent higher than the ceiling price of the issue. At a higher price band, the calculated pre-tax yield on the investment is around 8 per cent, said Choice Broking.

"However, as guided by the management, with quarterly 100% distribution of NDCF, compounded pre-tax yield is around 8.2 per cent, which seems to be reasonable considering the early deflationary trend in the economy," it added with a 'subscribe' rating. "Nexus has expanded significantly in the last three fiscal years and is well-positioned to report continued growth in the future."

BP Equities

Rating: Subscribe

Nexus Select Trust’s portfolio offers an attractive opportunity to capitalize on India’s consumption growth through a robust business model and diversified asset base that can serve as a natural hedge against inflation. At the upper price band of Rs. 100 per unit, the issue looks attractive, said BP Equities with a 'subscribe' for long term rating.

"The quality, scale, and reach of their pan-India portfolio, the superior shopping experience, and holistic retail offering have enabled them to achieve a market-leading position, which makes most of their portfolio assets destinations of choice for leading brands that are looking to expand in India," it said.

(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of Business Today)

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