Morgan Stanley sees double-digit returns for Indian REITs; ups Mindspace target, downgrades Embassy, Brookfield shares

Morgan Stanley expects Indian real estate investment trusts (REITs) to deliver double-digit total returns, supported by strong leasing demand from global capability centres (GCCs) and improving distributions to unitholders. The foreign brokerage remains 'Overweight' on Mindspace Business Parks REIT, Nexus Select Trust and Knowledge Realty Trust, while downgrading Embassy Office Parks REIT to 'Equal-weight' and Brookfield India Real Estate Trust to 'Underweight'.

In its report, Morgan Stanley said Indian REITs gained around 20 per cent over the past two years, or nearly 33 per cent including yield, compared with a 12 per cent decline in Sensex. The performance was supported by recovering distributions per unit (DPU) growth and strong GCC-led leasing demand.

Citing Nasscom estimates, the brokerage said India's GCC base could expand around 1.4 times by FY30, supporting office demand. However, rising office supply and interest rate hikes remain key risks for the sector.

Morgan Stanley noted that Indian REITs are expected to deliver DPU growth of 9-12 per cent in FY27, compared with 0-7 per cent for regional peers, at comparable yields of 5.5-6.7 per cent.

Mindspace remains top pick; target raised to Rs 550

Morgan Stanley retained its 'Overweight' rating on Mindspace Business and raised its target price to Rs 550 from Rs 490. The brokerage expects the REIT to deliver a total return of 16.8 per cent, the highest among its coverage.

Mindspace's current occupancy stands at 91 per cent, with around 20 per cent mark-to-market (MTM) rental potential. Its development pipeline accounts for 14 per cent of its gross leasable area (GLA), while recent acquisitions are expected to contribute for a full year.

The brokerage also highlighted Mindspace's data centre portfolio, comprising five assets with approximately 1.7 million square feet of area and capacity exceeding 250 MW, as a potential growth driver.

Embassy REIT downgraded to 'Equal-weight'

Morgan Stanley downgraded shares of Embassy Office Parks REIT to 'Equal-weight' from 'Overweight' and reduced its target price to Rs 455 from Rs 460.

The brokerage expects the REIT to report 10 per cent year-on-year (YoY) DPU growth in FY27 but sees limited growth beyond that. Occupancy stood at 91 per cent, leaving limited headroom for further improvement, while the brokerage estimated MTM rental potential at 10 per cent.

Brookfield REIT downgraded to 'Underweight'

Morgan Stanley downgraded Brookfield India Real Estate Trust to 'Underweight' from 'Equal-weight' and cut its target price to Rs 330 from Rs 340.

The brokerage said Brookfield completed acquisitions of around 10 million square feet between FY23 and FY26, but DPU grew at a compound annual growth rate of only 2 per cent during the period, indicating limited growth accretion.

Knowledge Realty Trust target cut to Rs 120

Morgan Stanley retained its 'Overweight' rating on Knowledge Realty Trust but reduced its target price to Rs 120 from Rs 127.