Brookfield India Real (ReITs) review (May apply)

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Review By Dilip Davda on January 29, 2021

• BIRET is engaged in managing public commercial real estate vehicle.
• Its client list includes blue-chip MNCs and domestic corporate.
• Company's financial data is not encouraging, posted loss for FY21 H1.
• Commercial real estate segment is languishing at present post pandemic.
• Risk savvy cash surplus investors may park funds at their own risks.

PREFACE

Since 2019, we have witnessed ReITs coming to market for raising funds for their play in the field. In March 2019, ice was broken by Embassy Office Parks ReITs (Rs. 4750 cr.), followed by Mindspace Business Parks ReITs (Rs. 4500 cr.) in July 2020 and now this year i.e. in 2021, we have yet another ReITs offer from Brookfield India Real Estate (Rs. 3800 cr.). First two ReITs are already listed and table of their performance since listing is given here below for information:

• Issue price Rs. 300
• Overall Response 2.57 times (QIB 2.15 times & Others 3.09 times)

• Issue price Rs. 275
• Overall Response 12.96 times (QIB 10.61 times & Others 15.51 times)

Despite Embassy enjoyed its first mover status as well as the fancy of parentage group, it garnered much below the expected subscriptions. Mindspace got fancy as the first issue of Embassy did well post listing. Both these ReITs posted growth in its top and bottom lines. However, in case of Brookfield India, this aspect is missing.

While it is claimed that such investment options are fancied in western world as it has income as well as capital appreciation aspects involved, but considering changed scenario post pandemic, it is very premature to predict any such gains as we are witnessing sliding trends on this aspects.

ABOUT COMPANY

Brookfield India Real Estate Trust (BIRET) is India's only institutionally managed public commercial real estate vehicle. It is sponsored by an affiliate of Brookfield Asset Management ('BAM'), one of the world's largest alternative asset managers with approximately US$575 billion in assets under management, as of September 30, 2020. BIRET's goal is to be the leading owner of high quality income producing commercial real estate assets in key gateway Indian markets, which have significant barriers to entry.

In line with BIRET's strategy and business plan, it owns an Initial Portfolio of four large campus-format office parks, which are 'business-critical', located in some of India's key gateway markets - Mumbai, Gurugram, Noida and Kolkata. Its Initial Portfolio totals 14.0 msf, comprising 10.3 msf of Completed Area, 0.1 msf of Under Construction Area and 3.7 msf of Future Development Potential.

BIRETs client list includes Barclays, Bank of America Continuum, RBS, Accenture, Tata Consultancy Services and Cognizant etc.

ISSUE DETAILS/CAPITAL HISTORY

To part finance its plans to make partial or full payment of existing indebtedness of the Asset SPVs (Rs. 3575.00 cr.) and general corpus fund needs, BIRET is coming out with its maiden offer of Real Estate Investment Trusts (ReITs) units having a face value of Rs. 10 each. It is issuing approx. 138181820 units (at the upper price band) to mobilize Rs. 3800 cr. BIRET has fixed a price band of Rs. 274 - Rs.275 per unit and minimum application is to be made for 200 units and in multiples thereon, thereafter. The issue opens for subscription on February 03, 2021 and will close on February 05, 2021. Post allotment, units will be listed on BSE and NSE. The issue is sponsored by Brookfield and Axis Trustee Services Ltd. is the Trustee for the units.

Post issue, BIRET's current paid up capital of Rs. 65.20 cr. will stand enhanced to Rs. 302.80 cr. At the upper cap of issue price, the company is looking at a market cap of Rs. 8327 cr.

Of the total issue size, BIRETs has reserved 75% for institutional investors and 25% for non-institutional investors (i.e. HNIs and Retail). Allotment will be done on proportionate basis.

The global coordinators and book running lead managers (BRLMs) are Morgan Stanley India Co. Pvt. Ltd., BofA Securities India Ltd., Citigroup Global Markets India Pvt. Ltd. and HSBC Securities and Capital Markets (India) Pvt. Ltd. while other joint BRLMs are Ambit Pvt. Ltd., Axis Capital Ltd., IIFL Securities Ltd., J M Financial Ltd., J.P. Morgan India Pvt. Ltd., Kotak Mahindra Capital Co. Ltd. and SBI Capital Markets Ltd. Link Intime India Pvt. Ltd. is the registrar to the issue.

FINANCIAL PERFORMANCE

On the financial performance front for the last three fiscals on a condensed combined basis, BIRETs has posted total income/net profit of Rs.866.25 cr. / Rs. 161.08 cr. (FY18), Rs. 929.83 cr. / Rs. - (15.75) cr. (FY19) and Rs. 981.40 cr. / Rs. 15.12 cr. (FY20). For the first half ended on September 30, 2020 (FY21 H1), it has incurred a loss of Rs. - (73.92) cr. on a turnover of Rs. 467.47 cr.

As on September 30, 2020, BIRET's current paid up equity capital of Rs. 65.20 cr. has a negative other equity of Rs. - (2544) cr. Its current debt-equity ratio is negative (2.78).

The issue price at the upper cap is at a P/BV of 0.88 based on its NAV of Rs. 311 as on September 30, 2020.

RISKS TO INVESTORS

As per offer documents, following risk factors are indicated for investors:

1. The Manager of the Brookfield REIT may not be able to make distributions to the unit holders in the manner described in the offer document or at all, and the quantum of distributions may decrease.
2. Brookfield REIT has no operating history and may not be able to operate its business successfully, achieve its business objectives or generate sufficient cash flows to make or sustain distributions. Further the condensed combined financial statements included in the offer document may not accurately reflect its future financial position, results of operations and cash flows.
3. The extent to which the Coronavirus disease (COVID-19) may affect Brookfield REIT's business and operations in the future is uncertain and cannot be predicted.

COMPARISION WITH LISTED PEERS:

As per the offer documents, BIRETs has shown Embassy Office Parks and Mindspace Business Parks as its listed peers. Both are quoting at a discount to its NAV as on December 14, 2020. (Refer page 293)

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