Mindspace REIT: Headed for growth!

15 Mar 2024 , 12:10 PM

Mindspace REIT (M-REIT) outlined a bullish outlook on near-tomedium-term occupancy improvement at its 2024 analyst meet. Demand from Global Captives is expected to remain robust and supply in M-REIT’s key market of Madhapur expected to remain low. With the cost economics in favour of conversion (from SEZ to nonSEZ) being favourable, M-REIT has further applied for 1.5msf area to be de-notified. Apart from the 10msf of organic growth potential, mgmt will be hereon looking at inorganic acquisitions from the sponsor pool. Re-iterate BUY with 12% total return; expect +9% DPU growth for FY25 and a high double-digit growth in FY26.

Global Captives leasing demand strong; Madhapur to continue to have low supply:

Leasing environment remains healthy driven by Global Captives (~70% of Hyderabad’s GCC demand share historically taken up by Hyderabad SBD, which encompasses the Madhapur asset). With almost no land availability at Madhapur, supply levels are expected to be low. After receiving approval to get 0.4msf area at Airoli de-notified, M-REIT has applied for further conversion of 1.5msf. Mgmt expects vacant SEZ area (2.3msf) to be leased in 2-2.5 years. Further, mgmt was optimistic about the redevelopment of Building 1 & 8 (3msf cumulatively) at Madhapur and expects to pre-lease it at higher rentals.

10msf of organic growth opportunity; to consider ROFO acquisitions soon:

Mgmt highlighted 10msf of organic growth opportunity (3msf of vacant space, 4.4msf of under-construction assets coming-up over the next three to four years and 2.5msf of future development assets). Mgmt expects Rs8-9bn of NOI increase just from this organic growth opportunity. Mgmt will consider ROFO offer for the Hyderabad asset (Commerzone Raidurg) soon. The sponsor also has a pipeline of ~15msf across Navi Mumbai, Pune and Hyderabad. Mgmt is also open to evaluate opportunities the outside sponsor pool, but remain wary of landowner expectations.

Good visibility for DPU growth in FY25/26; BUY:

While the mgmt did not give guidance for FY25, analysts of IIFL Capital Services expect M-REIT to benefit from a steady demand improvement with Global Captives increasing their presence in India, and a potential favourable interest rate environment. Analysts of IIFL Capital Services expect 9% growth in FY25 DPU, followed by a much stronger growth in FY26. Reiterate BUY with FY25 yield of 6.3%/6% upside.