Q1FY24 Review: Nexus Select Trust: Strong consumption growth and outlook

14 Aug 2023 , 02:15 PM

Nexus Select Trust (Nexus REIT) reported strong 18% YoY growth in consumption on a like-to-like (LTL) basis; the trend has continued in July as well. Management expects this to result in higher rental growth, although with a lag. Nexus REIT also has a healthy balance sheet, which will allow it to acquire brownfield assets on its own balance sheet. Q1FY24 financial performance has been in-line, and the distribution will be announced starting Q2 (for cumulative period since listing). Retain NOI Cagr of 9% over FY23-26, a distribution yield of 6.8%/7.3% over FY24/25 as well as 11% discount to NAV. 

Strong consumption growth and outlook: 

Nexus reported consumption growth of 18% YoY, driven by strong growth across most of its malls. The segments that grew strongly were Jewellery, Beauty and Personal Care, Footwear and Athleisure, and Electronics; while Hypermarkets were laggards. Multiplexes have registered sharp improvement in recent months. Leased occupancy was up by 300bps YoY to 97%; trading occupancy was up by 500bps YoY to 94%. While industry growth is expected to be 8-10% for Q1FY24, Nexus malls registered growth 1,000bps higher than the industry for Mumbai and Bangalore, 400bps higher then industry for Pune and 200bps for Chennai malls. 

Healthy acquisition pipeline: 

On the concall, mgmt shared that the acquisition universe for Nexus is nearly 50 malls (~30msf) of the 100 top-grade A malls in India, and that Nexus is aiming to double its portfolio in the next 4-5 years. Given the strong balance sheet (net debt at 15% of GAV vs SEBI mandated 49% limit), it has a headroom of US$1bn that can be deployed to acquire assets on its own balance sheet. Mgmt reiterated having a proven track record of turning around under invested or under-managed assets over 2-3 years of acquiring them. 

Maintain estimates and BUY rating: 

While Nexus REIT did not announce any distribution (will be cumulatively announced post Q2 results for period since listing), Q1FY24 revenues and NOI were in line with estimates and mgmt projections. Analysts of IIFL Capital Services believe Nexus REIT will continue to report superior consumption growth, driven by operational turnaround as the ongoing theme. BUY with total return of 17-18%.