Q3FY24 Review: Nexus Select Trust: Outperformance despite demand moderation

7 Feb 2024 , 01:37 PM

Nexus REIT reported Q3 distribution and 14% YoY NOI growth inline with FY24 guidance. Consumption growth however moderated to 8% vs 17-18% over H1FY24, although mgmt shared it is doing 2x of industry growth. Fashion category, especially Value fashion has been growing slower; although electronics, Jewellery and entertainment continues to report robust growth. The South Portfolio (from Prestige) continues to register strong performance, and mgmt is now looking to acquire 3 malls in South with ~1msf area which is in due-diligence stage. 9MFY24 performance is tracking in-line with guidance, analysts of IIFL Capital Services retain their estimates and BUY rating with a total return potential of ~11%. 

Q3 Distribution in-line with guidance: 

Nexus reported Rs2/unit distribution; in-line with full year FY24 guidance. Nexus’s revenue, NOI and ebitda estimates are also in-line. Blended Occupancy levels moved up 30bps QoQ to 97.3% (highest ever for the portfolio) driven by 0.25msf of new leasing. Trading occupancy moved up 110bps QoQ to 96.1%. Consumption growth however moderated to 8% YoY vs 17-18% YoY for H1FY24, however it still outperformed Industry (2x of Industry). For 9MFY24, footfall growth was 8%, vs consumption growth at 14-15% YoY. 

Demand moderation might continue in the near term: 

Mgmt shared that the electronics, Jewellery, Family entertainment and multiplex segment continues to do well, although there is some moderation in fashion and accessories segment. Within the fashion segment, mgmt is seeing premium end to be doing relatively better while the Value fashion segment is impacted negatively by both more competition and also slower markets. Over the medium term, however mgmt is more constructive given strong demand-supply (10msf vs 3-4msf supply), higher demand from international and luxury brands (share has doubled from 4-5% to 9%) and online stores coming up with offline stores. 

Retain estimates and BUY rating: 

Mgmt shared that for its acquisition pipeline of 1msf it has already executed non-binding term sheet to acquire the 3 assets in South India, which are in due–diligence stage. Mgmt expects to turn them around within 12-18 months of takeover. 9M performance is tracking in-line; BUY rating on total return basis.