Should you subscribe to Nexus Select REIT IPO? Here's what brokerages say

On Tuesday, shares of Nexus Select enjoyed a premium of Rs 5 in the grey market, which translated to a likely listing price of Rs 105 apiece on the upper price brand

The Rs 3,200-crore initial public offering (IPO) of Nexus Select Trust Real Investment Trust (REIT) opened for subscription from today, with a price brand set in the range of Rs 95-Rs 100 per share. This is India's first REIT with rent-yielding retail real estate assets. The public issue will close on Thursday, May 11.  
 

Blackstone-backed Nexus Select is India's largest mall platform of 17 high-quality assets, located across 14 cities, and is ~96 per cent leased. Some of the popular assets in the Nexus Select portfolio include Select Citywalk in South Delhi, Hyatt Regency in Chandigarh, among others.
 

On Tuesday, shares of Nexus Select enjoyed a premium of Rs 5 in the grey market, which translates into a likely listing price of Rs 105 apiece at the upper end of the price brand.  
 

Ahead of the IPO, Nexus Select's anchor book was fully subscribed at Rs 1,440 crore. Around 80 per cent of the anchor investors were Indian financial institutions, while the rest included Prusik, and Morgan Stanley.

About the offer

The public issue consists of Rs 1,400 crore fresh issue, out of which Rs 250 crore will be used for partial or full repayment of certain financial loans, Rs 1,050 crore for acquisition of stake, and the rest for general corporate purposes. The offer-for-sale comprises of Rs 1,800 crore. 
 

Around 75 per cent of the IPO is reserved for institutional investors, whereas 25 per cent is for the non-institutional investors. Investors can bid for 150 units and in multiple units thereof.  

Financial performance

The company's total income rose 7 per cent to Rs 1,498 crore in the nine months of FY23 (9MFY23) from Rs 1,398 crore in FY22, while earnings before interest, tax, depreciation, and amortisation (Ebitda) jumped 8 per cent to Rs 934 crore in 9MFY23 from Rs 858 crore in FY22.
 

Key risks
General slowdown in economic activities, unfavourable government policies and regulations, sustained higher inflation levels, lower-than-expected net distributable cash flows, and delay or difficulty in expanding the portfolio assets under management.
 

Meanwhile, here's what brokerages recommend for Nexus Select Trust REIT IPO:
 

ICICI Securities | Subscribe

At the upper end of the price band, the market cap of the company will stand at Rs 15,150 crore. Analysts believe that the issue is at price or net-asset-value (NAV) of 0.78x, assuming December NAV at Rs 127.7 per share. The brokerage firm has assigned 'subscribe' rating to the issue on the  back of healthy yield potential, organic growth opportunities through repricing or rent escalation, and potential inorganic growth through assets addition.
 

Geojit Financial Services | Subscribe

As one of the top consumption centre platforms in India, analysts believe that Nexus Select's  portfolio is well-positioned to capitalise on strong consumption growth, powered by marquee tenant base and consumer outreach initiatives. The brokerage firm projects net-operating income (NOI) growth of ~17 per cent over FY24-26E, healthy balance sheet with lower loan-to-value (LTV) ratio, and therefore, assigns 'subscribe' on a long-term basis.
 

Choice | Subscribe

On the basis of fair asset value of Rs 25,444 crore, the calculated NAV per unit is Rs 120.4 per share, which is 20.9 per cent higher than the ceiling price of the issue, said analysts. Besides, the calculated pre-tax yield on the investment is around 8 per share at an upper price band of Rs 100 per share. However, as per management, with 100 per cent quarterly distribution of net-distributable-cash-flows (NDCF), compounded pre-tax yield is around 8.2 per cent, which analysts opine as reasonable, given early deflationary trend in the economy.
 

IIFL Securities | Not rated

As of December 31, 2022, Nexus Select has a diversified tenant base of 1,044 retail tenants across 2,893 stores. Around 47.3 per cent of its gross rentals were from international brands, while 52.7 per cent were from domestic Indian brands. While it has proactively curated a diverse mix of tenants across different categories, any conditions that impact these tenants, properties or markets may adversely affect its business, said analysts as one of the key risks.
 

Axis Capital | Not Rated

While their portfolio has a committed occupancy of 96.2 per cent, with 5.7-year weighted average lease expiry (WALE), as of December 31, 2022, analysts said that their portfolio enjoyed strong embedded growth prospects. Apart from organic growth through combination of contractual rental escalations, they are also expected to scale inorganically via lowly leveraged balance sheet, with total indebtedness likely to be less than 20 per cent of their initial market value post utilisation of net proceeds from this offering.