NEXUS SELECT TRUST REAL ESTATE INVESTMENT TRUST IPO
India's Largest Retail Assets Owner NEXUS SELECT TRUST is coming out with an IPO. Nexus IPO opens on 9th May with a price band of Rs.95-100 with a bid in the multiple of 150.
In India, there are 3 REITs listed on Stock Markets namely.
Unlike the above 3 who manage Office spaces, Nexus is the 1st REIT that is focused on RETAIL space.
WHAT IS REIT?
REIT unlocks the value of Real Estate Assets and offers ownership of these Rent Yielding properties to retail investors like you and me.
Just like Mutual Funds collect money from retail investors, pool the same and invest in stocks, gold, bond, etc REITs too pool in the money received from investors and invest the pooled money in REAL ESTATE ASSETS (commercial and retail)
DOES A REIT WORK :
1. A REIT (like a Mutual fund) collects money from Investors.
2. These monies are invested across Rent Generating Properties.
3. The REIT collects the Rent
4. The REIT distributes the Rent to Investors via periodical Dividends.
5. The Capital Appreciation (of the Property owned by REIT) is reflected in the NAV.
Regulations in India mandate that these REITs must pay out 90% of the distributable Cash Flows to the unitholders.
ARGUMENTS IN FAVOUR OF NEXUS REITS IPO:
1. Present in 14 cities with a leasable area of 9.2 million square feet.
2. Mix of tenants with 1044 brands with international brands being 47% and Indian brands at 53%
3. No single tenant or asset has more than 18.3% exposure
4. Besides consumption centres, Nexus has 2 hotel assets and 3 Office Assets
5. Lease Expiry (weighted) is LOWER for Retail (NEXUS) at 5.7% v/s 9 years in Office space (Embassy, Mindspace, Brookfield)
6. Committed occupancy of 96.2%
7. Besides the Rent Escalations for Nexus is 12% to 15% (for 3 to 5 years), a Mark to Market of 20%
8. For me, this is the BIGGEST PRO point in favour of NEXUS.
Nexus has 88.3% of its leases with a Turnover Rental arrangement with 5% to 25% of Tenant's Sales as Rental Revenue (CLEAR UPSIDE POTENTIAL TO THE OVERALL REVENUE OF NEXUS)
9. 100% of Nexus assets are READY FOR RENT improving yield (unlike, for example, the Embassy which has a 16% area under construction)
10. Retail asset space is expected to grow at 25% CAGR.
11. Indian REITS have delivered an IRR of 13.4% (since April 2019)
12. The offer price is at a good discount of 22% to the NAV of 127.73 (as of 31st December 2022) and can be looked at as a Debt alternative.
13. No Lock-In. You as an Investor can enter or exit the fund as per your wish and convenience, unlike actual Real Estate which has its own problems thus making it very liquid.
14. Real Estate is one of the most non-transparent asset classes and this being a REIT is a good transparent way to have Real Estate Exposure.
15. REITs, although listed, do not always move in the same direction as the stock market as the underlying asset is Commercial Real Estate and thus provides Good Diversification
16. REITs come in between Equities and Debt and must have a place in All Portfolios. Low Correlation with Equities, Diversification across Geographies, and Visible Cash Flow to underlying investments make REIT a good investment option.
17. Consumption is expected to be a HIGH growth area in India and NEXUS being in the Retail Asset space could be well-positioned to take maximum advantage of this expected boom
ARGUMENTS AGAINST THE NEXUS REIT IPO:
1. Being in Retail, any slowdown will affect Nexus REIT badly (unlike Office REITs)
2. Interest Rate Hikes could hurt revenues.
3. Typical Real Estate Industry Issues like a Bear Market could affect Capital gains
4. Since the REITs are listed in Stock Markets, the typical demand/supply mechanism could affect the price of the listed entity and it could be quite volatile. The returns WILL NOT BE IN 1 STRAIGHT SINGLE UPWARD LINE!
5. Real Estate is subject to lots of Govt Regulations
IN A NUTSHELL
Owning Real Estate is a challenge both financially and in legal hassles, REITS is an easy simplified asset class to own the same without owning it Physically.
Investing in REITs fund for the long term is a good way to have exposure to REAL ESTATE
Investing in REIT is like investing in a combo of Equity and Fixed income.
REIT is an alternative to investing in Real Estate, especially for those who cannot afford to invest in direct real estate.
Though it has more or less a stable return in the form of regular dividends, it also has price volatility in stock markets too.
STANDARD DISCLAIMER applies.
REQUEST YOU TO PLEASE CONSULT YOUR ADVISOR BEFORE TAKING ANY DECISION ON INVESTMENT
THE DETAILS SHARED ARE OUR OPINION ONLY AND SHOULD IN NO WAY BE TAKEN AS A RECOMMENDATION
All the Best for a Wealthy Life
Qualified Personal Finance Professional (QPFP)
AMFI Registered Mutual Fund Distributor
Author of the Amazon Best Seller books
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All the best,