Brookfield REIT IPO: All You Need To Know
A woman with a dog exits the Brookfield Place retail concourse in New York, U.S. (Photographer: Victor J. Blue/Bloomberg)

Brookfield REIT IPO: All You Need To Know

Brookfield India Real Estate Trust, backed by Canadian asset manager Brookfield Asset Management Inc., is looking to raise Rs 3,800 crore through a three-day initial public offering that opens on Feb. 3, adding to the growing number of listings from the sector in the country.

The maiden offer, a fresh issue of units, has a price band of Rs 274-275 apiece.

  • Issue opens: Feb. 3.
  • Issue closes: Feb. 5.
  • Bid lot: 200 units
  • Units on offer: 13.87-13.81 crore.

The company, according to its offer document, will use the net proceeds from the issue towards scheduled re-payments and general purposes

“The indebtedness will be lower by 18.5% of initial market value,” Ankur Gupta, managing partner, head of India-real estate at Brookfield Asset Management, had told BloombergQuint in an interview before the launch of the IPO. “The cost of debt is at 7.1%.”

Morgan Stanley India Co. Pvt., DSP Merrill Lynch Ltd., Citigroup Global Markets India Pvt. and HSBC Securities and Capital Markets (India) Pvt. are the global coordinators and book-running lead managers to the issue.

This is the third IPO by a real estate investment trust, and comes at a time when participation of retail investors in equity markets in India and around the world has increased following pandemic-induced lockdowns. Domestic benchmarks, too, are scaling new peaks. Previously, Embassy Office Parks REIT went public in 2019 and Mindspace Business Parks REIT listed in August last year.

India’s property sector had suffered from a dearth of liquidity in recent years. But housing demand has crept up back during the Covid-19 pandemic, brightening the outlook for developers and lenders.

Brookfield Asset Management has nearly $17-billion portfolio across real estate, infrastructure, renewable power and private equity in India. It owns and operates 42 million square feet of real estate space, besides seven toll roads totaling more than 600 km of roadway, solar and wind assets, a construction business, and real estate management services, according to its website.

Of this, the REIT’s initial portfolio, the prospectus filed with the market regulator said, comprises four large campus-format office parks in Mumbai, Gurugram, Noida and Kolkata, totaling 14 million sqft—10.3 million sqft of completed area, 0.1 million sqft of under construction area and 3.7 msf of future development potential.

In its initial portfolio, 75% of gross contracted rentals are contracted with multinational corporations such as Barclays, Bank of America Continuum, RBS, Accenture, Tata Consultancy Services Ltd. and Cognizant. Its tenants operate in industries such as technology, financial services, consulting, analytics and healthcare.

Its initial portfolio has a stable, long-term tenancy profile with staggered expirations and a weighted average lease expiry of 7.1 years.

The initial portfolio’s committed occupancy has been above 94% at the end of the last four financial years, as per the offer document. Between April 1, 2015, and Sept. 30, 2020, in-place rents per sqft have grown at an annualised rate of 4.8%. The average in place rent per sqft per month of their initial portfolio ranges between Rs 42 and Rs 90, while average rent for the entire portfolio is Rs 62 per sqft.

The properties in the initial portfolio comprise Kensington (Mumbai), Candor Techspace G2 (Gurugram), Candor Techspace N1(Noida) and Candor Techspace K1(Kolkata). The trust has also agreed to purchase Candor Techspace G1 (Gurugram) and Candor Techspace N2 (Noida), referred as identified assets.

The trust will also have a right of first offer on the acquisition of Powai Business District, Equinox Business Park, Units in Godrej BKC and Waterstones, which are collectively referred to as the “ROFO properties”.

Portfolio Overview

  • Initial Portfolio: 14 million sqft.
  • Identified Assets: 8.3 million sqft.
  • ROFO Properties: 6. 7 million sqft.

Financial Update

The initial portfolio’s net operating income is projected to grow 25% (net of one-time adjustment) to Rs 818 crore, over the projections period ending in financial year 2023. The projections include Candor India Office Parks.

This number refers to organic growth, Gupta had told BloombergQuint in an earlier interaction. “Our assets are very high quality. While they are very stable in terms of their current income there is tremendous upside in the same store growth of the net operating income. That’s a result of two factors; contractual escalations as well as mark to market or rentals as we see churn 10-15(%) churn in this portfolio going in the future.”

The distribution of yield will be in the range of 7.95-7.98%, Gupta said.

How REITs Fared

Here’s how the REITs that went public previously stack up.

Covid-19 Impact

The trust, according to the offer document, didn’t face significant disruptions in operations because of Covid-19 during FY20 and the six months ended Sept. 30, 2020. “We collected 98%, 98%, 99%, 99%, 97% and 98% of the gross contracted rentals for the months of April, May, June, July, August and September 2020, respectively,” it said in the document.

As of Sept. 30, the committed occupancy, same store committed occupancy and in-place rent of the initial portfolio was 87%, 92% and Rs 62 per sqft per month, respectively, it said in the document.

Labour Issues: Following constrained availability of labour amid pandemic-induced lockdowns, construction activity at ongoing projects in the initial portfolio was halted during April and May 2020, but has since resumed gradually, as state governments eased restrictions.

Key Risks

  • Extent to which Covid-19 may affect business and operations in the future.
  • Fluctuations in the general economic, market and other conditions that may affect the commercial real estate market In India and their ability to lease office parks to tenants on favorable terms.

Anchor Investor Allocation

Brookfield REIT informed the exchanges on Feb. 2 that it has raised Rs 1,709 crore from 39 anchor investors. Nearly 75% of the anchor book was apportioned to domestic institutional investors, it said, with HDFC Mutual Fund and Kotak Mutual Fund together garnering more than 25% share.

“Under anchor investors portion in the public issue of Brookfield India Real Estate Trust, 62,180,800 units have been subscribed today at Rs 275 per unit,” it said in a filing.

Domestic insurers, including SBI Life Insurance Co., TATA AIG, HDFC Life Insurance Co., Aditya Birla Sun Life, Max Life, Star Health, Canara HSBC OBC Life, Reliance General accounted for 39% of the allotment, the filing said. “Notable FII participation came from Schroders (10.5% of anchor book), Morgan Stanley Asia and Segantii Mauritius (1.5% each).”

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