Asset quality exudes optimism for long term though immediate distribution yield is projected to be lower than listed peers.

NEXUS SELECT REIT OFFER AT A GLANCE
Offer Type	Book Built
Platform	Main Frame
Fresh Issue	Rs 1400 Cr (14 Crore Units)
Offer for Sale	Rs 1800 Cr (18 Crore Units)
Price Band	Rs 95 – 100
Mkt/Bid Lot	150 Nos.
Implied Equity Value	Rs 15150 Cr (at cap price)
Implied No. of Units	151.50 crore units
Unit Net Asset Value	Rs 127.73  (as on December 31, 2022)
Cap Price / NAV	0.78
Trust Sponsor	Wynford Investments Ltd (Blackstone Inc group company)
Trust Manager	Nexus Select Mall Management
Trustee	Axis Trustees Services
Offer Managers	B of A Securities,  Axis Capital, Citigroup Global, HSBC Securities,  IIFL Securities, JM Financial, J P Morgan, Kotak Mahindra Capital, Morgan Stanley and SBI Capital
Registrar	KFin Technologies
Listing At	BSE, NSE

INDICATIVE ISSUE SCHEDULE
Opening              : 09-May-2023	Closing          : 11-May-2023
Allotment          : 16-May-2023	Refunding    : 17-May-2023
Demat Credit  : 18-May-2023	Trading          : 19-May-2023

The Offer

The Mumbai-registered Nexus Select Trust (NST) is making an initial public offering of up to 32 crore Units valued up to Rs 3,200 Cr. The offer  is comprising of a fresh issue of up to 14 crore Units, aggregating to Rs 1,400  Cr, and an Offer for Sale of up to 18 crore Units by the Selling Unit holders, aggregating to Rs 1,800 Cr.

The public offer constitutes at least 21.12% of the total outstanding Units (151.50 crore Units) on a post-Offer basis. The offer is being made through the Book Building Process with a price band of Rs 95–100. As many as ten investment bankers have been roped in for managing the public offer and KFinTechnologies is acting as the registrar to the offer.

The fresh issue proceeds are proposed to be deployed for acquisition of stake and redemption of debt securities in certain Asset SPVs to the tune of Rs 1050 Cr and partial or full repayment or repayment and redemption of certain financial indebtedness of the Asset SPVs and the Investment Entity to the extent of Rs 250 Cr. The balance net of issue expenses is earmarked for general corporate purposes.

HOW NEXUS SELECT TRUST COMPARES WITH SELECT REIT PEERS
REIT NAME	Embassy Office Parks	Mindspace Business Parks	Brookfield India	Nexus Select Trust
Trust Sponsor (Promoter)	Embassy Property Developments	Anbee Constructions LLP       (Ravi Raheja) & Cape Trading LLP (Neel Raheja)	Brookfield Asset Management	Wynford Investments (Blackstone Inc Group)
Issue Date	March 18, 2019	July 27, 2020	February 3, 2021	May 9, 2023
Offer Price	300	275	275	95-100 (Band)
Offer Quantity	15,83,33,200	16,36,36,200	13,81,81,800	32,00,00,000
Offer Value (Cr)	4,750	4,500	3,800	3,200
Current Price (CMP)	330	321	274
Curent Valuation (Cr)	5,224.52	5,248.47	3,786.18
Trust Manager	Embassy Office Parks Management Services	K Raheja Corp Investment Managers LLP	Brookprop Management Services	Nexus Select Mall Management
Trustee	Axis Trustee Services	Axis Trustee Services	Axis Trustee Services	Axis Trustee Services

Lineage

NST’s sponsor (promoter) is a portfolio company of Blackstone real estate funds. Blackstone is one of the world’s leading investment firms with US$975 billion of AUM as of December 31, 2022, across multiple alternate asset classes including real estate, private equity, infrastructure, life sciences, growth equity, credit, real assets and secondary funds, all on a global basis. Blackstone’s real estate business was founded in 1991 and is a global leader in real estate investing with US$326 billion of AUM as of December 31, 2022.

Blackstone’s real estate funds’ portfolio is spread across 1,475 mln sq ft of leasable area as of December 31, 2022. Blackstone’s real estate business operates as one globally integrated business with over 800 real estate professionals globally as of December 31, 2022 and has investments in America, Europe and Asia. Blackstone group claims to have extensive experience in building or rebuilding leading companies and taking them public. NST is the owner of India’s leading consumption centre platform of high-quality assets that serve as essential consumption infrastructure for India’s growing middle class. NST will be the 1st publicly listed consumption centre REIT in India.

NST was registered on August 10, 2022 as contributory, determinate and irrevocable trust under the provisions of the Indian Trusts Act, 1882. Currently, Blackstone’s affiliate Wynford Investments Ltd is the sponsor of the Trust. Nexus Select Mall Management Pvt Ltd (NSMMPL) has been appointed as the manager to the Trust. The Manager has been constituted in accordance with the REIT Regulations and is proposed to be held by certain entities of the sponsor group and the select shareholders in the ratio 79:21. Axis Trustee Services Ltd has been appointed as the Trustee.  The Trust’s Portfolio is held through the Asset SPVs and the Investment Entity, in accordance with the REIT Regulations.

Key Management

Michael Holland is an Independent Director of NSMMPL (Trust Manager). He has over 23 years of work experience in the commercial real estate sector in Asia and Europe. He has previously worked with Embassy Office Parks Management Services Pvt Ltd and with Assetz Property Group.

Sadashiv S. Rao is another Independent Director of the Manager. He has over 25 years of work experience. He has previously worked with IDFC Ltd. He was the founding chief executive officer of NIIF Infrastructure Finance Ltd (formerly IDFC Infrastructure Finance Ltd). He is currently a director on the board of YES Bank Ltd. He has previously been a director on the board of Indraprastha Gas Ltd, Sharekhan Ltd, Asset Reconstruction Co (India) Ltd, and several IDFC group companies including IDFC Alternatives Ltd.

Alpana Parida is also an Independent Director of the Manager. She has over 20 years of work experience in the retail, luxury, branding and design sector. She is the founder and chief executive officer of Tiivra Ventures Pvt Ltd. She has served as the managing director of DMA Yellow Works Ltd. She has also been associated with Titan Industries Ltd. Previously, she has also been on the board of SH Kelkar and Company Ltd and Prime Research and Advisory Ltd and presently serves as a director on the board of various companies including Nestle India Ltd, FSN E-Commerce Ventures Ltd, Prime Securities Ltd, COSMO Films Ltd, and Brilloca Ltd.

Jayesh Merchant is yet another Independent Director of the Manager. He has over 35 years of work experience. He has previously been associated with Castrol India Ltd, Ion Exchange (India) Ltd, UTV Software Communications Ltd and Asian Paints Ltd.

Tuhin Parikh is a Non-Independent Director of the Manager. He was on the board of directors of TCG Urban Infrastructure Holdings Ltd from 2002 to 2007. He has been employed by Blackstone Advisors India Pvt Ltd since January 15, 2007 and is currently the senior managing director and head of real estate in India. He is a non-executive director on the board of Embassy Office Parks Management Services Pvt Ltd (i.e., the manager of Embassy Office Parks Real Estate Investment Trust).

Asheesh Mohta is a Non-Executive Non-Independent Director of the Manager. He has been employed by Blackstone Advisors India Pvt Ltd since February 1, 2007 and is currently the senior managing director and head of real estate acquisitions in India.

Arjun Sharma is a Non-Independent Director of the Manager. He is the chairman and the managing director of Select Holiday Resorts Pvt Ltd and an independent director on the board of Sandhar Technologies Ltd. He has led businesses including two resorts i.e., Heritage Village Resort & Spa Manesar, Gurgaon and Heritage Village Resort & Spa, Goa and is a partner of Vardan Agrotech LLP.

Dalip Sehgal is a Non-Independent Director and the Chief Executive Officer of the Manager. During his employment of over 5 years collectively with a NST-portfolio company and the Manager, he has been involved in the management of Trust’s Portfolio Assets owned by the Sponsor Group. He has around 4 decades of work experience. He has previously been associated with Hindustan Lever Ltd, Godrej Consumer Products Ltd, Godrej Hershey Foods & Beverage Ltd and Graviss Holdings Pvt Ltd.

Business

NST’s Portfolio comprises 17 best-in-class Grade A urban consumption centres with a total Leasable Area of 9.2 msf, 2 complementary hotel assets (354 keys) and 3 office assets (1.3 msf) as of December 31, 2022. The assets are strategically located across 14 leading cities in India, which constituted 30% of India’s total discretionary retail spending in FY20 and had an average population CAGR that was 226 bps higher than the national average from financial years 2011 to 2021.

They have invested in some of the highest quality assets in prime in-fill locations of India’s major cities such as Delhi, Navi Mumbai, Bengaluru, Pune, Hyderabad and Chennai. These cities have limited organized retail stock and continue to witness strong demand fundamentals as domestic and international retailers expand their businesses even as future supply of retail space is expected to remain constrained. The quality, scale and reach of their pan-India Portfolio, the superior shopping experience and holistic retail offering have enabled them to achieve a market-leading position, which makes most of their Portfolio assets destinations of choice for leading brands that are looking to expand in India. As a result, NST REIT enjoyed a 96.2% average Committed Occupancy across their Portfolio as of December 31, 2022.

The Trust owns India’s largest portfolio of consumption centres and replicating a platform of similar scale, quality and geographical diversity would be difficult due to limited availability of prime city centre land parcels, long development timelines, and specialized capabilities required for developing, stabilizing and operating comparable assets. Their Portfolio has a tenant base of 1,044 domestic and international brands with 2,893 stores as of December 31, 2022 and is well diversified across cities with no single asset and tenant contributing more than 18.3% and 2.8% of their total Gross Rentals for the month of December 31, 2022, respectively. They have curated a healthy mix of tenants across sectors such as apparel and accessories, hypermarket, entertainment, and food and beverages (“F&B”) in order to provide a holistic shopping and entertainment offering to consumers.

As of December 31, 2022, 95.5% of their tenant leases provide for Minimum Guaranteed Rentals with typical contractual rent escalations of 12% to 15% over a period of 3 to 5 years and 88.3% of their leases contained Turnover Rental arrangements which allow them to capitalize upon growth in tenant sales driven by increased consumption. Over the last 3 financial years and 9 months, they have been able to recover more than 80% of their operating and maintenance expenses from their tenants, while incurring significantly lower amounts of tenant improvement capital expenditure (as a proportion of their total NOI) as compared to consumption centres in the United States.

Prospects

While NST’s Portfolio is reportedly stabilized with committed occupancy of 96.2% and 5.7-year WALE as of December 31, 2022, the Portfolio also enjoys strong embedded growth prospects. NST is well-positioned for strong organic growth through a combination of contractual rent escalations, increased tenant sales leading to higher Turnover Rentals and re-leasing at higher market rents and lease-up of vacant area. As a result, their Portfolio’s total NOI is projected to grow organically by 17.1% between FY24E and FY26E.

Further, they have a strong track record of delivering inorganic growth through accretive acquisitions and they are well-positioned to scale inorganically through a lowly levered balance sheet with total indebtedness expected to be less than 20% of their initial market value post the utilization of the Net Proceeds from the present offer.

As per the REIT Regulations, the Manager has to declare and distribute at least 90% of the net distributable cash flows of the Trust as distributions to the Unit holders. Such REIT Distributions shall be declared and made not less than once every 6 months in every FY. Further, in accordance with the REIT Regulations, REIT Distributions shall be made no later than 15 days from the date of such declarations.

Peer Returns

Though capital appreciation seems to be a distant dream, the listed REITs have offered decent yields. On the current market price, Brookfield offers a higher return of 7.4% followed by Embassy (6.87%) and Mindspace (5.88%).

RETURN PROFILE OF LISTED REITS
OPERATIONAL METRICS	MINDSPACE		EMBASSY		BROOKFIELD
	FY 22	FY 23	FY 22	FY 23	FY 22 *	FY 23 (9 M)
	(Rs. In Cr)
Revenue from operations	1,757.70	2,068.50	2,962.60	3,419.50	1,007.70	894.60
Net Operating Income (NoI)	1,494.00	1,710.10	2,491.10	2,766.30	797.50	716.30
Distribution per unit	18.40	19.10	21.76	21.71	22.10	15.20
Outstanding Units (Crore)	59.30	59.30	94.79	94.79	33.51	33.51
Current Market Price		325.00		316.00		274.00
Distribution yield on CMP – Annualised		5.88%		6.87%		7.40%
* including 50 day-period from 08.02.21 to 31.03.2021

On the offer price, Brookfield investors have suffered a marginal capital loss of 0.16% per annum while Mindspace Business and Embassy Office have fetched a gain of 5.7% and 2.3% respectively. Nevertheless, on the issue price Brookfield has offered a distribution yield of 7.37% per annum followed by Embassy Office (7.24%) and Mindspace Business (6.95%).

REITS YIELD AND CAPITAL APPRECIATION
REIT NAME	Embassy Office Parks	Mindspace Business Parks	Brookfield India
Issue Date	18-03-2019	27-07-2020	03-02-2021
Current Date	05-05-2023	05-05-2023	05-05-2023
No. of days	1509	1012	821
No. of Years	4.13	2.77	2.25
Capital appreciation p.a. (Issue Price ~ CMP)	2.33%	5.71%	-0.16%
Distribution per unit (FY 23) – Annualised	21.71	19.1	20.27
Distribution yield on issue price	7.24%	6.95%	7.37%

NST has projected Rs 2121 Cr revenue for the fiscal 2024 on which it hopes to net a distributable cash flow of Rs 1212 Cr. This is expected to provide a distribution yield of 6.84% on the issue cap price of Rs 100.

NEXUS SELECT TRUST – WHAT TO EXPECT?	FY 24
	Rs. Cr
Revenue from operations as per Projections	2,121.30
NDCF as per Projections	1,212.40
Assumption on actual NDCF – 95% of Projections	1,151.78
Assumption of 90% distribution of NDCF – As per REIT guidelines	1,036.60
Post offer number of units (crore)	151.50
Expected Distribution yield per unit (Rs)	6.84
Expected Distribution yield at issue price @ Rs.100	6.84%

Valuation

NST’s offer price is the lowest among the REITS listed so far. In terms of price to NAV too, NST compares well with its peers. However, in terms of number of Units outstanding, Brookfield’s 33.51 Crore is the lowest and NST’s 151.50 is the highest among the listed REITS.

HOW NEXUS’ VALUATION COMPARES WITH LISTED REITs
REIT NAME	Embassy Office Parks	Mindspace Business Parks	Brookfield India	Nexus Select Trust
Offer Price	300	275	275	100
Current Price	330	321	274	100
Net Asset Value	394.88	371.90	337.00	127.73
Price / NAV	0.84	0.86	0.81	0.78

Concern

NST Asset SPVs and Investment Entity have disputed liabilities of Rs 148 Cr towards indirect taxes, Rs 98 Cr direct taxes and Rs 52 Cr property tax.