Brookfield India REIT Rating: Add- Rent aid from sponsor for N2 deal a positive

But NDCF yield to remain largely flat over FY23-24e; Add retained with TP of Rs 317

Key risks are the large-scale adoption of Work-from-Home by occupiers over the long term and rising interest rates globally.

The Brookfield India REIT (BREIT) manager has proposed to acquire the N2 call option asset in Noida, NCR having 4.5msf of saleable area at an EV of Rs 39.7 bn in Jan’22. While the asset has a committed occupancy of 83% on the completed area of 3.6msf as of Sep’21, the REIT sponsor (Brookfield Group) will offer a rent support of up to Rs 1.5 bn over Jan’22 to Mar’24 to the REIT which assures a 100% economic occupancy until leasing momentum revives. As per our estimates, at the proposed acquisition price of Rs 39.7 bn, the REIT’s NDCF yield will remain largely flat as compared to the existing yield profile of ~8% over FY23-24E. We maintain our Add rating with an unchanged TP of Rs 317/unit pending the completion of the N2 asset acquisition in Jan’22. Key risks are the large-scale adoption of Work-from-Home by occupiers over the long term and rising interest rates globally.

Rent support from sponsor a key positive: This mitigates the risk to cash flows for Brookfield India REIT investors until the asset stabilises to over 90% occupancy, possibly sometime in FY23-24E and provides cash flows to REIT unitholders at a 100% economic occupancy post infusion.

View: At the proposed acquisition price of `39.7 bn, the overall NDCF yield will remain largely flat at the REIT level as compared to the existing yield profile of ~8% over FY23-24E. A quicker-than-expected leasing pick-up and rental growth and monetisation of the future development area of 0.8msf in the N2 asset may lead to higher yields post FY24e when the rental support period ends. We maintain Add.

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