Managed by Brookfield Asset Management, the Brookfield India REIT is the only institutionally managed, public, commercial real-estate vehicle in the country.
Brookfield Real Estate Investment Trust (REIT) unit price has been surging higher and higher after hitting a bottom at the end of March. Brookfield India REIT has gained 15% since 26 March. With this, domestic brokerage and research firm IIFL Securities has initiated coverage of the REIT with a ‘Buy’ rating. Analysts at IIFL see Brookfield REIT as an attractive dividend play with a high-quality portfolio and visible growth pipeline. Currently, Brookfield India REIT trades at Rs 253 apiece, still below its IPO price.
87% occupancy for initial portfolio
Managed by Brookfield Asset Management, the Brookfield India REIT is the only institutionally managed, public, commercial real-estate vehicle in the country. The REIT owns an initial portfolio of four large campus-format office parks, located in key markets such as Mumbai, Gurugram, Noida, and Kolkata. The initial portfolio has an 87% occupancy rate and 75% of gross rental contracts are with multinational companies. The investment trust has held on the current clients with rent collected standing at 99% in the nine months ending December 2020.
Although the second wave of covid-19 is wreaking havoc across the country, IIFL says it is only a delay in recovery for the REIT. “A strong outlook on IT sector hiring keeps the long-term stance on demand favourable. As such, Brookfield REIT has low tenant expiry in FY22/23, and 3.7 msf of leasing prospects against 1.4 msf of vacancy, offering downside comfort,” the report said. 50% of Brookfield REIT’s tenants are from the IT space.
Long-term growth intact
IIFL believes long-term demand for Brookfield REIT remains intact. India’s office stock remains low when compared to developed markets, leaving space for growth. Further, IIFL added that companies in India have started consolidating their multiple offices to a single location within a city. “There is a preference to consolidate in large office parks, which have the ability to provide expansion space in future through new development or expiration of existing leases,” the report said.
Highest yield among listed peers
REITs have to distribute 90% of their cash flows to unitholders, making them attractive dividend plays. “As the pandemic subsides, we view BIRET as a steady, double-digit returns framework, offering a stable dividend stream (~8%) and rental Cagr of ~4-5% or more,” IIFL said. According to the brokerage firm, Embassy Office Parks REIT offers a yield of 6.8% currently, followed by 5.9% offered by Mindspace. However, Brookfield India REIT, according to IIFL has a yield of 8.5%, the highest among listed peers at the current market price.
IIFL has a ‘buy’ rating on Brookfield India REIT with a target price of Rs 275 per unit. “We believe BIRET’s operational performance, distribution focus, a healthy balance sheet that can support organic development, and acquisitions makes the long-term risk rewards favourable,” they added.