Brookfield REIT IPO Is Open: Should You Subscribe?

What is REIT?

REITs share similarity with mutual fund schemes in the sense that herein investors aggregate funds for investment in underlying securities which are from the real estate sector. Nonetheless, the structure, as well as the functioning of REITs, is altogether different from mutual funds and it is basically a trust which owns investment in real estate via an SPV or special purpose vehicle.

Now getting ahead with the details on the Brookfield REIT IPO:

Issue details:

Investors can bid for a minimum of 200 units and in multiples of 200 units thereafter. The issue closes on February 5, 2021. Morgan Stanley, BofA Securities, Citigroup, and HSBC Securities are the Global Coordinators and Lead Managers of the issue. Its Lead Managers from India are Ambit, Axis Capital, JM Financial, IIFL Securities, JP Morgan India, SBI Capital, and Kotak Mahindra Capital.

Axis Trustee Services Ltd is the trustee of the issue, while Brookprop Management Services Private Limited is the manager.

The company already has amassed Rs 1,710 crore from anchor investors. Investors subscribed to 62,180,800 equity share at Rs 275 per unit, the higher price band. Post the issue, shareholding of promoters in the company will reduce to 54.4 percent.

Company profile:

Brookfield is a global investment firm and its REIT is the only cent percent institutionally managed public, commercial real estate vehicle in India. In the REIT, the company is providing 14 million square feet of its commercial portfolio.

The REIT’s initial portfolio comprises four big campus-format office parks that are based in Mumbai, Gurugram, Noida and Kolkata.

If successfully subscribed, the Brookfield REIT will become the third listed REIT in the country.

Issue objectives:

The net proceeds from the public issue will be utilized for partial or full pre-payment or scheduled repayment of the existing loan and general corporate purposes.

“Post the utilisation of the net proceeds from the Offer, their total outstanding indebtedness in principal amount is expected to be less than 18.5 percent of their initial market value, providing them a significant financial flexibility to grow through economic cycles,” said domestic brokerage Sharekhan.

“At Rs 275 per unit, it is expected to give a pre-tax yield of 7.95 percent in FY22 and 8.43 percent in FY23. However, the payout of the first year will have an 85 percent interest component (taxable in hands of investor) and 15 percent dividend (tax-free). The interest component will be reduced over time as the dividend component increases,” the brokerage added.

Brokerage recommendation on the Brookfield REIT IPO:

“Though the REIT has incurred losses in FY20 and has not paid out any dividends, they expect to pay a yield of 7.5% in FY23 which we believe is aggressive and may be difficult to achieve. Post the IPO there will also be a debt reduction of Rs 3,575 crore for the company which will bring down the overall debt. However, due to the current uncertainties around Covid-19 and the proliferation of work from home, we expect that demand for commercial real estate to be muted,” Angel Broking said. Further the brokerage has given a ‘neutral’ call on the issue on the back of uncertain environment, weak financials and high debt on the books.

In the views of Tushar Rane Executive Director – Capital Markets (Core Assets), Knight Frank India, REITs will help mobilize funds and augment the capital flow into the real estate sector and at the same time encourage retail investors participation in the asset category.

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