Nexus Select Trust REIT

About the company:

Nexus Select Trust is the owner of India’s leading consumption center platform of high-quality assets that serve as essential consumption infrastructure for India’s growing middle class. It is the first consumption centre REIT in India to list on the Stock Exchanges. 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.

Nexus REIT owns India’s largest portfolio of consumption centers and replicating a platform of similar scale, quality, and geographical diversity would be difficult due to the limited availability of prime city center land parcels, long development timelines, and specialized capabilities required for developing, stabilizing and operating comparable assets

Nexus Select Mall Management Private Limited is the Manager of the Nexus Select Trust. The Manager is a private limited company incorporated in India.

Objectives of Issues

·       Issue Size: ~Rs. 3,200 Crores

·       Offer for Sale: ~Rs. 1,800 Crores

·       Fresh Issue: ~1,400 Crores

o   Partial or full repayment or prepayment and redemption of the certain financial indebtedness of the Asset SPVs and the Investment Entity

o   Acquisition of stake and redemption of debt securities in certain Asset SPVs

o   General purposes

Strengths

·      Diversified Portfolio – The portfolio comprises 17 best-in-class Grade A urban consumption centres with a total Leasable Area of 9.2 msf, two complementary hotel assets (354 keys) and three office assets (1.3 msf) as of December 31, 2022. Its assets are strategically located across 14 leading cities in India, which constituted 30% of India’s total discretionary retail spending in FY20.

·      Financial Turnaround – The trust faced losses during the years of the pandemic. However, for December 2022 ended 9 months it has turned profitable again. For 9MFY23, the company reported a net profit of Rs. 257 Crores surpassing the pre-covid year FY22 net profit of Rs. 207 Crores.

·      Cash Flow Distribution - The Manager shall declare and distribute at least 90% of the net distributable cash flows of the Nexus Select Trust as distributions (“REIT Distributions”) to the Unitholders.

·      Stable Cash Flow With Contracted Rent Escalations – It usually enters into three to nine-year leases for in-line tenants, nine to twenty-five-year leases for anchor tenants and five to nine-year leases for office tenants.

·      High Rental Yield Opportunities – It has a high Minimum Guaranteed (MG) Rentals and Turnover Rental (TR) model. MG provides stability to rental revenue, whereas Turnover Rental arrangements allow them to participate in the upside of growth in their tenants’ sales.

Risk

The RHP states that after the IPO, they intend to obtain external debt financing to repay a portion of the debt of the Portfolio and to finance the Portfolio’s business and financing requirements.

Another wave of the pandemic poses a major threat as not only will the customer purchases shelve but also firms will refrain from expanding and rental might slash.

Financial Snapshot

Conclusion

The re-opening of the economy has shown a strong signal of growth. With India becoming the new growth destination, more foreign luxury brands are willing to open stores in India, and Nexus is well-positioned to reap rewards.

Its business model where Turnover Rental arrangements (which typically provide for turnover rent percentages of 5-25% of tenant sales, subject to a minimum guaranteed threshold) help scale the rental income to tenant sales and thereby provide growth tailwinds in an inflationary environment. The Nexus Trust has a diversified portfolio spread across India. Given the key positives, we recommend SUBSCRIBE for this IPO.