IPOs in 2021 are coming thick and fast. Brookfield REIT is going to take the public route on 3rd February 2021. Without wasting any time, let’s analyse what the company is all about and how good their IPO can be.
About Brookfield REIT
The company is India’s only fully institutionally managed public commercial real estate vehicle. REIT stands for Real Estate Investment Trust. Brookfield REIT will be the third such REIT in India which is taking a public route. The other two listed REITs are Embassy Office Parks and Mindspace REIT, both of which had their IPOs in 2020. These trusts do not have promoters like other companies but have sponsors.
Similar to mutual fund houses, REIT collects funds from investors. It pools the small amounts and then invests it somewhere to collect the return, mainly in real estate. A portion of the return generated is passed on to the investors. REIT invests the pooled money into the real estate sector. It also issues out loans to companies so that they can build the infrastructure.
Brookfield REIT has four offices in India in Mumbai, Noida, Gurugram, and Kolkata. List of reputed clients includes Bank of America Continuum India, TCS, Cognizant and Accenture.
About the IPO
Brookfield REIT’s IPO will be launched on 3rd February and will close on 5th February. The price band of this unit is fixed at Rs 274-275 per unit. The company is planning to raise Rs 3,800 crore from this public route with the aid of fresh issue. The market lot of this IPO is 200 shares. Do note that generally, for an IPO, you have to issue out Rs 15,000 but here the minimum amount you have to invest in this IPO is Rs 55,000 because it is a REIT. The allotment date and listing date for the IPO are 11th February 2021 and 17th February respectively.
The objective of the IPO is to meet the partial or full payment of existing indebtedness of the Asset SPVs (Special Purpose Vehicles). Some part of the amount generated will be used to meet general corporate purposes.
Financial Overview
| 30 September 2020 | 31 March 2020 | 31 March 2019 | 31 March 2018 | |
| Total Assets | 5136.72 | 5378.05 | 5043.70 | 4893.30 |
| Total Income | 467.47 | 15.12 | -15.74 | 161.08 |
| Profit after Tax | -73.92 | 15.12 | -15.74 | 161.08 |
As seen in the table above, the company’s revenue has increased from Rs 866 crore to Rs 981 crore from FY18 to FY20. The revenue has increased on a consistent basis but that can’t be said about the all-important profit numbers. After collecting a profit of Rs 161.08 crore by March 2018, Brookfield REIT recorded losses worth Rs 15 crore next year. Last year, they declared a profit of Rs 15 crore, which was still below expectations.
A major worry for the potential investors is that till September 2020 (H1 FY21), they have aggregated losses worth Rs 73 crore. Being a REIT, it becomes very important for them to hold assets. But, we can’t see great growth in the company’s assets too. In the last three years, the assets of the company have increased by a mere 5%. In fact, their assets have seen a decline in the past six months. The total assets worth by March 2020 was Rs 5,378 crore which has declined to Rs 5,136 crore by September 2020. Overall, the entity holds a significant debt of approximately Rs 6,600 crore which they aim to reduce with the IPO.
Risk Factors
- As mentioned above, the company holds a debt which you have to wary of. Higher the company’s debt, greater the risk for you as an investor. Currently, their interest coverage ratio is less than 1. This tells us that the company is struggling to meet its interest payments.
- Brookfield REIT does not provide any guarantee of distributing profits to the unitholders.
- The ability of the company to dispose of their assets or even the choice of investment in other opportunities is subjective to REIT regulations. Thus, a lot of movement is regulated and flexibility in investments can be seen.
- The growth of the company is highly dependent on commercial real estate development of India. Any setback to this sector of the country will massively impact the business of Brookfield REIT.
IPO Details in a Nutshell
| IPO Date | Feb 3, 2021 |
| Issue Type | Feb 5, 2021 |
| Face Value | Rs 10 per equity share |
| IPO Price | Rs 274 to Rs 275 per equity share |
| Lot Size | 200 Shares |
| Issue Size | Rs 3,800 crore |
| Listing At | NSE, BSE |
Conclusion
Brookfield India Real Estate Trust is backed by Brookfield Asset Management which is a global alternative investment company. Having such a powerful global sponsor gives belief to the investors. The industry has a bright future with a large scope of growth. Union Budget 2020-21 also came out with a lot of incentives for real estate sector. But will Brookfield REIT be able to gain from this opportunity? The financials of the company are not great. But is that the only thing which should be considered? Embassy REIT and Mindspace REITs can be looked at if you look at real estate as a sector with a good future.
Brookfield REIT filed its draft papers last September. You can find it here. What are your opinions on this IPO? Will you be applying for it? Let us know in the comments section below!
