About Mindspace IT REIT
Mindspace Business Parks REIT has a quality office portfolio in Mumbai, Hyderabad, Pune and Chennai. The business parks in Mumbai are Mindspace Airoli East Business Park, Mindspace Airoli West Business Park, Paradigm Mindspace Malad and The Square, BKC
The total leasable area of Mindspace Business Parks is 12.1 MSF* in Mumbai, 11.6 MSF in Hyderabad, 5.0 MSF in Pune and 0.8 MSF in Chennai. With a total leasable area of 29.5 MSF, it is one of the largest Grade-A office portfolios in India. Total Market Value of our Portfolio, including the facility management division Rs. 23675 Crores
*MSF stands for ‘million square foot’
About the IPO
The Mindspace REIT filed a draft red herring prospectus on 31st December 2019 followed by an offer document on July 17, 2020. The IPO highlights are as follows:
| IPO Date | Jul 27, 2020 – Jul 29, 2020 |
| Issue Type | Book Built Issue REIT |
| Issue Size | aggregating up to ₹4,500.00 Cr |
| Fresh Issue | aggregating up to ₹1,000.00 Cr |
| Offer for Sale | aggregating up to ₹3,500.00 Cr |
| Face Value | Rs. 10 |
| IPO Price | ₹274 to ₹275 per equity share |
| Market Lot | 200 Shares |
| Min Order Quantity | 200 Shares |
| Listing At | BSE, NSE |
| Market Cap (₹ Cr.) | 23675 |
Why is Mindspace REIT raising Rs.4500 Crores?
According to the company’s red herring prospectus, the company will utilise Rs. 1000 Crores of the fresh issue for the following purposes:
- Partial or full pre-payment or scheduled repayment of certain debt facilities of the Asset SPVs availed from banks/financial institutions (including any accrued interest and any applicable penalties/ premium). Its adjusted Net Debt stands at Rs 7214.8 Crores
- Purchase of NCRPS(Non-Convertible Redeemable Preference Shares) of MBPPL(Mindspace Business Parks Private Limited)
- General purposes
Key Financials and its Highlights
| FY18 | FY19 | FY20 | |
| Total Income | 15,022 | 16,797 | 20,262 |
| Total Assets (Current + Non Current) | 84,738 | 91,437 | 1,12,224 |
| Profit before tax | 3,518 | 6,073 | 7,518 |
| EBITDA | 10,249 | 12,614 | 13,718 |
| Net Cash USED In Investing Acitivities | -4,267 | -5,860 | -13,551 |
| Net cash generated from / (used in) financing activities | -4,878 | -3,561 | 4,743 |
| Borrowings | 52,555 | 56,209 | 63,569 |
The Pros
- Dividend income REITs have to pay at least 90% of net earnings to unitholders as a dividend. Ensured Regular Flow of Income
- The Trust has a WALE(Weighted Average Lease Expiry) of 5.8 years, which means that at present the average time in which all leases will expire in 6 years which mean a steady cash flow for the next 6 years minimum.
- Diversification– REITs help investors diversify a portfolio, as they have a low correlation to equity, debt and other assets class. Moreover, Every Tentant contributes to not more than 7.7% of its Gross Contracted Rentals.
- Transparent-Like public listed companies, REITs must disclose financial information to investors, report on material business developments and risks on a timely basis. Since REITs distribute most of their earnings, they frequently seek funding from capital markets, which require them to make additional disclosure and justify plans for using such funds.
- Allowed Investment only in Commercial Real Estate As per SEBI rules.
The Cons
- Tax on dividend-Earnings from REITs is taxed at the marginal rate of taxation making it less attractive.
- Lacks Presence in Banglore Cluster, a major IT and Corporarte Hub.
- Limited growth-REITs exhibit limited growth, as they have to distribute 90% of income. Thus, REITs can reinvest 10% of its income indicating lower compounding effect.
- Investment risks-The standard risks of the real estate market such as property values, interest rates on loans, location and tax laws are applicable to REITs.
- High expenses-REITs charge management and transaction fees. There are instances where REITs have put a limit on redemption too.
Should one go for the IPO?
The COVID-19 pandemic practically rendered commercial real estate as a liability for most sectors. However many of Mindspace’s properties have a multi-year lease agreement already in place, Mindspace has decided to give waivers to occupants as well. This does not mean a reduction in the rental collection in the medium run. Offices will adhere to government norms like limited attendance, social distancing and fixed hours will make occupancy a viable option.
Moreover, the psychological impact of working at home was harmful to a major part of society, workspaces can be expected to resume in the long-term
Projected earnings of the company as well as analysts give a optimistic outlook towards the company.
Essentially, Investment in Mindspace REIT can be for those expecting long-term returns and a low-risk appetite with a steady income. Additionally, investment in a REIT is a safe haven since it does not correlate to other segments like Equity, Debt etc. also considering the comparatively low volatility in the real estate sector and that land is a tangible asset that seldom depreciates in value especially in Tech Hubs and Metros you can expect a good growth over a horizon of 3-8 years.