Nexus Select Trust REIT Limited IPO (Subscribe)

Nexus Select Trust is India’s largest retail (malls) platform of 17 high-quality assets, strategically located in dense residential catchments across 14 prominent cities, and is ~96% leased. Sponsored by the portfolio company of Blackstone real estate funds, Nexus is India’s leading consumption center platform with a 9.8mn sq. ft. retail area spread across 17 Grade A urban consumption centers (malls), two complementary hotel assets (354 keys) and three office assets (1.3 msf) as of December 31, 2022.

Key Highlights

India – Location advantage, demographics, and consumption story a near-perfect story at play

Nexus Select Trust’s portfolio is located in India, the fifth-largest economy in terms of nominal gross domestic product (GDP), the third-largest economy in terms of purchasing power parity (PPP), and the second-most populous country in the world as of June 30, 2022.

The income levels in India are increasing at a rapid pace, which is demonstrated by robust growth in its middle-class and high-income households. As a result, the middle-class household segment (i.e. households earning a total annual income of USD 5,000 to USD 50,000) grew at a 14.8% CAGR between FY10 and FY20.

Domestic consumption is a key driver of India’s economy. In FY22, consumption expenditure accounted for ~59.6% of India’s GDP, which was ~390 bps higher than the world average and ~2,070 bps higher than that of China for the same period. Further, the company with a market-leading presence in prime in-fill locations of 14 prominent cities across India is well-positioned to capitalize upon the consumption growth driven by these megatrends.

India’s largest consumption center platform, with best-in-class assets and a pan-India presence

Nexus Select Trust owns 17 best-in-class urban consumption centers across 14 cities and is India’s largest consumption center platform. The company’s pan-India portfolio has a well-diversified presence in prime in-fill locations of 14 prominent cities which represented 30% of India’s total discretionary retail spending in FY20.

The asset base is well-diversified across northern, western, and southern India, with the largest asset contributing only 18.3% of gross rentals. Further, the quality and scale of the portfolio and its industry-leading active asset management make them among the preferred options for domestic and multinational retailers and consumers. This has enabled them to maintain high levels of committed occupancy, with strong rent growth and robust tenant sales growth.

Strong Company Portfolio

The company’s portfolio offers an attractive opportunity to capitalize on India’s consumption growth through a robust business model and diversified asset base that can serve as a natural hedge against inflation. A majority of their portfolio assets are market leaders in their respective submarkets and serve as shopping, entertainment, and social destinations for their respective catchments.

As a result, Nexus REIT enjoyed a 96.2% average Committed Occupancy across their portfolio as of December 31, 2022, and 11% CAGR in tenant sales from FY18 to FY20.

Strong Organic Growth

The Company is well-positioned for strong organic growth through a combination of contractual rent escalations, increased tenant sales leading to higher turnover rentals, re-leasing at higher market rents & lease-up of vacant areas. It is strategically located in prime in-fill locations with high barriers to entry.

Key Risks

• A decline in footfalls in its urban consumption centers has in the past, and may in the future, adversely affect its revenues.
• A significant portion of the company’s revenues are derived from a limited number of large tenants. Any conditions that impact these tenants, properties, or markets may adversely affect its business.
• The trust may utilize a significant amount of debt in the operation of its business and its cash flows and operating results could be adversely affected by required repayments or related interest and other risks of its debt financing.

Valuation

Nexus Select is a quasi-play on consumption through its high-quality retail assets. At the upper band of Rs 100 a unit with a market cap of Rs 15150 crore, the issue is at a Price to NAV of 0.78x, offering a discount and hence potential upside on the listing.

There is no comparable player currently listed in the markets. It is offering a pre-tax yield of 8 pct in FY24, at the upper price band. Investors looking for a fixed-income product with growth should consider this as an investment. Subscribe.

Disclaimer: The views expressed in the blog are purely based on our research and personal opinion. Although we do not condone misinformation, we do not intend to be regarded as a source of advice or guarantee. Kindly consult an expert before making any decision based on the insights we have provided.