Nexus Select Trust is India’s leading real estate investment trust. It will be India’s first listed retail REIT with a portfolio well-positioned to benefit from the consumption backed growth of India’s rising middle class and rapid urbanization. Their portfolio comprises 17 best-in-class Grade A urban consumption centres with a total leasable Area of 9.8 msf, two complementary hotel assets (354 keys) and three office assets (1.3 msf) as of June 30, 2022. Their assets are strategically located across 14 leading cities in India, which constituted 30% of India’s total discretionary retail spending.
Currently, there are three listed REITs in the Indian market, all of which are office REITs. As such, there is currently no listed retail REIT in India. Indian REITs have significantly outperformed its global peers, delivering an IRR of 13.4% since April 2019, outperforming US office REITs by 2,662 bps. India is expected to witness continued demand for quality Grade-A retail assets, given new entrants in the country as well as expansion plans of existing retailers.
Strengths And Risks
+ Location: : India is one of the fastest growing major economies in the world and consumption accounted for approx 60% of GDP in FY22. The trend is driven by a young population (over 74% of India’s population is below 45 years of age), a growing middle class and rapid urbanization.
+ Prime Assets: : The company is India’s largest platform of best-in-class assets in 14 of India’s key consumption cities. Due to multi city solutions, they negotiate competitive lease terms with tenants, commanding a 3.8% Marginal Rent premium.
+ Premium Clientele: : They have a diverse tenant base of renowned national and international brands including Zara, ALDO, Superdry, and Marks & Spencer and Indian brands incl Croma, Shoppers Stop and PVR Cinemas.
+ Inflation hedged cash flows: : Nexus has a stable portfolio of 93% occupancy as of June ‘22. Our leases typically have tenures of three to nine years for our in-line tenants, nine to twenty-five years for anchor tenants and three to five years for our office tenants.
+ Renowned Sponsor: : Their sponsor is a portfolio company of Blackstone real estate funds. Blackstone is one of the world’s leading investment firms with US$951 billion of assets under management.
- Client Concentration: : A significant portion of revenues are derived from a limited number of large tenants. Any conditions that impact these tenants, properties or markets may adversely affect our business, revenue from operations.
- Non-Renewal Risk: : A substantial part of their revenue from lease rentals. Leases with tenants across the portfolio may expire and may not be renewed. Also, lease deeds with some of their tenants are not adequately stamped or registered, and the company may not successfully litigate over such agreements.
- Asset Class Risk: : Real estate markets are cyclical in nature, and a recession, slowdown in the real estate market, increase in property taxes, changes in development regulations and zoning laws, availability of financing, rising interest rates, increasing competition, financial setback to tenants etc. can impact business.
- Debt Refinancing Risk: : Real estate business entails a significant amount of debt in the operation of business. The cash flows and operating results could be adversely affected by debt repayments or related interest and other risks of debt financing.
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