17 Malls, 10 million sq ft., 3000 stores, 1000 brands, 13 cr+ footfalls a year, and 1 billion $ plus of sales!
Nexus Select Trust REIT
Fourth REIT to get listed on the Indian exchanges
First in retail space as all three listed REITs - Embassy, Mindspace, and Brookfield have office assets as underlying
This is Blackstone’s third REIT listing after Embassy and Mindspace
Nexus Select Trust is backed by American private equity firm Blackstone
Sponsor is Blackstone Real estate fund with global real estate AUM of US$326 Bn spread across 1,475 msf of leasable area with global expertise and local knowledge (15 years experience in India)
17 high-quality assets, strategically located in dense residential catchments across 14 prominent cities and is ~96% leased
Total Leasable Area of 9.8 msf, 2 complementary hotel assets (354 keys), three office assets (1.3 msf) as of June 30, 2022.
Assets strategically located in 14 leading Indian cities that represent 30% of India’s total discretionary retail spending.
One of the highest quality assets in prime in-fill locations of major cities such as Delhi, Navi Mumbai, Bengaluru, Pune, Hyderabad, and Chennai.
Their assets had 93.9% Same-store Committed Occupancy as of June 30, 2022 (276 bps higher than assets across Portfolio Markets)
Average WALE of 5.6 years (WALE definition and importance below)
Tenants - 1044 domestic and international brands with 3000 (Dec2022)
No single asset and tenant contributed more than 18.3% and 2.8% of total gross rentals (Dec2022)
Tenant sales in Q3FY23 have recovered to 128.1% of pre-Covid-19 levels
95.5% of tenant leases provide for minimum guaranteed rentals with typical contractual rent escalations of 12% to 15% over a period of 3-5 years
What makes Nexus REIT unique?
It has fixed pricing and fixed escalation, and they also participate in sales upside revenue sharing (for all their tenants)
90% of Tenants give a share of their revenue to Nexus
17 Assets they own, 100 total retail assets in India
In the next five years, they are confident of doubling this portfolio count from 17 assets to 34 assets
95% of assets are retail
96.4% occupancy rate, the rate can go to 97%
The yield of the REIT
Since its a retail REIT, the yield is 100-200 bps higher than commercial RE; yield is at 8.25% (quarterly CAGR in 1st year)
The first 3-year Yield avg at 9%
the post-tax return of 7-7.2% (65% of what is distributed is tax-free) for the first year
This Nexus Yield of 8.25-9% is higher compared to 6-7% by Office REITs and 7% yield by 10-year gsec
The ability to acquire assets in the future is strong
NOI growth of 17% in 2 years
11% CAGR pre covid growth, 8.5% CAGR growth guided for the next two years
About the REIT IPO
Initially, 4000 cr IPO size, got it down to 3200 cr
Blackstone holds 60%, post IPO; they will hold 43%; Blackstone is selling 17% in OFS
Fresh issue 1400 cr, Offer for sale of 1800 cr
Objects of Issue
What can investors do?
Nexus REIT can be a good play on consumption through its high-quality retail consumption assets.
At Rs 100/unit - it is priced at 0.78x price to book value (Dec 2022 BV at Rs 127.7/Unit).
Attractive Yield of 8.25-9% pre-tax, post-tax of 7-7.2%.
Nexus select trust is mandated to distribute 90% of the surplus to its unit holders, but they have promised 100% of the surplus as distribution.
Organized retail and e-commerce are just 11% of the total retail market and hence both have huge scope!
Malls as Social Infrastructure
No of malls in India is 100, and entertainment options are now being created – Retail, F&B, movies, Sports courts in malls, etc. Malls are Social Infrastructure for their consumers (as told by the management, which is so true!)
There are risks to Malls as they are physical Infra. However, there are two camps here - One that agrees malls are here to stay and the other camp that doesn't. Financials were bad due to COVID (washout years)
What are REITs?
Real Estate Investment Trust, is a type of investment vehicle that allows investors to pool their money together to invest in a portfolio of income-generating real estate assets such as office buildings, shopping malls, warehouses, and apartments.
REITs are similar to mutual funds, but instead of investing in stocks, they invest in real estate. They are required by law to distribute at least 90% of their taxable income to shareholders in the form of dividends, making them an attractive investment for income-seeking investors.
In India, REITs were introduced in 2014 to provide an alternative investment avenue to investors looking for exposure to the real estate sector. They are regulated by the Securities and Exchange Board of India (SEBI) and offer a transparent, regulated, and tax-efficient way to invest in real estate.
Investing in REITs can offer investors the potential for capital appreciation and regular income in the form of dividends, making them valuable addition to a diversified investment portfolio. However, like any investment, investors should carefully consider the risks and rewards before investing in a REIT.
REITs are a relatively new investment vehicle in India, having been introduced in 2014. They are regulated by the Securities and Exchange Board of India (SEBI) and offer a transparent, regulated, and tax-efficient way to invest in real estate.
Taxation of REITs in India
Dividend Distribution Tax (DDT)
REITs are required by law to distribute at least 90% of their taxable income to shareholders in the form of dividends. These dividends are subject to Dividend Distribution Tax (DDT) at a rate of 25%, which is paid by the REIT. As a result, retail customers owning REITs do not need to pay any tax on the dividends received.
Capital Gains Tax (CGT)
REITs are listed on the stock exchange and can be bought and sold like any other stock. Any gains made from the sale of REIT units are subject to Capital Gains Tax (CGT). The rates of CGT are as follows:
Short-term capital gains (holding period of less than 36 months): taxed at the applicable income tax rate.
Long-term capital gains (holding period of more than 36 months): taxed at a flat rate of 20% with indexation benefit.
Indexation benefit allows the cost of acquisition to be adjusted for inflation, resulting in a lower taxable gain.
Securities Transaction Tax (STT)
REIT units are subject to Securities Transaction Tax (STT) at a rate of 0.001% of the transaction value. This tax is paid by the buyer and the seller of the units.
Goods and Services Tax (GST)
REITs are exempt from GST, as they are considered to be financial services.
Taxation of Foreign Investors in REITs
Foreign investors owning REITs in India are subject to different tax rules than domestic investors. Foreign investors are subject to tax at the rate of 30% on dividends received from REITs unless the rate is reduced by a tax treaty between India and the investor's home country. Foreign investors are also subject to CGT on gains made from the sale of REIT units, with the same rates as domestic investors.
REITs offer an attractive investment opportunity for retail customers in India, providing a tax-efficient way to invest in real estate. Dividends received from REITs are subject to DDT and do not require any additional tax paid by the retail customer. Gains made from the sale of REIT units are subject to CGT, with indexation benefits available for long-term gains. REIT units are also subject to STT while being exempt from GST. Foreign investors in REITs are subject to different tax rules, with the rates depending on the tax treaty between India and the investor's home country. Overall, it is essential for retail customers to understand the taxation policy for REITs before investing in them.
Any information or communication provided by me is for educational or informational purposes only and should not be construed as investment advice. It is important to conduct your own research and seek the advice of a professional financial advisor before making any investment decisions. Any investment you make is solely at your own risk, and I am not liable for any losses or damages that may occur as a result of your investment decisions.