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24 Jul 2023

While share Initial Public Offers (IPOs) are quite common and allow you to invest in the shares of a company, Real Estate Investment Trust (REIT) IPOs are rarer. Nexus Select Trust REIT IPO is one such offering. It is because REITs are specialized investment avenues, different from the basic equity and debt instruments. Let’s understand what they are.

What are REITs?

A REIT is a company engaged in real estate investment. The company either owns or finances real estate properties that have the potential to generate income.

REITs are professionally managed portfolios, like mutual funds. They do the following:

  • Collect investments from different investors
  • Pool the collected investments into a corpus
  • Use the pooled corpus to invest in or finance properties

The properties were bought to create regular income through rent generation.

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What are REIT IPOs?

REIT IPOs allow REITs to be listed on the stock exchange. This makes it easier for investors to buy or sell their shares in the investment fund.

About Nexus Select Trust REIT IPO

Nexus Select Trust, sponsored by Blackstone, is launching a new REIT IPO to raise funds from prospective investors. The details of the IPO are as follows:

IPO date May 9, 2023, to May 11, 2023
Price band per unit Rs. 95 to Rs. 100
Minimum bid 150 units aggregating Rs. 15,000
Issue size Fresh issue – Rs.1400 crores
Offer For Sale – Rs. 1800 crores
Issue allocation Qualified Institutional Buyers – 75% of the issue size
Non-Institutional Buyers – 25% of the issue size
Book running managers Morgan Stanley
JP Morgan
Axis Capital
Kotak Mahindra Capital

The funds raised from the IPO would be used for the following activities:

  • Complete or partial repayment, prepayment, and redemption of specific debts of the asset SPVs and investment company
  • Debt redemption in specified asset SPVs
  • Stake acquisition in specified asset SPVs
  • Other corporate general purposes

About Nexus Select Trust

One of India's leading real estate investment trusts, Nexus Select Trust, operates across 14 Indian cities, including the metros and tier-II and tier-III cities. Some interesting facts about the company are as follows:

  • The company’s portfolio consists of 17 Grade A consumption centers, which are the best-in-class. Besides having a leasable area of 9.2 MSF, the portfolio has two complementary hotels and three office assets.
  • As of December 31, 2022, the company had over 1000 high-quality retail tenants with 2893 stores. The leading tenants include ALDO, Zara, Superdry, Shoppers Stop, Croma, etc.
  • Between June 2018 and 2022, the company had 90% same-store occupancy.

Financial performance of Nexus Select Trust

Here’s a look at the financial performance of the company over the last couple of years:

Period ending Revenue from operations EBITDA Profit/Loss After Tax
March 31, 2020 Rs. 1622 crores Rs. 1077 crores Rs. 207 crores profit
March 31, 2021 Rs. 907 crores Rs. 613 crores -Rs. 199 crores loss
March 31, 2022 Rs. 1318 crores Rs. 858 crores -Rs. 11 crores loss

Risks and strengths of the IPO

Analyze the risks and strengths of the IPO to know whether it is a good investment choice or not. Have a look –

Strengths  Risks
The company has some of India's best real estate properties across 14 major cities. The composition of the portfolio might not be tax-efficient.
The industry has considerable entry barriers, which limit competition. The income of the portfolio depends considerably on public footfall.
Nexus Select Trust has some of the best national and international brands as its tenants. Most of the income comes from leasing rentals. As such, diversification is missing.
The company has had stable growth, and its cash flow is inflation-adjusted.  

What should you do?

The performance of REITs in India has consistently been higher than that of those globally. Since April 2019, the Internal Rate of Return (IRR) of Indian REITs has been 13.4%. As such, REITs have good potential for investors. The low-cost nature of the IPO makes it attractive to investors.

Understand the risks and benefits of the company and the proposed IPO. You can invest in the REIT IPO if you are looking for portfolio diversification and regular returns. Being the first REIT IPO in the retail space, you might benefit from the IPO’s uniqueness and growth potential.

To invest, choose Motilal Oswal for a hassle-free subscription. You can invest online through the website. If you don’t have a Demat account, you can open one in a few simple steps and subscribe to the IPO when it opens. Get latest update on Upcoming IPO 2023! Get real-time updates on allocations or refunds and track your subscription efficiently with Motilal Oswal’s dedicated services.

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