Brookfield India Real Estate Trust IPO: Details

"Celebrate endings – for they precede new beginnings". 
This quote perfectly fits with investors as the only good thing that 2020 gave us was the ending, which marked the beginning of a winning spree of investors. Almost every IPO made investors a substantial amount of money.

Adding to the list, we have Brookfield India Real Estate Investment Trust, backed by Canadian asset management Inc, who is planning to raise Rs 3800 crore through their upcoming IPO. 

But, what exactly is a Real Estate Investment Trust? What does this company do and why is it called a trust?

We know there may be a pool of questions that must be running across your mind right now. But that is why we are here: to spill the beans for you. 

Let's start from the beginning.

What is a Real Estate Trust?

Modelled after Mutual funds, a Real Estate Investment Trust (REIT) is a company that is in the business of owning, operating and generating finance-income through leasing out properties. 

Rather than boring you with unwanted and complex definitions, let's understand it with a simple example.

Let's say you wish to own a real estate property, but with the rates of the properties skyrocketing, it is very difficult for a common man to own a property of his own. Also, its maintenance, financial and legal compliances are some issues that people don't want to get into. But with REITs, you can now own a share in the most expensive and posh properties with as less as Rs.50,000 without any hassle and enjoy a rental income.

These trusts pool funds from a lot of investors (just like mutual funds) and then, they purchase properties from that fund, which in turn yields them rental income. These trusts are managed by Real Estate Experts for which they charge a minimal fee that is deducted from the rental income from the properties and the rest is divided among the Reit shareholders.

Who doesn't like rental income, right?

About Brookfield REIT

Brookfield REIT will be the third REIT IPO after Blackstone group backed Mindspace business parks and Embassy office parks REIT was listed in 2019. This is India's first REIT IPO that is 100% managed by an institution. BSREP India office holding V Pte. Ltd, the promoter of the company, holds 99% stake in REIT.   

The issue will open on Feb 3 and close on Feb 5. The issue price will be between 274-275 per unit of REIT, Brookefield said in a regulatory notification. The IPO will be managed mainly by Bank Of America, Citigroup Inc and Morgan Stanley. In its offer document, the company said that it would use the proceeds from the issue for the partial or full repayment of the existing debt of the company.

Brookfield owns and operates a portfolio of infrastructure and real estate assets. Globally, Brookfield manages nearly $578 billion assets. They own 42 million sq office properties in India, of which 14 million sq ft will be offered under REIT, and 93% of the portfolio value is derived from completed assets.

Recently, Brookfield completed the acquisition of RMZ Corp 12.5 million sq ft real estate assets for around 2 Billion, but these assets won't be included in the REIT portfolio right now. In October 2016, they also acquired Hiranandani Group's offices and retail spaces in Mumbai's Powai suburb, for around 1 billion dollars.

Real Estate investment trust segment is growing like a wagon that has been rolled down the mountain. Large portfolio owners are gearing up to list their part of holdings after successful listing and performance of both the previous REITs (Embassy office parks and Mindspace office parks). 

According to a Crisil rating, REITs and infrastructure investment trusts (InvITs) have the potential to raise up to more than Rs 8 lakh crore of capital for India's infrastructure buildout in the upcoming 5 fiscal years.

Now let us move on to a section that you have been waiting for: 

Brookfield Reit's Performance in the last Fiscal Year

Brookfield REIT posted a profit of Rs 15.12 crore in the fiscal year 2020, against a loss of 15.75 crores a year before. Also, the total income increased to 981.40 crores. The company has a total debt of Rs 6952 crores as of now.

REIT fundraising avenues are gaining currency in India since the investors can diversify their portfolio, reduce their risk and improve returns across infrastructure asset classes. However, stable regulations would play a critical role in achieving this goal.

Competitive Strength

• Established brand presence is like a feather on a cap for real estate companies.
• Brookfield has achieved expertise in entering new markets and capturing market share.
• With strong free cash flow, the company has the opportunity to acquire and invest in new markets.
• Brookfield has been successful in the execution of new projects and has generated good returns on its capital expenditure.
• Strong dealer community is an advantage that can help the company in the near future.

Company Financials

The objective of the issue

1. Proceeds from the Issue will be used for making partial or full repayment of the existing debt of the company.
2. To meet the company's general corporate purposes.

Risk Factors

1. Stable profitability has increased the number of players in the market that has led to intense competition and limited market share for the company.
2. Interest rates are rising at a tremendous rate which in turn, will make properties expensive and less attractive to the tenants.
3. Foreign exchange fluctuations are a problem.
4. Defaults, bankruptcies and insolvencies from tenants may cause companies a lot of trouble as they directly affect the revenue of the company.
5. Assets have a lot of dependency on economic conditions.
6. Objective of the company is not profitable as it has emerged as an IPO to clear the debt.
7. Huge amount of minimum investment.

Brookfield India REIT Details

Tentative Time Table

Brookfield IPO Lead Managers

• Morgan Stanley
• HSBC Securities
• Citi group 

Closing Words 

Brookfield has a strong brand presence which has a lot of benefits in the Real estate sector. With an occupancy rate of nearly 92%, most of the properties are located at premium locations. Also, with major clients like TCS, Accenture, Bank of America etc., Brookfield's client base consists mostly of Blue chip companies.

A setback may be the company's high Debt to EBITDA ratio, but the company has a good growth prospect in the long term.

Investors are advised to take a decision on investing while keeping in mind their financial goals and considering the strength and risks associated with the company.