The three real estate investment trusts (Reits) in India – Embassy, Mindspace and Brookfield – are expected to offer distribution yields of 6-9% from fiscal year 2022 to 2024, along with capital appreciation of 12. at 18%, according to one report. by ICICI Securities Ltd.
This will be due to an increase in vacancy levels of 200 to 300 basis points in the first half of FY22 and a recovery towards the end of the third quarter.
According to the report, Indian Reits recorded significant rent collections of over 99% in the first quarter of fiscal 22 and was able to achieve healthy relocation spreads as well as contract escalations.
“However, overall portfolio vacancy levels increased by 100-200 basis points quarter-on-quarter (qoq) due to continued work from home and the second wave of covid leading to postponement of rental decisions by occupants, “ICICI Securities said in a recent report.
While vacancy levels may increase further in T2FY22, the brokerage expects this trend to reverse from H2FY22E assuming the resumption of vaccinations is accompanied by a gradual return to the offices.
After the start of the first wave of covid from March 2020, pan-Indian Category A vacancy levels in the seven main cities increased by more than 300 basis points until June 21 to reach 16.6% .
“In line with industry trends, portfolio vacancy levels increased from 400 to 600 basis points on a same-store basis for Embassy Reit, Mindspace Reit and DLF during FY21, while Brookfield Reit maintained stable occupancy levels during S2FY21. This was due to tenant exits for the scheduled deadlines and early exits as well, ”said ICICI Sec.
The brokerage added that in the first quarter of FY22, overall portfolio vacancy levels increased another 100 to 200 basis points quarter on quarter on a same-store basis for Brookfield Reit, Mindspace Reit and DLF, while Embassy Reit has maintained stable occupancy levels.
ICICI Sec noted that comments from managers at Reit and other large office developers indicate that rental discussions that were on hold due to the second wave of covid have now been revived, with existing occupants speaking of a potential expansion and tenants who were looking to cede space earlier looking to retain and eventually expand the space.
“With three Reit registrations in India, the door has been opened for more potential Reit registrations from FY22E,” said ICICI Sec.
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