Mindspace credit profile to remain stable
The commercial office leasing segment had the minimal impact of the Covid-19 pandemic and the subsequent lockdown, evident from the steady collections of 97.8% in April and 95.2% in May for portfolio assets under #Mindspace Business Parks REIT.
The demand prospects of the portfolio are adequate, as reflected in the additional leasing of ~0.7 mn sq ft area in Q1FY2021, of which 60% was leased to new tenants, rating agency ICRA said on 25 July 2020 on assigning AAA (Stable) to Mindspace REIT.
However, sustained weakness in the economic environment may impact the incremental leasing and the realisation of mark-to-market potential, it added in a cautious note.
ICRA believes the credit profile of the Mindspace REIT will remain stable on the back of the large and stable operational portfolio, the anticipated growth from assets currently under development and the low leverage at the consolidated level.
Also considered in the rating is the proven track record and the experienced management of the REIT sponsor K #Raheja Corp Group (@KRC), as well as the REIT manager K Raheja Corp #Investment Managers LLP (@KRCIML).
The rating assigned to the issuer is provisional, subject to the successful completion of the proposed listing as well as the reduction in debt levels, in line with the offer document, using the issue proceeds.
The rating favourably factors in the large and diversified portfolio of assets proposed to be housed under Mindspace REIT.
The initial asset portfolio of the REIT will have office space measuring 29.5 million square feet (mn sqft) of leasable area, which includes a completed area of 23.0 mn sqft, under construction area of 2.8 mn sqft and 3.6 mn sqft of planned area for future development.
The completed area enjoys a healthy committed occupancy (~92% as on March 31, 2020).
The portfolio assets are diversified across geographies such as #Mumbai Region, #Pune, #Hyderabad and #Chennai and have a diversified tenant mix comprising of leading multi-national and Indian corporates, wherein the top-10 tenants contribute ~41% to the gross rentals.
Competitive rental rates augur well for the credit profile of the Mindspace REIT, evident from the healthy occupancy track record of the portfolio assets.
The rating draws comfort from the expected sizeable reduction in external borrowings at the consolidated level.
The consolidated borrowing is expected to reduce from Rs.7,382 crore as of 31 March 2020 to Rs.3,614 crore post the REIT listing.
The REIT SPVs will reduce the borrowings by using inflows from the KRC group companies (towards repayments of inter-corporate deposits) as well as from the primary issuance.
Thus, the initial portfolio will have low leverage – the estimated loan to #asset value (LTV) is 15.3% post listing. Low leverage will provide financial flexibility to Mindspace REIT to fund future organic as well as inorganic growth.
The residual debt will be at the level of SPVs and in the form of lease rental discounting (LRD) #loans, which are amortising in nature, negating any refinancing risk in the near to medium term.
ICRA expects the incremental capex to be funded by additional LRD loans.
ICRA believes that Mindspace REIT’s credit profile will be supported by the REIT regulations that restrict the extent of under construction assets in the portfolio to less than 20% of the asset value and the leverage to less than 49% of the asset value. #funds #financing #projects #office #pandemic #banks /fiinews.com
