MUMBAI: Blackstone-backed Mindspace Business Parks Reit stock made its market debut on Friday at a 10% premium over its issue price of 275. The issue itself was oversubscribed 13 times, with investors salivating at the prospect of a tax-free yield of about 7%.

With a 10% rise on listing, the expected yield drops to about 6.6%. But demand even at these levels is resilient, which is interesting given the concern that the commercial real estate sector would be a key casualty of the growing work-from-home culture.

June quarter earnings of Embassy Office Parks Reit indicate that this worry may be overdone, especially for grade-A office spaces.

The key highlight of Embassy’s June quarter result was that despite the lockdown, rental collections from office occupiers remained robust at 98.9%. In a post earnings conference call, the Embassy management said there has been a great deal of conjecture around work-from-home domestically and globally. However, in India, working from home has significant challenges relating to physical and digital infrastructure. It is indeed likely that there will be more flexibility in terms of work place with a hybrid of traditional office and home locations. But offices will continue to be a core amenity for the Indian business community, the management said.

Given the focus on cash conservation, the management cautioned that near-term demand could be impacted due to pause in decision making by occupiers. However, in the medium-term, high-quality properties would benefit from supply shrinkage and increased offshoring to India due to cost pressures, the management added.

Speaking about its tenants, the management said that Indian IT companies, its key occupiers, have performed well despite the pandemic, as reflected by their large deal wins. This gives them confidence about future demand for office spaces from the Indian IT sector. Around 42% of Embassy’s gross rentals come from top 10 occupiers. Out of these, the top three occupiers are IT companies, contributing 25% to its gross rentals.

Mindspace largely has multinational clients occupying its spaces, but the company is not dependent on any one or two clients. Their largest client, Accenture, contributes to 7.7% of gross rentals and they are at 92% occupancy.

“Despite the impact of COVID and weakened sentiment around commercial real estate, the two Reits, Embassy and Mindspace have shown strong rental collections during the last quarter. Hence, even as escalations may be questioned, Reits provide a stable 7% post tax return from locked-in rentals from existing tenants,” Sharad Mittal, chief executive officer, Motilal Oswal Real Estate Fund said.

Embassy distributed 100% of the net distributable cash flows in the June quarter and the distribution stood at 5.83/unit. This is in-line with what the company has outlined, analysts said. Indeed the Embassy Reit has also appreciated meaningfully since its IPO last year; including its payouts, shareholders have ended up with returns of 33% in a little over a year.

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