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Feb 16, 2021

Brookfield’s India REIT falls on debut amid growth and debt woes

Andrew Moffs discusses Brookfield Asset Management


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Brookfield India Real Estate Trust, the third such investment vehicle to publicly trade in the South Asian nation, fell on debut as investors fretted about the COVID-19 pandemic’s impact on the realty sector and the asset manager’s growth prospects.

Units of the real estate investment trust backed by Canada’s Brookfield Asset Management Inc. fell 2.2 per cent from its issue price to 268.93 rupees in Mumbai on Tuesday, compared with a 0.1 per cent dip in the benchmark stock index. The last two REITs -- Embassy Office Parks and Mindspace Business Parks -- had gained 5 per cent or more on their first day of trading.

While the coronavirus outbreak has left India’s office-property market largely unscathed, investors are worried about the long-term impact of a contraction in the country’s economy on the sector. More specifically for this REIT, analysts are concerned about its leverage, relatively smaller size and client concentration.

“We have given a neutral rating for the Brookfield REIT, given the uncertainties, weak financials and high debt on books,” Yash Gupta, an analyst at Mumbai-based Angel Broking Ltd., said in an email. “We recommend short term investors not to buy at listing and long term investors to remain invested for long term.”

A Brookfield REIT spokeswoman declined to comment.

The initial public offering of the REIT, the smallest by assets among peers in the country, had raised 38 billion rupees (US$523 million) on listing. Brookfield intended to cut debt by 35.75 billion rupees through the initial public offering from 56.5 billion rupees end-September.

While its assets could roughly double to as high as 30 million square feet leasable area, the Brookfield REIT would still be smaller than the 42 million square feet portfolio owned by Blackstone-backed Embassy REIT, according to data from company filings and analyst reports.

Moreover, the Brookfield REIT had high concentration risk because it got 75 per cent of gross rentals from its 10 biggest clients, compared with about 41 per cent for Mindspace REIT and 42 per cent for Embassy REIT, according to a report published by Ask Wealth Advisors in January.