In a previous blog, we have written that commercial and office space leasing company, Mindspace is all set to make a stock market debut with an IPO size of Rs 4,5000 crore. Finally, on August 7, Mindspace stocks opened in BSE at a premium price of Rs 304, which is 10.55 percent higher than initial issue price of Rs 275. Mindspace REIT is only the second REIT to register with Indian bourses after Embassy Office Park REIT, that launched last year.
Mindspace IPOs were available for subscription between July 27 and 29 were subscribed 13 times than initially anticipated, indicates that the company has no trouble in raising the funds of Rs 4,500 crore that was its target.
Short-term vs Long-term Gain
Mindspace REIT IPOs were subscribed for 87,78,24,600 shares as against the issue size of 6,77,46,400 shares. Institutional investor subscription was 10.61 times, whereas non-institutional investors subscription was 15.77 times. Analysts are attributing this enthusiasm to current uncertain market condition, which has made the secured return feature of REIT stocks more appealing to investors when stock prices are plummeting.
Analysing the situation analysts said, the REIT scrips are poised to deliver a higher return in the future and investors are currently focusing on long-term performance. Ahead of the IPO launch, Yash Gupta, Equity Research Associate at Angel Broking Ltd, mentioned that current low return on Mindspace REIT would increase to 7.5 percent in FY22, which makes it an exciting option for long-term investors. Experts believe that the current low yield of 3.5 percent will get compensated in the long run. Sharad Mittal, CEO at Motilal Oswal Real Estate Fund has pegged his estimation to 11-12 percent of which 7-8 percent that will come from rental yield will provide fixed earning.
REITs have a different corporate structure and create a steady source of income for its investors. According to REIT regulation, REITs must distribute 90 percent of their net distributable income in the form of compulsory dividends on stocks. With the stability of debt instrument and upside of equity, REIT scrips are an excellent alternative to diversify a portfolio.
Mindscape is the second REIT to make a debut in Indian bourses. Last year Embassy REIT made its debut has offered around 8 percent return to its investors.
Mindspace REIT has a well-diversified asset portfolio of 172 tenants with office properties in key locations of Mumbai, Hyderabad, Pune, and Chennai. As for the company’s financial health, it is placed on a strong foundation. Mindspace has reported a robust growth of 21 percent in revenue earning in FY20. In addition, Mindspace has a high-profile client base of multinational corporations with no single client contributing more than 7.7 percent of total rent yield.
The fact that Mindspace REIT shares are subscribed for a premium price is a positive indication for the market. It indicates that that is still widespread demand for office space renting real-estate businesses among investors. Post-IPO, the company’s debt will reduce by Rs 3000 crore, which will further help Mindspace to cement its position to deal with the ongoing crisis.