Mindspace REIT looks to shrug off covid-19 blues

Mindspace Business Parks REIT has restarted work on its initial public offering (IPO), three people aware of the development said, as the resumption of economic activity brightens outlook for the real estate investment trust (REIT) backed by K Raheja Corp and Blackstone.

Mindspace, which had filed its draft IPO prospectus in December, initially planned to go public before the end of March, but market volatility due to the covid-19 pandemic forced the company to wait.

“Mindspace has restarted work on its IPO. Investors’ roadshows will begin soon. If things go as planned, they could launch the deal in July itself. They definitely want to get done with the public offering within the September quarter,” said the first person cited above, requesting anonymity as he is not authorized to speak with the media.

Mindspace’s renewed IPO plans come at a time of strong ongoing debate and uncertainty about the impact of the covid-19 pandemic on commercial real estate, as flexible working options gain traction thanks to the nationwide lockdown that forced large parts of the workforce to work out of their homes.

The biggest concern for commercial property owners is their technology tenants, who form the biggest customer base for office space in India and who are also seen to be at the forefront of the work-from-home (WFH) trend.

In April, Tata Consultancy Services Ltd said that by 2025, it expects 75% of its employees will work from home. On Friday, a report in The Economic Times suggested global IT firm IBM may reassess and exit half of its long-term tenancies in India, although the company has called the reports “inaccurate”.

Mindspace REIT derives almost 50% of its rental income from technology companies, the draft prospectus shows. IT services company Accenture is Mindspace’s biggest tenant and accounts for 8.7% of its annual rental income and occupies 1.9 million sq. ft of office space.

However, despite these uncertainties, investors are still likely to bet on REITs, said the second person cited above.

“There is a lot of debate but no one is cutting down on commercial space as of now. Instead, with social distancing, people will probably need more spacious offices even though the workforce occupying these spaces may come down,” he said.

“Of course, there will be some impact. Price escalations are going to be low,” he added.

Investor interest in REITs in the current environment is validated by the recent sale of Embassy Office Parks REIT units by Blackstone to institutional investors.

“The Embassy block deal shows that institutional investors continue to be interested in REITs. In fact, Blackstone upsized the deal from initial target of $257 million to $300 million, indicating that there was more demand than anticipated. That’s an encouraging sign for Mindspace REIT,” said the third person cited above.

According to data from stock exchanges, institutional investors such as Nomura India Investment Fund, American Balanced Fund and Signature High Income Fund bought the Embassy REIT units.

The Mindspace REIT has a portfolio of commercial properties with a total leasable area of 29.5 million sq. ft (msf), comprising of 19.8 msf of completed area, 6.1 msf of under construction area and 3.6 msf of future development area, as on 30 June 2019.

“At present, we are under the regulatory purview and cannot comment on anything extraneous to the offer document. We will update all the relevant information and disclosures as and when we file the updated offer document,” said Mindspace Business Parks REIT in a statement.