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ICICI Securities Report
We initiate coverage on Nexus Select Trust real estate investment trust with 'Buy' rating based on March 24E discounted cash flow-based target price of Rs 126/share.
As of December 31, 2022, Nexus owns and operates 17 Grade A urban consumption centres or retail malls with total leasable area of 9.2 million square feet, two complementary hotel assets (354 keys) and three office assets (1.3 msf).
We expect Nexus REIT’s net operating income compound annual growth rate at 10.4% over FY23-26E to Rs 18.8 billion based on the expected ramp-up in occupancies in existing assets, annual rental escalations and mark up of leases that are expiring.
At current market price of Rs 107, we expect Nexus REIT to deliver net distributable cash flows distribution yield of 7.1% in FY24E, 7.7% in FY25E and 8.2% in FY26E.
We expect ~65-70% of distribution to be in the form of dividends/principal repayments that are tax free. We believe upsides from mark-to-market opportunity, portfolio rental appreciation of 5-6% beyond FY26E and any value-accretive acquisitions may enable the REIT to deliver annual capital appreciation of 6-7% over and above the distribution yield.
Key risks: Slowdown in discretionary consumption, and fall in occupancies and rentals across portfolio assets.
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