Nexus Select TrustQ2 FY23Realty

Nexus Select Trust

Q2 FY23 Earnings Call Analysis

Management growth scorecard

Revenue

Category 3

Margin

Category 2

Fundraise

Yes

Order

N/A

Capex

Yes

2 of 4 growth signals are positive.

Full analysis

Revenue guidance

Category 3

→Consumption growth in Q1 FY24 was strong at 18% like-for-like, outperforming the broader market growth of 8-10%.
→Top-performing malls have consistently achieved around 18% consumption growth, with marquee assets like Select Citywalk seeing +27%.
→Rental growth is aligned with consumption growth; about 87% of revenue is fixed, and 13% variable, linked to sales, allowing upside with volume increases.
→The leasing market is robust with 21% re-leasing spreads, driving rental income growth.
→The Trust projects revenue from operations growth around 7-8% CAGR based on market sensitivities.
→Strategic focus on acquiring underinvested malls and adding value through brand mix and marketing supports long-term growth.
→Strong tenant relationships and active tenant sales tracking enable responsive management and sustainable revenue increases.
→Future distribution to investors will reflect growth, with quarterly payouts starting post Q2 FY24.

Margin guidance

Category 2

- Consumption growth in Q1 FY24 was strong at 18% like-for-like versus a market growth of 8-10%, indicating outperformance. - Top performing malls and cities (e.g., Mumbai, Bangalore) are showing 400-1000 bps higher consumption growth than their markets. - NOI grew by 18% year-on-year, with NOI margin improving to 74%, up 360 bps, close to the targeted 75%. - Re-leasing spreads stood at 21%, supporting rental growth alongside consumption gains. - Management projects achieving FY24 earnings in line with projections disclosed in the Final Offer Document (FOD). - Growth across metro and mini metro cities is balanced, with some smaller markets like Bhubaneswar and Mysuru performing well. - Minimal cash is retained (2 months working capital), with up to 100% distributions planned, reflecting strong cash flow generation. - A $1 billion acquisition war chest and active pipeline provide inorganic growth opportunities. Overall, sustained like-for-like consumption growth, operational efficiency, and disciplined acquisitions support positive future earnings growth.

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Fundraise plans

Yes

→Nexus Select Trust currently has a low Loan-to-Value (LTV) of around 15%, with an existing net debt of INR 3,500 crores.
→The REIT regulations allow them to raise debt up to 49% LTV, implying a potential war chest of approximately $1 billion for acquisitions.
→They are planning to maintain a stable LTV in the high 20s to around 30%, aligning with comparable REITs.
→The team continues discussions with developers for asset acquisition which may involve a combination of debt and equity (e.g., swapping shares for units).
→Recent debt raised is INR 22.5 billion (approx. $300 million) at an average cost of 8.2%, better than projections.
→No explicit mention of immediate equity fundraising; acquisitions likely to be funded through the trust’s balance sheet using the available credit headroom and potentially share swaps.

Order book

The transcript from Nexus Select Trust's Q1 FY24 earnings call does not specifically mention details about "Current/ Expected Orderbook/ Pending Orders." The focus is primarily on consumption growth, acquisition pipeline, rental growth, occupancy, supply-demand dynamics, and financial performance metrics. Key related points include: - Active M&A pipeline: Evaluating acquisition of about 50-60 A grade malls, focusing on core markets and assets where value can be added. - Approximately 30 million square feet of attractive acquisition opportunities available outside developer/ operator-owned malls. - Supply addition expected in A grade malls segment is about 3.5 to 4 million square feet annually. - Demand side for retail space by brands estimated at 10 to 12 million square feet conservatively. - Leasing activity strong with 0.4 million square feet leased in Q1 FY24 across 186 deals. No explicit orderbook or pending order figures were shared.

Capex plans

Yes

→Nexus Select Trust focuses on acquisitions of underinvested or undermanaged A-grade malls, with about 50-55 such malls available outside top developers’ portfolios for potential acquisition.
→They have a war chest of close to $1 billion for acquisitions, supported by a strong balance sheet and low LTV of around 15%.
→Capital investments focus on upgrading assets through better brand mix, asset improvements, and marketing activities to drive value creation and rental growth.
→They target assets where they have management control and can apply value-add strategies to increase NOI over a 2-3 year horizon.
→No specific numbers on new capex provided, but capital deployment is expected primarily via acquisitions on the Trust balance sheet.
→Ongoing asset repurposing includes replacing hypermarkets and department stores with growing categories like electronics, beauty, fitness, and entertainment to optimize space and increase revenues.

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