Hello,
Thank you so much for the insightful post and ensuing discussions! They’ve been really interesting.
There are a few things troubling me and I haven’t been able to think through them clearly. Would appreciate it if someone could help clarify my thoughts.
- How are you all viewing future acquisitions?
Background: Despite borrowing at 6.4% and having a roughly 66%-33% Equity-Debt Split and having an asset with 97.8% occupancy and a cap rate/yield of 7.5%, they couldn’t manage to make ETV acquisition significantly ‘accretive’. (Though the claim is it will be 4% accretive, etc. once stabilized, but this year the impact is negative possibly because of only partial period of rent coming in). Source: PG15 Supplementary Data FY21Q3 or even Slide 10 Investor Presentation FY21 Q3.
There is a ROFO for almost 30 msf (possibly spread over the next 5-6 years). The probability of being taken over is higher than the probability of not being taken over. I’m guessing they would have to resort to more equity dilution. If interest rates move up, we’re facing a scenario where the cap rate or yield on the properties could be lower than the cost of borrowing. It would be difficult to make anything accretive then. I feel this potential dilution with each acquisition could be a bigger risk than most of the other items.
- How are you thinking of occupancy rates?
There has been some downward pressure on occupancy in properties outside Bangalore. Even if it moves up, it could would awhile before we see rent coming in or money coming in. This could be atleast 1.5-2 years away (assuming 1 years of downward pressure then another 6 months for rents coming in).
This also implies that the downward pressure on the REIT price would continue (with each distribution, certain payables are being closed on the debt+interest front). That would potentially imply Rs. 20 decline in this period (this is the distribution amount per unit for a year). (btw distributions have also been declining).
- Does anyone have any insight into leasing contracts?
There’s a commencement date. This is different from when the entity leasing it starts paying rent (gap could be upto 6 months). There’s an escalation of 15% every 3 years. And there’s some premium to be paid if the lease is ended before the period. There’s an element of deposit as well.
What are the additional clauses? How do lease renewals fit in? How is WALE calculated while at the same time there’s talk of 3-5 year renewals?