ICRA assigns provisional AAA rating, stable outlook to Nexus Select Trust

Ratings agency ICRA has assigned a provisional AAA rating with a stable outlook to India’s maiden retail Real Estate Investment Trust (REIT) Nexus Select Trust floated by an affiliate of US-based private equity major Blackstone Group.

This retail REIT will have an initial portfolio of 17 retail malls, 3 office spaces, 2 hotels and 1 solar power generation plant across the country.

Nexus Select Trust received registration from the capital markets regulator the Securities and Exchange Board of India (SEBI) on September 15.

The sponsor of the Trust is Wynford Investments Limited, an affiliate of Blackstone Inc, while the investment manager of the trust is Nexus Select Mall Management, which is 100% owned by the Blackstone Group.

The Nexus Select Trust proposes to acquire approximately 100% shareholding in 18 entities and 50% shareholding in another special purpose vehicle (SPV) from the sponsor group. Through this, it will own 17 retail malls with leasable area of 9.79 million sq ft, three office spaces with a leasable area of 1.34 million sq ft, two hotels and one renewable energy asset.

“The rating of Nexus Select Trust also considers the REIT’s low leverage profile with debt/NOI of 4 times for FY2023 as per ICRA’s base case estimate, and loan to asset value (LTV) of around 22%, which provides financial flexibility to fund future acquisitions. ICRA expects the leverage to remain below 25% of loan-to-value based on the Trust’s current business plans, thereby supporting its strong credit profile,” said Rajeshwar Burla, Group Head at ICRA.

According to him, the rating derives comfort from the trust’s diversified portfolio of retail malls spread across the country, with presence in prominent micro-markets of key metro cities and a strong operational track record.

The portfolio has demonstrated a healthy occupancy level of 93.2% as on June 30, 2022 and
has a reputed tenant base comprising marquee clients like Reliance Retail, Landmark Group,
PVR, Tata & Trent, Cinepolis etc. among others. The rating also favorably factors in the
experience and track record of the Trust’s sponsor group in managing a diversified portfolio in
retail real estate business in India.
The rating also takes comfort from SEBI REIT regulations which restrict the aggregate
consolidated borrowings and deferred payments for the REIT and its SPVs, thereby limiting the
leverage and under-construction portfolio that can be undertaken by the Trust, he said.
ICRA believes the liquidity position of the trust will be supported by stable rental income from
the underlying assets and low operational expenditure in the leasing business. Healthy fund flow
from operations will be adequate to cover the debt servicing obligations.
So far, India has seen three issuances under the REIT structure, all in the office space sector.
These include Embassy Office Parks REIT, Mindspace Business Parks REIT and Brookfield
India Real Estate Trust REIT.