Office space demand improvement, potential interest rate cuts to benefit REITs, says Nuvama; Embassy REIT top pick

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Also Read: Lok Sabha Elections 2024: Defence, power, industrials among sectors to bet on ahead of election resultMindspace REIT registered its best-ever quarterly gross leasing since IPO in Q4FY24, while Embassy REIT and Brookfield REIT had achieved this milestone in Q3FY24.“Over the past couple of years, higher exits, predominantly from IT/ITeS companies had dragged net leasing into negative territory. While exits continued in Q4FY24, the pace seems to be moderating.

Consequently, net leasing was positive for all office REITs. While occupancies improved during the quarter, management of all the office REITs were confident that occupancies should trend upwards from these levels in FY25 as well," analysts at Nuvama Equities said.Meanwhile, aided by healthy MTM, in-place rents have risen steadily for all the office REITs.

Most REITs are currently in a portfolio expansion mode in order to benefit from improvement in demand.Also Read: PE ratio ineffective for valuing certain sectors and stocks in India: Kotak SecuritiesConsequently, the net debt/GAV is slowly rising; nevertheless, it remains below the regulatory cap of 49% for all REITs. With an increase in GAV in FY24, the net debt/GAV declined in Q4FY24.

Moreover, increase in repo rates has led to a steady increase in interest rates for most office developers; despite that, all office REITs currently enjoy borrowing rates < 8.5%, the brokerage firm said.Nuvama Equities has a ‘Buy’ rating on all these four listed REITs. Here are the target prices for these REITs.Embassy Office Parks REIT | Buy | TP: ₹413Mindspace Business Parks REIT | Buy | TP: ₹372Brookfield India Real Estate Trust | Buy | TP: ₹280Nexus Select Trust | Buy | TP: ₹146Read all Stock Market news hereDisclaimer