ICICI Securities lists out top picks in commercial real estate sector

SUMMARY

The Indian commercial real estate office market has seen a 49 percent YoY decline in H1CY20 net absorption at 10.5 msf. However, developers have reported over 90 percent office rental collection between March-June 2020 and have seen a pickup in leasing enquiries from June 2020 onwards with few large pre-COVID deals also being honored. Rents also continue to sustain at pre-COVID levels for large, institutional landlords, said ICICI Securities report. Here are the top picks by ICICI Securities in the commercial real estate sector

By Ankit Gohel Jul 21, 2020 3:20:27 PM IST (Published)

DLF | BUY | Target: Rs 223 ICICI Securities believes that the company’s high-quality tenant portfolio consisting largely of MNCs makes the portfolio resilient. The company has collected over 90 percent of office rentals between March-May 2020 from tenants.

Embassy Office Parks REIT | BUY | Target: Rs 407 Amid the risks to medium-term demand for office spaces in India, the brokerage believes that the office portfolio of the Embassy REIT is relatively resilient in these tough times. The REIT has collected 97 percent rent from tenants in April-June period. It has also achieved rental increases of 14 percent YoY in Q2CY20 on 1.8 msf across 22 office leases as per contractual escalations.

Oberoi Realty | ADD | Target: Rs 412 Oberoi Realty currently generates over Rs 400 crore of annual rental income across offices/malls/hotels and was on track to cross over Rs 1,000 crore of annual rentals by FY23E with Borivali Mall and Commerz III office becoming operational, ICICI Securities said.

The Phoenix Mills | BUY | Target: Rs 800 The company has limited exposure to offices with some operational area in High Street Phoenix and Kurla in Mumbai. Upcoming rental assets in Pune may see some deferment in leasing plans, the brokerage noted. The company has collected over 80 percent of office rentals from tenants post lockdown.

Prestige Estates Projects | ADD | Target: Rs 250 Factoring in COVID-19 related concerns, the brokerage has cut its FY21/22E rental income estimates by 30% and 20% to Rs 800 crore and Rs 940 crore, respectively. It assumes zero mall rentals for Q1FY21 and deferment of incremental office leasing by 12 months along with zero rental escalation in FY2122E. The company has collected over 90 percent of rentals from tenants post lockdown and was also able to complete a 0.9 msf lease deal with Accenture in its Star Tech, Koramangala project in Bengaluru.

Brigade Enterprises | BUY | Target: Rs 220 Brigade has been able to achieve office rental collections of over 95 percent in the March-May 2020 period. In FY21, the focus will be on incremental office rentals from World Trade Centre, Chennai, where rentals are expected to commence from Q4FY21 and the Tech Gardens, Bengaluru, which is already earning partial rentals, ICICI Securities said.

Sunteck Realty | BUY | Target: Rs 487 | Sunteck was looking to build 3 msf of office/retail space by FY23-24E with an estimated capex of Rs 1,600 crore and potential rental income stream of Rs 400-500 crore, the brokerage noted. However, these plans are flexible depending on COVID impact and the company is yet to start any capex and can modify its plans if required, it said.