Detailed Rationale

CRISIL Ratings has reaffirmed its rating on the bank facilities of CSJ Infrastructure Pvt. Ltd (CSJ; part of Nexus Select Trust [NxST; CRISIL AAA/Stable]) at ‘CRISIL AAA/Stable’. The existing rated debt of Rs 1,293.33 crore (outstanding amount of Rs 931 crore as on September 30, 2023) at CSJ has been refinanced in December 2023 with Rs 950 crore debt having longer tenure till November 2038 (against May 2032 for earlier debt). Consequently, CRISIL Ratings has withdrawn its rating on the long-term bank facilities worth Rs 343.33 crore following the request from CSJ and on receipt of ‘no dues certificate’ from the bankers that the outstanding amount has been repaid completely. The withdrawal is in line with CRISIL Ratings’ policy.

 

The operating performance of NxST was comfortable with consumption (consolidated sales done by retailers within the malls) growing 18% on a year-on year basis for the first 6 months of fiscal 2024 (H1 2024). This was also reflected in operating revenue of Rs 816 crore in H1 2024 (for the period from May 12, 2023); net operating income (NOI) margin was also healthy at 73%. The consolidated committed occupancy for all 17 retail malls in the portfolio also improved to 97% as of September 2023 from 96% as of September 2022, primarily supported by improvement in occupancy for Fiza by Nexus Mangalore from 72% as of December 2022 to 87% as of September 2023.

 

Financial risk profile was also comfortable with consolidated gross debt remaining low at Rs 4,165 crore at an average cost of debt of around 8.3% as on September 30, 2023 leading to comfortable loan-to-value (LTV) ratio of 17% (on gross debt basis as per external valuation dated September 30, 2023; 14% LTV on net debt basis).

 

The rating continues to reflect comfortable LTV ratio of NxST characterised by low debt levels, strong debt protection metrics, and stable revenue profile of the assets given healthy occupancy level and benefits from tenant and geographical diversification. The strengths are partially offset by competition in the retail real estate market and exposure to volatility in the real estate sector resulting in fluctuations in rental rates and occupancy.

Analytical Approach

CRISIL Ratings has combined the business and financial risk profiles of NxST with its underlying SPVs, and has applied the criteria for rating entities in homogeneous groups. The rating of CSJ is based on that of the NxST as it will have direct control over the SPVs and will support them in the event of an exigency. Additionally, the SPVs have to mandatorily distribute 90% of their net distributable cash flow to NxST, leading to highly fungible cash flows. Also, as per REIT Regulations, 2014, of the Securities and Exchange Board of India (SEBI), the cap on borrowings has been defined at a consolidated level (equivalent to 25% without unitholders approval and 49% of the value with unitholders approval of NxST’s assets).

 

Please refer Annexure - List of Entities Consolidated, which captures the list of entities considered and their analytical treatment of consolidation.

Key Rating Drivers & Detailed Description

Strengths:

• Comfortable LTV ratio of NxST: The consolidated gross debt of NxST was low at Rs 4,165 crore as on September 30, 2023. The portfolio has cash and cash equivalents of Rs 297 crore and mutual fund of Rs 909 crore as on September 30, 2023. Part of the debt was prepaid during and post listing in May 2023, with external gross debt remaining in line with expectation. Consequently, NxST have comfortable LTV ratio of 17% (on gross debt basis as per external valuation dated September 30, 2023; 14% LTV on net debt basis). The low LTV ratio shields investors from the risk of any decline in property prices and its consequent impact on refinancing.

 

LTV is expected to remain at 22-25%, as any incremental debt being taken will be utilised towards refinancing of SPV debt or acquisition of new assets. Increase in debt from current levels, in the absence of commensurate cash inflows, will remain a key rating sensitivity factor.

 

• Strong debt protection metrics: Steady cash flow from rentals should lead to comfortable consolidated average debt service coverage ratio (DSCR) for the REIT. Further, the trust had incremental liquidity of Rs 297 crore, in the form of cash and other bank balances, and Rs 909 crore in form of mutual fund as on September 30, 2023. Amortising debt at REIT level of Rs 1,250 crore and at SPV level of around Rs 2,000 crore as on September 30, 2023, has long tenure of 12-15 years should also support debt protection metrics.

 

The NCDs – Series I (tranche A) of Rs 700 crore raised in June 2023 have been primarily utilised for refinancing of external debt at underlying SPVs. These are non-amortising with bullet repayment at the end of 3 years, while the coupon of 7.86% will be payable quarterly.

 

The NCDs – Series I (tranche B) of Rs 300 crore raised in June 2023 have been primarily utilised for refinancing of external debt at underlying SPVs. These are non-amortising with bullet repayment at the end of 5 years, while the coupon of 8.00% will be payable quarterly.

 

These existing NCDs exposes the trust to refinancing risk. Nevertheless, the risk is mitigated by low LTV, ability and track record in refinancing and healthy revenue potential of the retail assets.

 

• Stable revenue profile of SPVs acquired by the REIT: Around 88% of the total revenue is from 17 retail assets having stable operations with a track record of at least 5 years of rental collection – the consolidated revenue from these assets was around Rs 726 crore in H1 2024 (for the period from May 12, 2023). These assets enjoy robust occupancy levels, 97% on an average as of September 2023, and have high upside potential for rentals, given superior asset quality, and favorable location in prime areas within the cities they are situated in.

 

NxST have total retail area of 9.9 million square feet (sq. ft). The portfolio has a healthy mix of anchors, vanilla, and food and beverage tenants, with top 10 tenants contributing only around 20.2% of gross rentals (as of December 2022). The assets are spread across 14 cities in the country, with the largest asset contributing to 16% of gross rentals in H1 2024 (for the period from May 12, 2023). The rating also factors in a well-secured lease structure, with lock-in and lease period of over three years and five years respectively and an in-built revenue escalation clause for most tenants. Also, a portion of the rental is generated through revenue share income.

 

Weaknesses:

• Competition in the retail real estate market: Although the portfolio of NxST generates steady cash flow from lease rentals supported by healthy occupancy, retail malls may continue to face competition from other retail assets and established high streets. The ability of the REIT to continue to reinvent and remain relevant, to tackle existing and new competition, will remain essential. Any impact on footfalls and consumption and, therefore, rental cash flow at the assets due to competition will remain a key rating sensitivity factor.

 

• Exposure to volatility in real estate sector: Rental collection, the main source of revenue, is exposed to volatility because of economic downturns, thereby impacting the tenant's business risk profile and, hence, occupancy and rental rates. Ability of the company to renew/enter into agreements at existing or better terms will be a key monitorable. While majority of the tenants are established companies and may continue to occupy the property, any industry shock leading to vacancies may make it difficult to find alternate lessees within the stipulated time. This could adversely impact cash flow, and hence, will be a key rating sensitivity factor.

Liquidity: Superior

Liquidity remains strong, supported by healthy debt protection metrics, including for permitted additional financing. NCDs are non-amortising, exposing the debenture-holders to refinancing risk. Nevertheless, a low LTV ratio enhances the REIT's financial flexibility. Consolidated debt of the REIT is unlikely to cause the CRISIL Ratings sensitised LTV ratio to increase materially, thus protecting investors from any decline in property prices and the consequent impact on refinancing. NxST has available cash and equivalents of Rs 297 crore including debt service reserve account (DSRA) and Rs 909 crore in form of mutual fund as on September 30, 2023.

Outlook: Stable

CRISIL Ratings believes NxST will continue to benefit from the quality of its underlying assets over the medium term.

Rating Sensitivity factors

Downward factors:

• Decline in the value of the underlying assets or higher-than-expected incremental borrowings, resulting in CRISIL Ratings sensitised LTV ratio of 35% or above on a sustained basis
• Occupancy level declining below 85% on a sustained basis
• Acquisition of assets of lower quality affecting portfolio health
• Any impact on independence of REIT operations due to but not limited to change in sponsorship of the trust or ownership of the REIT manager

About the Group

NxST is registered as an irrevocable trust under the Indian Trust Act, 1882, and as a REIT with SEBI’s REIT Regulations, 2014, as amended. NxST is sponsored by Wynford Investments Limited (a Blackstone Inc. affiliate). It has 17 retail malls, 3 office spaces and 2 hotels and a solar plant.

 

The broad details of the assets that are held by Nexus REIT are as follows:

 

Select Infrastructure Pvt Ltd (SIPL) owns and operates a retail mall, Select Citywalk, in Delhi. The property has a total leasable area of 5.1 lakh sq. ft, of which 100% was occupied as on September 30, 2023.

 

CSJ owns and operates Nexus Elante complex, with a retail mall, an office space and a hotel. Nexus Elante, a retail mall, has a total leasable area of 12.4 lakh sq. ft, of which 99% was occupied as on September 30, 2023. Elante Office, an office space, has a leasable area of 0.9 lakh sq. ft, of which 78% was occupied as on September 30, 2023. It also owns and operates a hotel, consisting of 211 rooms, is run under the Hyatt Regency brand in Chandigarh.

 

Westerly Retail Private Limited (WRPL; merged with SIPL w.e.f. May 15, 2023) owns and operates a retail mall, Nexus Seawoods, in Navi Mumbai. The property has a total leasable area of 9.8 lakh sq. ft, of which 99% was occupied as on September 30, 2023.

 

Euthoria Developers Private Limited (EDPL) owns and operates two retail malls, Nexus Ahmedabad One in Ahmedabad and Nexus Amritsar in Amritsar. Nexus Ahmedabad One has a total leasable area of 8.8 lakh sq. ft, of which 98% was occupied as on September 30, 2023. Nexus Amritsar has a total leasable area of 5.4 lakh sq. ft, of which 98% was occupied as on September 30, 2023.

 

Nexus Hyderabad Retail Private Limited (NHRPL) owns and operates two retail malls, Nexus Hyderabad in Hyderabad and Nexus Koramangala in Bengaluru. Nexus Hyderabad has a total leasable area of 8.3 lakh sq. ft, of which 99% was occupied as on September 30, 2023. Nexus Koramangala has a total leasable area of 3.1 lakh sq. ft, of which 96% was occupied as on September 30, 2023.

 

Vijaya Productions Private Limited (VPPL) owns and operates Nexus Vijaya complex, with a retail mall and an office space. Nexus Vijaya, a retail mall, has a total leasable area of 6.5 lakh sq. ft, of which 99% was occupied as on September 30, 2023. Vijaya Office, an office space, has a leasable area of 1.9 lakh sq. ft, of which 100% was occupied as on September 30, 2023.

 

Chitrali Properties Private Limited (CPPL) and Daksha Infrastructure Private Limited (DIPL) owns and operates Nexus Westend complex, with a retail mall and an office space. Nexus Westend, a retail mall, has a total leasable area of 4.3 lakh sq. ft, of which 99% was occupied as on September 30, 2023. Westend Icon Offices, an office space, has a leasable area of 9.8 lakh sq. ft, of which 76% was occupied as on September 30, 2023.

 

Safari Retreats Private Limited (SRPL) owns and operates a retail mall, Nexus Esplanade, Bhubaneswar. It has a total leasable area of 4.2 lakh sq. ft, of which 98% was occupied as on September 30, 2023.

 

Nexus Shantiniketan Retail Private Limited (NSRPL) owns and operates a retail mall, Nexus Shantiniketan, Bengaluru. It has a total leasable area of 6.3 lakh sq. ft, of which 95% was occupied as on September 30, 2023.

 

Nexusmalls Whitefield Private Limited (NWPL) owns and operates Nexus Whitefield complex, with a retail mall and a hotel. Nexus Whitefield, a retail mall, has a total leasable area of 3.1 lakh sq. ft, of which 95% was occupied as on September 30, 2023. It also owns and operates a hotel, consisting of 143 rooms, is run under the brand Oakwood Residence in Bengaluru.

 

Nexus Udaipur Retail Private Limited (NURPL) owns and operates a retail mall, Nexus Celebration, Udaipur. It has a total leasable area of 4.1 lakh sq. ft, of which 96% was occupied as on September 30, 2023.

 

Nexus Mangalore Retail Private Limited (NMRPL) owns and operates a retail mall, Fiza by Nexus, Mangaluru. It has a total leasable area of 7.2 lakh sq. ft, of which 87% was occupied as on September 30, 2023.

 

Nexus Mysore Retail Private Limited (NMYRPL) owns and operates a retail mall, Center City, Mysore. It has a total leasable area of 3.3 lakh sq. ft, of which 99% was occupied as on September 30, 2023.

 

Naman Mall Management Company Private Limited (NMMCPL) owns and operates a retail mall, Indore Central, Indore. It has a total leasable area of 2.4 lakh sq. ft, of which 94% was occupied as on September 30, 2023.

 

Indore Treasure Island Private Limited (ITIPL, investment entity with 50% shareholding) owns and operates a retail mall, Treasure Island, Indore. It has a total leasable area of 4.3 lakh sq. ft, of which 96% was occupied as on September 30, 2023.

 

Mamadapur Solar Private Limited (MSPL) owns and operates the Karnataka Solar Park having 15 MW capacity.

 

Nexus South Mall Management Private Limited (NSMMPL), provides certain property management and common area maintenance services for some assets of the portfolio, has merged with MSPL w.e.f. April 1, 2023.

Key Financial Indicators*

Particulars	Unit	2023	2022
Operating income	Rs crore	NA	NA
Profit after tax (PAT)	Rs crore	NA	NA
PAT margin	%	NA	NA
Adjusted gearing	Times	NA	NA
Interest coverage	Times	NA	NA

*The trust has been incorporated and assets have been acquired in May 2023

Annexure - Details of Instrument(s)

ISIN	Name of the instrument	Date of Allotment	Coupon Rate (%)	Maturity Date	Issue size (Rs. Crore)	Complexity Level	Rating assigned with outlook
NA	Lease Rental Discounting Loan*	NA	NA	30-Nov-38	950	NA	CRISIL AAA/Stable
NA	Lease Rental Discounting Loan	NA	NA	31-May-32	343.33	NA	Withdrawn

*Includes sub-limit of overdraft for Rs 190 crore