Rationale
The assigned rating factors in Sundew Properties Limited's
(SPL) promoter strength, with the entity being a part of Mindspace Business
Parks REIT {Mindspace REIT, rated at [ICRA]AAA(Stable)) and its strategic
importance for the REIT. SPL contributed to 27% of Mindspace REIT's
consolidated net operating income (NOI) for FY2022 and around 20% of the REIT's
consolidated asset valuation in March 2022. ICRA notes that certain assets of
SPL have been encumbered towards the secured borrowings at Mindspace REIT,
leading to higher linkages between the entities. The rating also factors in the
comfortable leverage and debt coverage metrics of SPL. The five-year average
DSCR is estimated to be above 2.3 times and leverage (Debt1 /NOI) is estimated
to be less than 4.5 times in the medium term. The rating also considers the
established business profile of SPL, with favourably located commercial property
viz. Mindspace Madhapur, Hyderabad, with a total completed area of 5.7 million
square feet (msf) as on March 31, 2022. The rating also draws comfort from a
strong tenant profile of the properties, with the presence of reputed tenants
and long-term lease tenures of 5-15 years, ensuring rental income visibility in
the near to medium term. ICRA also notes that the top-five tenants contributed
37% of the gross rentals in March 2022, which exposes the company to moderate
lessee concentration risks. ICRA, however, has also taken note of the
cyclicality associated with the commercial real estate sector and its
vulnerability to external factors such as the Covid-19 pandemic. The pandemic
has resulted in higher adoption of flexible working arrangements and broad-based
increase in vacancies across most office leasing portfolios. However, ICRA
notes that the occupancy in SPL's portfolio had increased to 95% in March 2022
from 83% in March 2020, despite the pandemic's impact and with the resumption
in back-to-office plans, the high occupancy levels are likely to sustain in
FY2023. Further, SPL is exposed to refinancing risks, as 64% of the total debt
of Rs. 905.3 crore as on March 31, 2022, have bullet repayments. However, the
high financial flexibility by being a part of Mindspace Business Parks REIT and
low leverage as reflected in LTV of 15-16%, Debt/NOI of 3.0 times in March 2022
provide comfort. ICRA believes the credit profile of the company will remain
stable on the back of stable operational and strong tenant profiles, along with
robust coverage and leverage metrics
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