Rationale

 The rating action for Mindspace Business Parks REIT (Mindspace REIT) favourably factors in the healthy committed occupancy of the completed area at 86.1% as of December 2023, which remained at similar levels of 86.5% as of September 2023. The ratings continue to note its large and diversified portfolio of assets with office space, including completed area of 26.2 million square feet (msf) and under-construction/future development potential of 7.0 msf as of December 2023. Mindspace REIT’s portfolio is spread across major cities such as Mumbai, Pune, Hyderabad and Chennai, with a reputed and diversified tenant mix comprising leading multi-national and Indian corporates, wherein the top 10 tenants generate 29.7% of the gross contracted rentals as of December 2023. The ratings draw comfort from the low external borrowings at the consolidated level with net debt at ~Rs. 6,008 crore and comfortable net debt/NOI at ~3.2 times as of December 2023. The portfolio has a low leverage with loan to asset value (LTV)1 of 21.0%, which provides financial flexibility to Mindspace REIT to fund its future organic as well as inorganic growth. Based on its current capital expenditure plans, ICRA expects the Net Debt/NOI to remain less than 4.5 times in the near to medium term. Part of Mindspace REIT's debt, at the consolidated level is in the form of Non-Convertible Debentures (NCDs) and Market Linked Debentures (MLDs) with bullet repayments at the end of their maturity period, exposing the REIT to refinancing risk. This risk is mitigated to an extent by the tranche repayment of the issuances and undrawn overdraft/LRD facilities of Rs. 806.9 crore as of December 2023, which are expected to be available to meet any exigencies. ICRA notes that tenant leases contributing to ~3.0% of the gross contracted rentals will be due for expiry in Q4 FY2024 and FY2025, respectively. The risk is partially mitigated by reputed tenants with strong businesses and lower-than-market rentals, increasing tenant stickiness. The ratings consider the impact of the future acquisitions that may be undertaken by Mindspace REIT on its leverage metrics. The two assets, Commerzone Raidurg, Hyderabad and The Square Avenue 98 (BKC Annex, Mumbai), which were under evaluation by the REIT for acquisition, have been put on hold in the near term. ICRA will continue to monitor the future asset acquisitions and their consequent impact on the leverage. Comfort, however, continues to be drawn from the proven track record and the experienced management of the REIT sponsor, K Raheja Corp Group (KRC), as well as the REIT manager K Raheja Corp Investment Managers Private Limited (Formerly known as K Raheja Corp Investment Managers LLP (KRCIML)), and the financial flexibility of Mindspace REIT. ICRA expects that Mindspace REIT’s credit profile will be supported by REIT regulations that restrict the extent of underconstruction assets in the portfolio to less than 20% of the asset value and the cap on leverage at 49% of the asset value. The overall credit profile is expected to remain stable on the back of the large, diversified and steady operational portfolio, the anticipated growth from assets currently under development and the low leverage at the consolidated level.