Brokerages prefer realty firms with annuity assets

Brokerages are recommending stocks of real estate companies with annuity assets because of stable cash flows. They believe demand for office properties will bounce back faster than that of other segments.

“While slowing global and domestic economies do not augur well for India’s property market, we believe annuity businesses, which provide stable and sticky cash flow, will show more endurance during these tough times,” a recent by global brokerage firm CLSA said.

CLSA said during the previous global slowdown of 2008-2009, the country’s office demand dipped in the short term (only in 2009), but then rose to higher levels driven by increased global offshoring. It said the highest number of global capability centres were added during 2005-2010.

It argued that the country’s favourable cost economics (80 per cent cheaper than the US) and talent pool (second largest number of STEM graduates globally), remain a key driver of office demand.

STEM means science, technology, engineering and mathematics. At beaten down valuations, annuity developers offer favourable risk-reward, it said. DLF, Prestige Estates, Phoenix Mills and others have large office properties.

DLF, the country’s largest listed developer, has completed office assets of 33.7 mn sq. ft. This included those by its rental arm DLF Cyber City Developers or DCCDL.

DCCL also has 6.6 mn sq. ft of office under development.

Adhidev Chattopadhyay, research analyst at ICICI Securities, has said the portfolio of Embassy Office Parks REIT is resilient when there is a risk to medium term demand for office spaces in the country.