In a two-hour case on Meghmalhar Business Parks, a listed office REIT, 35% of leases expire in two years with in-place rents 18% below market, and the weighted lease expiry is 4.2 years. Estimate the rent reversion upside and the vacancy risk, and decide whether the units are fairly priced at a 7% distribution yield.

If every tenant renews, reversion lifts distributable cash from Rs 700 crore to about Rs 792 crore, a 7.9% yield on today's price; at the historic 80% retention the run rate is the same but the transition year dips to about Rs 632 crore. With escalation of about 2% a year, that is a total return near a required 10%, so the units are fairly priced, not cheap: the price already assumes the renewals happen. A weak outcome, half the tenants leaving into a softer market, leaves 7.4% and a painful year.

A landlord who let a flat five years ago at Rs 20,000 a month, when the going rate is now Rs 24,000, has a gain waiting at the next renewal, but only if the tenant stays or the next one signs quickly. Meghmalhar's rent reversionThe change in rent when an expiring lease is renewed or re-let at current market rent; positive when in-place rent is below market. is the same gap at scale. The 35% of area expiring within two years earns Rs 420 crore today; at market it would earn Rs 512 crore, so the upside is Rs 92 crore a year, 7.7% of total rent. Property costs barely change with rent, so nearly all of it reaches distributable cash: Rs 700 crore becomes about Rs 792 crore, a 7.9% yield on the current price.

Now run the same expiries with tenants leaving. At the historic 80% retention, call it 75% to be safe, a quarter of the expiring space sits empty for a year and then re-lets at market with three months of rent spent on fit-out and brokerage. The run rate is the same Rs 792 crore once the space is let, but the transition year falls to about Rs 632 crore, a 6.3% yield, and investors feel that in the distribution. In a weak case, half the tenants leave into a softer market where new leases sign 10% below today's quote, space stays empty for eighteen months and costs six months of rent to re-let: the transition year falls to about Rs 395 crore, a 4.0% yield, and the run rate recovers only to Rs 741 crore, 7.4%.

Start from what the price has to beat. The government bond pays 7.1% with no tenants to lose; a REIT with leasing and refinancing risk needs a premium, say three points, so a required return near 10%. A 7% starting yield below the bond yield is only justified by growth, and there are two sources: the reversion and the contractual escalations, which net of the reset cycle add perhaps 2% a year to rent. Full renewal gives a 7.9% run-rate yield plus 2% growth, about 9.9%, which meets the required return; the units are fairly priced on the assumption that the renewals happen, and the price offers no margin if they do not. Capitalising the full-renewal cash flow at 10% less 2% growth gives a value near Rs 9,780 crore, close to today's Rs 10,000 crore; the weak case is worth about Rs 9,148 crore, 9% below the price.

So the answer is a conditional one, and the two-hour format rewards saying what the condition is. The units are fair if retention stays near 80% and market rents hold; they are 9% too dear if half the expiring tenants leave into a softer market. The work that would move the view is tenant-level: which tenants hold the 35%, whether any one tenant is a large share of it, whether their own leases elsewhere suggest consolidation, and what the manager's renewal conversations say today. The 4.2 year average expiry is a comfort that hides the question, because it is held up by the 30% of leases running six years or longer while the next two years decide the distribution. The bond yield, the premium and the escalation rate are assumptions to state, not facts to defend.