DLF, India’s largest real estate developer by market capitalisation, plans to form two real estate investment trusts (REITs) — one for office and another for retail — targeting its first filing in the next financial year.
The company is looking to monetise almost 30 million sq ft of commercial assets through REITs, increasing cash flows and reducing debt. The company, in its analyst presentation, said it was in talks with both strategic and financial investors who may like to partner it.
At an analyst call, the DLF management on Tuesday said though it was hopeful that the upcoming Budget would simplify and make the tax structure more practical, enabling large foreign inflows in India’s realty market, DLF would come up with a REIT platform in any case.
Ashok Tyagi, chief financial officer, DLF, said: “It’s not that if there are no tax incentives in the Budget we will be completely off REITs, we will still consider it asset by asset and, in the next 6-12 months, try and get some of the assets on to a REIT platform.” Tyagi said the company would look at projects that are on ‘historical costs’ and have a ‘specific structuring’ for the REIT platform, without divulging details.
During the presentation, the company also said, “As REITs become an imminent possibility in the near term, the board has appointed a committee of independent directors to do a strategic review of the RentCo business so that best value is extracted from the investment assets that have been created over last 6-7 years.”
The committee of independent directors has appointed two investment banks, namely JPMorgan and Morgan Stanley, to advise it on the best possible path going forward, which would create sustainable, long-term income for DLF and its shareholders, it added.
However, the company officials remain “cautious” on their future guidance. Saurabh Chawla, executive vice-president (finance), DLF, said: “As a guidance for the future, I will be very cautious; it is still some way to go before we see normal conditions come back to the market. We expect it to happen in the next 12-18 months.” Chawla added that the leasing business, on the other hand, continued to do well, and was moving as per targets.
DLF’s net debt rose nearly R400 crore to R20,336 crore as on December 31, 2014, against the quarter ended September 30, 2014. The current attributable net debt to the company’s development arm is R6,350 crore and to the rental business is about R14,000 crore.
The company management expects the net debt of the development business to stay range-bound or a plus-minus R1,000 crore in the short term. Officials say the net debt attributable to rental business would continue to increase as rentals and capex in the business grew.
Chawla said while the company wanted to maintain the debt of DevCo “range-bound”, it planned to cut debt of RentCo through launch of REITs. “We are in dialogue with many private equity players for bringing them in some of our projects in Gurgaon and Delhi. And we are targetting some other disposals also,” Chawla said.
DLF posted a y-o-y fall of 9% in its consolidated net profit for the quarter ended December 31, 2014, to R132 crore. Consolidated revenues saw a sharp drop of 20% y-o-y to R2,080. The DLF scrip closed up 0.41% at R157.95 on the BSE on Tuesday.
Estate of affairs
* Plans to monetise almost 30 m sq ft of commercial assets via REITs to cut debt
* To look at projects on ‘historical costs’ and have a ‘specific structuring’ for the REIT platform
* Net debt rose nearly R400 crore to R20,336 crore as on December 31, 2014, against a year earlier
* Attributable net debt to DevCo is at R6,350 cr and RentCo at R14,000 cr