India’s largest realty company DLF today said it plans to launch the Real Estate Investment Trusts (REITs) next fiscal to monetise its commercial assets and is in talks with global players for partnership.
In an analyst presentation, DLF said it is targeting to “create one or more sizeable REIT platform next year – one for office and the other for retail– to recycle capital for further growth and spin off the RentCo (its rental business arm) attributable debt”.
The company has strong a portfolio of office and retail properties from which it at present earns about Rs 2,100 crore annually as rental income.
DLF seeks to create long-term free cash flows in the form of dividend flows as holders of REIT units and fees from the management of the trust.
Later in the conference call with analysts, DLF said that it did not want to “speculate” whether its REITs plan would be affected by the market regulator SEBI order barring company and six others for accessing the capital markets for 3 years.
DLF, however, said that REITs would be launched at a subsidiary level.
“We are in a dialogue with number of global players for strategic and financial partnership for REITs,” DLF Executive Director (Finance) Saurabh Chawla told analysts.
Stating that the REIT platforms is likely to launched in early part of 2015-16 fiscal, he said REITs could be a “game changer” as the business trust would the company in unlocking value of commercial assets, besides aiding spin-off of debt and creating long-term free cash flows in dividend form.
When asked whether the SEBI order would be applicable on REITs, DLF Chief Financial Officer (CFO) Ashok Tyagi said: “We would not like to speculate on that”.
Chawla said REITs would anyway “happen in the subsidiary”, but he expected clarity from Securities Appellate Tribunal (SAT) on SEBI order by the time company come up with REITs.
The objective of launching REIT would be to maximise the assets’ present value and capture the immense potential of growth that a growing Indian economy has to offer, DLF said.
In September, market regulator Sebi had notified norms for listing of business trust structures, REITs and InvITs ( Infrastructure Investment Trust), that would help attract more funds in a transparent manner into realty and infrastructure sectors. These trusts would get tax incentives.
As growth cycle in office and retail segments of RentCo business improves, DLF said, it is reviewing all options so that the company not only maintains its leadership position but also harnesses the growth that the market shall offer.
“To achieve the above, the company is exploring partnership with other global players, both strategic and financial partners, who may have an interest in participating with DLF in this foray. This could include encashing company’s part investment in RentCo business,” the presentation said.
Tyagi clarified that another proceeding by Sebi against the company is not a new case but is related to the same case where the regulator had passed the order barring DLF from accessing the capital market.
“This is not a new case. It is the same case,” he said.
Yesterday, DLF said SEBI had “issued a (SCN) show-cause notice dated August 28, 2013 under Sections 15HA and 15HB of the SEBI Act, 1992 and under Rule 4 of the SEBI (procedure for Holding Inquiry and Imposing Penalties by Adjudicating Officer) Rules, 1995, hearing on which has been completed and the company has filed its written synopsis/submissions”.
“The order from SEBI on the said notice is awaited,” it had added.
Asked about the conversion of Compulsorily Convertible Preference Shares (CCPS) held by its promoters as the deadline for same is March 2015, DLF CFO Tyagi said: “There is still 4 months time. Let’s see”.
Chawla said that these CCPS can be converted into equity. Post conversion of CCPS into equity shares, DLF promoters will have 40 per cent economic interest in DLF’s commercial arm DLF Cyber City Developers Ltd.
In late 2009, DLF had announced merger of its subsidiary DLF Cyber City Developers with promoters firm Caraf Builders & Constructions, the holding company of DLF Assets Pvt Ltd.
It had also said that post merger, DLF would have 60 per cent stake in DLF Cyber City and the residual 40 per cent economic interest would be held by the shareholders of Caraf.
DLF Cyber City Developers had then issued CCPS worth Rs 1,597 crore to the promoters.
Meanwhile, DLF expects to achieve sales booking guidance of Rs 3,500-4,000 crore for this fiscal on the back of three new launches of projects in Delhi and Gurgaon markets.
However, the company said it would be difficult to meet targets in volume terms.
Tyagi also told analysts that the company would continue with strategy to divest non-core land parcels in Hyderabad, Goa and also few in north India. It would also look to raise funds through private equity at project level.