Prestige Estates Projects is aiming to be net cash positive by September 2021 and is on course for its next phase of growth with a target of Rs 3,800 crore of rental income in the next five years through office and retail developments, and is steadily expanding outside of south India with residential projects planned in Mumbai and Noida. Chairman and MD Irfan Razack told FE’s Shubhra Tandon that despite the brutal second wave of Covid-19, demand for realty remains strong and FY22 will be better than FY21 for the sector. Edited excerpts:
How has the pandemic changed the real estate sector in India?
From September to March, residential real estate sector across the country, especially in cities like Mumbai, Bengaluru and Hyderabad saw unprecedented sales, with people choosing to buy homes instead of staying in rented accommodation, and people with smaller places upgrading to bigger homes. The pandemic has also led to changes in products. The new projects being planned at Prestige, for instance, are coming up with more open spaces, and introducing safety measures like touch-less elevators and a host of other pandemic-appropriate solutions. As we move along, designs will get more evolved to make the spaces that much more safer. I think now, developers have to start thinking differently, everybody has to innovate and make their products relevant to time.
Given that the second Covid wave was far more brutal and seems to have impacted consumer sentiments much more severely, what is in store for real estate in FY22?
Consumer sentiment has been impacted by the second wave. Yes, people have held back their purchase decisions because of fear and panic. However, the situation has stabilised and we are coming back on track. Yes, there is short-term stress on developers in terms of cash flows, payments and servicing loans, but it should be gone within a quarter or so. Demand will not come back with a bang, but I believe that by about September business should be back to normal. As of now, I feel FY22 will be better than FY21. However, the disclaimer of third wave is always there, and if it is worse than the second, there would be trouble.
In times when companies are thinking about adopting hybrid or more of work-from-home models, how do you see office real estate evolving?
We do not think that offices are going to go out of fashion, though maybe the demand will be soft for 3-4 quarters. While there is no doubt that large MNCs will adopt a hybrid model, there is also a lot more business and work coming to the country, which will lead to increased office space demand. We feel that space planning for offices will now be more elaborate. If the seat per sq ft per person was 40 or 50, it will now double with the need for distancing. Many of the companies have already redone their offices during the lockdown periods. Also, some developers had stopped construction or dropped their plans of building offices which has shrunk supply. So, with supply shrinking and demand also taking sometime to come back, things will balance out in the next few quarters.
What is Prestige’s experience on new leases and renewals?
Both are happening. Between January and April, Bengaluru leased about 3 million sq ft, out of which share of our company is 750,000 sq ft even rent collection is 98-99%, so we are pretty stable.
Prestige has reduced its debt levels significantly after the phase 1 completion of Blackstone deal, and it is aiming to be net cash positive by September 2021. What is the next phase of growth like for the company?
Our aim is to reach Rs 3,800 crore of rental income in the next five years, which will be through a combination of office and retail. We will have more square footage of rental than what we have given to Blackstone so far. We are also doing some office assets with Blackstone which are under construction. Once those are completed and rented, maybe those will also be pushed into their REIT or we will participate along with them. Additionally, the company may also create a REIT in next 5-6 years. On the residential front, our focus will be on mid-income, premium and luxury housing and we are looking at about 20% Ebitda margins from this segment.
Prestige intends to invest Rs 3,000 crore over the next three years to regrow the rental portfolio. Kindly share details of what it entails.
There is 18.72 million sq ft of ongoing commercial projects and 2.56 million sq ft of retail assets. There is another 22.88 million sq ft of upcoming projects in commercial segment and 1.97 million sq ft of retail assets.
What will your strategy be for expansions outside of south India and what are the plans there?
We have tied up some properties in Mumbai, Hyderabad and Noida, where we are focusing on mid and premium segment. In fact, Hyderabad is developing as a good market, so we are expanding our footprint there. We are developing projects in Chennai too. We had earlier decided to go to tier II cities as well, but as a strategy we are now steering clear from smaller cities because we feel it requires too much effort for less volumes. So, we are focussed on tier I cities, which is where the volumes are. We are treading carefully on luxury as demand is slow in that segment.