Maintain ‘overweight’ on Prestige Estate: JP Morgan

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Updated: December 29, 2015 7:17:34 AM

Prestige recently announced buyout of Red Fort’s 62.5% stake in Exora Business Park – which holds Exora Business Park and completed residential inventory in Silver Oak project.

Prestige recently announced buyout of Red Fort’s 62.5% stake in Exora Business Park – which holds Exora Business Park and completed residential inventory in Silver Oak project.Prestige recently announced buyout of Red Fort’s 62.5% stake in Exora Business Park – which holds Exora Business Park and completed residential inventory in Silver Oak project.

Prestige recently announced buyout of Red Fort’s 62.5% stake in Exora Business Park – which holds Exora Business Park and completed residential inventory in Silver Oak project. Exora Business Park has 2.2msf of operational office space in ORR, Bangalore and generates an annualized rental income of R130 crore. The property houses marquee tenants Schneider Electric, PEC, JP Morgan, Verizon, Xerox, etc. This transaction had been in discussions for the last few months. As per BSE release, the deal is expected to be completed by Jun-16 and will take PEPL stake in the project to 99% from c32%.

Taking into account the debt on SPV and residential inventory, EV for the deal works out to Rs 1,420 crore. Our calculations imply a cap rate of ~10.5% for the operational office space against the market cap rates of
9-9.5% levels seen in the recent transactions. This transaction will increase the company’s exit rental income to R550 crore plus from R470 crore guided at the beginning of the year. This should see further upside over the next two to three years on renewals as contracted rentals converge to spot rentals (30-40% higher).

More importantly, the transaction will help the company get majority control over a large rent-generating property, thereby enabling better asset control. Net debt to rise by R1,000 crore.  The transaction is expected to be largely funded by debt. Further, the debt on the subsidiary will also start getting consolidated on PEPL’s balance sheet. Overall this transaction will lead to net debt increasing by ~R10B. Pro forma attributable net debt for the company will rise to Rs 42 billion or net D/E to over 0.9x.

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