BackDLF shortlists bidders for stake sale in office portfolio
DLF aims to raise Rs12,000 crore with the promoters selling 40% in its commercial property arm, DLF CyberCity Developers, to institutional investors
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Bengaluru: DLF Ltd, India’s largest real estate developer, has shortlisted a few bidders for the sale of a stake in its commercial property arm and expects to receive binding, updated offers once the potential buyers complete due diligence.
The realty firm circulated an information memorandum to a number of global and domestic investors in April and received preliminary bids from sovereign pension funds and private equity investors in June.
The transaction is critical for DLF, which aims to raise ₹ 12,000 crore with the promoters selling a 40% stake in its commercial property arm, DLF Cyber City Developers Ltd (DCCDL), to institutional investors.
The proceeds will be used to reduce debt, which was to the tune of ₹ 22,120 crore as of 30 June 2016.
“We have shortlisted a few bidders and given them access to the virtual data room and vendor diligence reports. Within a month, they will submit the shareholder agreement after the first stage of due diligence, after which we will be negotiating with them. By mid-October, we should be able to announce (a buyer/buyers)," said Saurabh Chawla, senior executive director of finance at DLF, in an analyst call on Tuesday.
Blackstone Group Lp and GIC Pte. Ltd, Singapore’s sovereign wealth fund, are expected to be two of the bidders; a couple of other sovereign funds are also in the fray, according to two people familiar with the transaction.
Blackstone declined to comment and GIC didn’t respond to emailed queries.
“DLF’s net debt remains high and unchanged, with continued weakness in residential business impacting cash flows. Hence, the completion of the DCCDL 40% stake sale remains crucial," said Adhidev Chattopadhyay, analyst at brokerage Elara Capital.
ALSO READ | DLF Q1 profit doubles to Rs261.42 crore aided by sale of DT Cinemas
“However, we continue to remain cautious as the DCCDL transaction itself will not result in any cash inflow for DLF and a potential REIT listing is still some time away," Chattopadhyay said. REIT refers to Real Estate Investment Trust.
Once the transaction is concluded, it will create two verticals: A residential development company with nominal net debt, 100% owned by DLF, and an independent RentCo business (leasing business) comprising its office (and retail) projects, in which DLF will have a 60% stake.
“All bidders (are) aligned to create a platform partnership on a long-term basis to own and develop commercial assets, and acquire assets inorganically in the marketplace," DLF said in an analyst presentation late on Monday. On its rent-generating office business, which has outperformed residential sales for the firm, DLF said that the current uptick in rentals continues; new leasing momentum is lacking as it has virtually no inventory in most of its projects.
“…The company is following a strategy to aggregate leasing in favour of higher-value, large and high credit customers," it said in the presentation.
DLF is silent on the residential front, with no fresh project launches or significant sales momentum, but the firm is selectively adding to its office and shopping project portfolio. Its Mall of India, Noida, shopping mall which officially opened in April, has been 95% leased.
DLF’s net profit more than doubled in the June quarter, compared with the corresponding period a year ago, owing to a one-time extraordinary gain from the sale of DT Cinemas. Its net profit rose 107.6% to ₹ 261.42 crore while revenue dropped 21.82% to ₹ 1,867.46 crore in the same period. During the June quarter, DLF concluded the DT Cinemas sale to multiplex owner PVR Ltd, resulting in a one-time extraordinary gain of ₹ 372 crore.
PVR revised the terms of its deal with a unit of DLF to buy the DT Cinemas chain after India’s competition watchdog raised objections. The value of the deal with DLF Utilities Ltd was lowered to ₹ 433 crore from the original ₹ 500 crore.
“Residential sales remain muted. This year the target is to complete most legacy projects and create finished inventory. We will not launch any (residential) project for the rest of the year, unless there is substantial improvement in the market," said Chawla.
The developer achieved gross residential sales of ₹ 470 crore during the June quarter; however, cancellation in legacy projects of about ₹ 265 crore resulted in overall net sales booking of ₹ 205 crore.
“The company expects increased momentum in the commercial space. As it has exhausted most of its available commercial stock, it has commenced construction of office space in Chennai IT SEZ (information technology special economic zone) in the second quarter. Construction of Cyber Park (Gurgaon) at full pace and finishing of luxury retail mall at Chanakyapuri (Delhi) is underway. The company is focused on aggregating leases which are expiring to enable it to contract it to ‘high value’ high creditworthy tenants," said the firm.
In 2015, DLF said that it was keen to launch REITs worth up to ₹ 6,000 crore in two tranches over the next two years.
REITs are listed entities that primarily invest in leased office and retail assets, allowing developers to raise funds by selling completed buildings to investors and listing them on stock exchanges as trusts. Investors earn returns on investment either through value appreciation or rental income generated from commercial assets.
DLF’s shares gained 2.46% to close at ₹ 162.20 on Tuesday on the BSE, while the benchmark Sensex gained 1.58% to close at 28,343.01 points and the BSE Realty Index gained 0.97% to close at 1,554.74 points.
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