DLF-GIC joint venture to operate as a kind of a private REIT
Bengaluru: DLF Ltd’s commercial assets platform, in a joint venture (JV) with Singapore’s GIC Pte Ltd, has been designed to take the form of a business trust, a kind of a private real estate investment trust (REIT), India’s largest real estate developer said in an analyst presentation on Tuesday night.
DLF’s agreement with GIC allows business flexibility or opportunity for the group, wherein it can sell completed, rent-yielding commercial projects to the JV or build commercial assets for the JV or sell land parcels earmarked for commercial development in the near future.
“Certain assets/land parcels have been identified for transfer to DCCDL Group which will further strengthen the platform play of DCCDL, subject to requisite approvals. The dialogue with GIC Singapore is at an early stage. Target completion of the process within FY19,” DLF said in the presentation.
In December, DLF said its promoters had concluded the sale of a 33.34% stake in its rental arm to GIC Pte Ltd for around Rs8,900 crore.
In August, the promoters sold the entire 40% stake in DLF Cyber City Developers Ltd (DCCDL) for Rs11,900 crore, the proceeds of which were to be infused into DLF, primarily for debt reduction.
The transaction involved the stake sale to GIC and buyback of remaining shares worth Rs3,000 crore by DLF Cyber City.
Group chief financial officer Saurabh Chawla said in a call with analysts on Wednesday that the assets that will be moved from DLF to the new GIC platform include two rent-yielding office assets in Delhi and one in Gurugram along with land parcels in Chennai and Gurugram.
DLF on Tuesday said fiscal third quarter profit rose 42-fold to Rs4,111.95 crore due to a one-time gain.
Revenue fell 14.8% to Rs1,855.21 crore in the quarter ended 31 December from a year earlier, the company said.
Net profit in the quarter includes one-time pre-tax gain of Rs8,569 crore due to restatement of DLF’s investment in DLF Cyber City, as DLF Cyber City is now being accounted as a joint venture instead of a subsidiary.
DLF’s net debt as of 31 December is Rs5,513 crore.
The net debt of the new DLF Cyber City-GIC platform is Rs16,074 crore. DLF said that the proceeds of the transaction is to primarily prepay a substantial portion of its outstanding debt.
It has already repaid a debt of around Rs7,100 crore till date. DLF remains confident to become net debt zero by end of 2018-19.
Chawla said the debt under the new platform will remain unchanged for a while.
“By March 2018, we will have totally segregated, independent balance sheets of DLF and the new entity,” Chawla said.
On the residential development side, DLF will focus on selling the completed residential inventory valued at around Rs15,000 crore on its books over the next three-to-four years.
The real estate company has modified its residential business model towards selling homes or projects that are at an advanced stage of completion. It will help in mitigating regulatory risks and delays beyond the control of the company, ensure better (price) realization as selling off a payment plan requires attractive pricing to initial customers.
“...It has been observed that the price of the finished/completed product is valued significantly higher than what it is priced at the time of the launch. Higher predictability of profit margins as cost inflation can be mitigated in the pricing strategy. With better credit ratings, funding costs can be further reduced,” DLF said in the presentation.
On Wednesday, DLF shares fell 1.20%, or Rs2.80, to Rs230.90 while the benchmark Sensex shed 0.42%, or 144.52 points, to end the day at 34,155.85.
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