Lodha Group, known for its prominent luxury skyscrapers in south and central Mumbai, aims to become a diversified real estate player as it plans to focus on building affordable homes and a rental portfolio across asset classes like office, retail and warehousing. With its delayed initial public offering (IPO), debt levels remaining high and refinancing pressure eminent, the Mumbai-based firm is making alternate fund-raising plans and ramping up its construction and delivery milestones to tide through. In a telephonic interview, Lodha Group’s managing director Abhishek Lodha talked about the challenging time for the sector, a possible REIT in the future and focus on catering to the consumer. Edited excerpts:
From being a luxury housing developer, Lodha has ventured into multiple asset classes in the recent past. What’s the larger plan?
We realized a while back that for a company of our size, we need a diversified asset base to grow better. It’s a conscious call we took and executed it quietly. For instance, premium housing constituted 80% of our portfolio a few years back, but it’s only 30% now. About 40% comprises affordable projects and the remaining 30% is rental assets. We decided to focus on building our rental portfolio, through office and retail projects, and entered the warehousing sector by partnering with ESR to build an industrial park. The company has transformed from a premium housing developer to a diversified real estate player.
Does this mean you will not do many luxury projects going forward?
Premium housing is a supply-demand driven business. Those who have started large projects in the last two years are finding it tough to complete them. The behaviour of the buyer is clearly moving to ready apartments. Even a developer like DLF has focused on selling ready homes. Though we are selling under-construction homes, the focus is to complete and sell premium apartments. We still have some land parcels, and will develop premium projects in a limited way.
Given the delay, are you planning to do an IPO at all?
After we got the Sebi approval for the IPO in July last year, the NBFC crisis happened and it wasn’t a good time for a share sale. Given the primary market sentiment, it makes no sense right now. IPO is a clear opportunity for us but you need the right economy to do it. We will keep watching this space. On the other hand, a REIT (real estate investment trust), which is very different and offers higher, steady income yield, is a more likely outcome for us. We plan to monetise our rental assets through a listing in the next 2-3 years.
What’s the strategy behind building a rental portfolio?
I believe that Mumbai is undergoing a kind of revitalization. The city now offers a lot better value to companies who want to expand. There are not many good office developers in Mumbai and there’s a gap in the office market, which we can fill. We have nearly 7 million sq ft under construction and aiming to do a REIT. We have recently monetised an office asset for around ₹1350 crore and may also monetise some of our assets. We have the cash flow to build the portfolio but we do realize the value that a strategic investor will bring if we do a REIT. In retail, we plan to build a large number of food and entertainment-led centres.
If the IPO is not happening, how do you plan to retire and refinance your debt?
The residential business will generate meaningful amount of cash flows which would be used to deleverage. We are expecting around ₹27,000 crore of cash flows from our under-development and existing projects. The first focus is to complete the projects and use the surplus cash flows for debt reduction. We are planning to raise additional debt which will be used to replace existing debt.
The real estate slowdown has now lasted for over five years and the NBFC liquidity crisis is not over yet. What’s your outlook on the sector?
There is an economic slowdown in the country, which we think will correct itself over time. In real estate, it’s difficult to give a time or estimate on how long it will take for the sector to recover. So right now, we are just focusing on delivering better value to consumers. We believe that affordable housing and office projects will do well. We started our affordable housing project in Palava (suburban Mumbai) in 2010 which gives us a unique competitive advantage. We launched our affordable housing brand ‘Crown’ recently and the first project has done well. We have already done around ₹450-500 crore of sales bookings in the first two weeks of the festive season and waiting to see how it does going forward.