After a successful listing of Indias first REIT IPO, Embassy Blackstone, another Bangalore based developer Prestige Estate seems to be gearing up for its REIT IPO.
It recently issued preferential shares to GIC worth Rs 430 crore at the price of Rs 323 (current market price has gone below this price and is Rs 316) and has a REIT ready structure in place already.GIC already owns 4.4% in the company but with the preferential shares allotment may be viewed as a step closer to the REIT IPO as it will bring the expertise to manage the REIT like Blackstone is managing for Embassy.
The company CFO Venkat Narayan told ET that they plan to come out with the REIT IPO in the end of FY21, as by that time their three under construction commercial projects will be ready, adding to the rental income and thus realizing better valuations.This could lead to value unlocking, do away with leverage concerns, a potential stocks re-rating and an opportunity to own a quality asset of REIT, an industry which is expected to see huge flows in the coming years.Prestige management is expecting the rental income annual run rate to increase to more than Rs 1500 crore from Rs 1100 crore in the end of FY20, thanks to the three commercial projects completing in 2020 and rent hikes in some of the existing projects.
The three new projects include two malls in Bangalore.
2 msf office space in Bangalore and 1 msf office space in Chennai.Now below is how REIT listing could lead to value unlocking, stocks re-rating and do away with high leverage concerns.At cap rate of 7.5% and rental income of Rs 1500 crore, could value Prestige REIT at Rs 20,000 crore.
Embassy REIT is trading at a cap rate of 7% and Ascendas India trust REIT listed at Singapore is trading at near 6% cap rate.
The money raised could either be used for re-paying the debt in the commercial projects which would rise to near Rs 4000 crore by the time of REIT.
Total net debt of the company currently is Rs 8500 crore and could rise to near Rs 9000 crore and is slightly on the higher side at present.
Consolidated EBIDTA in first half was Rs 1020 crore from commercial as well as residential.
The inventory is over Rs 3000 crore.
The company could also use the money through IPO to reduce the debt in the residential business.Analysts are valuing the residual business of residential and land bank at around Rs 7500-8000 crore, after adjusting the debt.
Around the REIT time, residential business and commercial together could be valued around Rs 28,000.
Current market capitalization is Rs 12000 crore.RisksIf the company doesnt do a mirror holding for REIT de-merger and instead keeps it as the subsidiary, so the IPO money goes into the balance sheet of Prestige estate.
In that case the REIT value unlocking may not be fully recognized.Lower bond yields and lack of other opportunities have created the demand for REIT products and hence lifted their valuations.
Rise in the yields in future could have the reverse effect.Other risk being that the demand in real estate industry has not really picked up.
The company is sitting over inventory of Rs 3000 crore.