DLF hopes to be debt-free by March 2019 with land monetisation plan

India’s largest property developer DLF Ltd. will share details of plans to develop its land parcels, as it seeks to allay concerns about the slow pace of monetization of assets.

The company will provide investors guidance on new residential projects and the cash flow expected from these developments after announcing earnings for the March quarter, Chief Financial Officer Saurabh Chawla said in an interview in Gurugram, near New Delhi. “We have to communicate to the market the monetization plan of our large land bank.”

Equity analysts have been asking for more visibility into plans to develop holdings of about 235 million square feet. Morgan Stanley in a note to clients this month said DLF needs to provide a roadmap to unlock value in its “large but concentrated” land bank, which includes parcels in Delhi and Mumbai. DLF’s shares have dropped 16 percent this year, faster than the decline in a gauge of 10 realty companies.

Chawla said DLF will soon begin construction work on these projects:

A 7-million square feet residential project in central Delhi -- an equal venture with Singapore’s sovereign wealth fund GIC Pte, which last year acquired the company’s rental portfolio for $1.4 billion from its founders. The transaction allowed DLF to substantially reduce its debt.
 

A 11.76-acre (512,265 square feet) plot at Gurugram and a 5.56-acre parcel in the southern city of Chennai, which will be used to develop commercial properties.

The company is expanding into the cities of Chennai, Hyderabad and Goa to cut dependence on the National Capital Region, or the cluster of cities around New Delhi, Chawla said. About 57 percent of DLF’s holding is in NCR, which “could restrict scale-up in operations,” according to Morgan Stanley.

Here are some highlights from the interview:

Do you plan to list rent-yielding assets?

“The venture with GIC has just been formed and this dialogue of exit we would have may be 7-to-10 years down to road. It is only when GIC wants to exit, we will look at the public listing of the venture. It will be a joint decision by GIC and us.

“It’s a very powerful platform -- we will add 20 million square feet in the next seven-to-10 years to the 27 million square feet at present.”
 

How much debt do you plan to repay this year?

“We had a net debt of about Rs 55 billion as on December 31. We’re planning a qualified institution placement, which should raise more than Rs 45 billion. We will also be getting additional Rs 22.5 billion from the promoters when the warrants are fully paid. By March 2019, we’re targeting DLF to become a zero net debt company.”

How is the rental growth in the commercial space?

“Capital is flowing into commercial real estate as there is minimal developmental risk in such plays; we’re seeing significant pick-up in demand and rental values in Chennai. Hyderabad has become a hot market after investments have started to flow after the Telangana issue got resolved.
 

“We have embedded 5 per cent annual rental increases. Rent reversions are even higher. Empirically, we’ve seen this growth to be north of 15 per cent a year.”
 

What is the outlook for the housing market?

“We’re seeing green shoots in residential at Gurugram. Pan-India revival is at least a year away. We’re probably at the most affordable point in the last two decades.”
 

The company holds completed residential and commercial inventory valued at more than Rs 150 billion, which it plans to sell over the next few years, Chawla said.