DLF to launch REITs next fiscal, plans Rs 3600cr CMBS

The net debt of the company grew by Rs 817 cr during the second quarter this fiscal to Rs 19,944 cr

DLF, the country’s largest real estate company, plans to launch Real Estate Investment Trusts (Reits) in the next financial year. The aim is to monetise its commercial properties and it is in discussion for partnerships.

Its net debt grew by Rs 817 crore during the second quarter of this financial year to Rs 19,944 crore. It also plans to raise Rs 3,600 crore through an issue of securities backed by commercial assets, to replace costlier debt.

“We are in the process of internally setting up REIT platforms by next year — it will be either one or a couple of platforms in office and retail space. We are in discussions with a number of players, strategic and financial. REIT will happen early next fiscal and will happen in our subsidiaries,” executive director (finance) Saurabh Chawla told analysts in a conference call. DLF earns about Rs 2,100 crore a year from its rental business, expected to grow to Rs 2,600-2,750 crore by March 2017.

In September, the Securities and Exchange Board of India had notified the norms for listing of business trust structures. REITs with tax incentives will enable more funds to flow into the realty and infrastructure sectors.  DLF is also seeking to create long-term free cash flows in the form of dividends, as holders of REIT units and fees from the management of these.

“To achieve this, the company is exploring partnership with other global players, both strategic and financial partners, who might have an interest in participating with DLF in this foray. This could include encashing the company’s part investment in the RentCo business,” the company said. On Thursday, DLF reported a nine per cent rise in consolidated net profit at Rs 109 crore for the quarter ended September, on account of higher sales and lower expenses. According to an analyst presentation, net debt was Rs 19,944 crore, against Rs 19,127 crore at the end of June.

Of the total debt, the development (housing) business contributed about Rs 6,000 crore and rental business Rs 14,000 crore. It intends to keep the former’s net debt aroundof the development business range-bound by Rs 1,000 crore across the medium term, through tactical divestments to or joint ventures with investors.

DLF is also readying a large CMBS (commercial mortgage-backed securities) offering of Rs 3,600 crore. In May, it had launched the country’s first CMBS, to raise Rs 525 crore against a shopping mall, the DLF Emporio in Delhi. In June, it raised another Rs 375 crore through a CMBS backed by ‘DLF Promenade’ mall.

DLF is also contesting a heavy penalty imposed by the Competition Commission of India. It has deposited Rs 50 crore in court and will pay the balance by November 25 to comply with the Supreme Court’s direction to first deposit the entire Rs 630 crore fine. The penalty came in a case filed by buyers in a Gurgaon housing project.

The stock was up by 2.1 per cent on Friday, closing at Rs 141.80.