Prestige Estate Projects has been synonymous with premium developments in South India. The crown jewel is of course the towering UB Group headquarters in Bangalore, and the neighbouring uber-premium mall. Prestige is now embarking on a super-luxury residential Kingfisher Towers on Vijay Mallya’s ancestral property, with each flat spread over 8,000 square feet and starting at close to Rs 20,000 per square feet. The company, founded by Irfan Razack, CMD, Prestige Group, last fiscal went public and is toying with various options to increase liquidity and is studying ways to unlock the value in several of its assets. In an interview with Raghuvir Badrinath, Irfan Razack detailed how the realty sector in South India is growing in strength.
Prestige has so far completed 163 projects with a total developed area of over 45.85 million square feet and you are lining up another 63 projects totalling 59.13 million square feet across asset classes. Is something called a severe downturn not bothering you at all?
There are indeed effects which the sector is feeling. However, as a group we have been witnessing a good demand for our projects. For example, recently, we launched two mega projects — one, with 2,300 flats and another with around 400 flats in the premium category. While we have sold as many as 1,600 flats in the former, the latter was sold out within a couple of months. We are continuing to see demand not only for residential, but also for commercial and retail space of our projects. We have already recorded sales of Rs 1,500 crore this fiscal under such tough economic conditions. Having said this, these are tough times for the economy, but it depends on how each corporation addresses the issues.
We have consciously stayed away from the land-bank game the result of which is the manageable gearing levels in the company.
Your projects are among the most sought-after by the private equity players with as much as eight deals at various project levels. How are you structuring an exit for these investors?
The rental yield in itself is pretty healthy for the investors. As of now, on an annualised basis, rental yields across our commercial assets is at Rs 180 crore and with our new launches, and this should touch Rs 500 crore by 2014. Given this, we certainly understand that private equity players and strategic investors invest for an exit eventually. We have various options that we are considering. One of them is bundling our retail and commercial assets into an Real Estate Investment Trust (REIT) and floating it in Singapore as and and when the assets have a critical mass. In this way, there will be a liquidity option for the investors and they can continue to hold the asset which will continue to yield rentals.
Why float the REIT in Singapore? Why not India?
The aspect of REIT is yet to sink in, in India. The first and foremost is the tax structure which makes it pretty much unviable. First, there is the corporate tax, and on top of it there is a dividend distribution tax. After accounting for these two, the returns will be down by half and it is not worthwhile. However, in Singapore, the tax structure is beneficial as the dividend distribution tax is not there.
For the past 25 years, you have been focused on the South India market. Do you think this is the time to go pan-India or at least expand into other major cities — Mumbai, Kolkata and Delhi?
There is enough scope in the southern markets for us to grow further. Having said that, expanding into other cities is definitely an option. But we are not rushing-in anywhere. We have to build the management bandwidth, have to understand the different markets in-depth before we go in. It will take time, but that is a long-term plan.
The promoters hold as much as 80 per cent in the company and the law of the land states that they should hold 75 per cent. How are you addressing that critical issue?
This aspect came into force just after we went public. Had it been mandated earlier, we would have diluted that much at that time itself. Now, we have two more years to reduce our holding to 75 per cent and we are looking at a follow-on offer.
