Godrej Properties has sold 4.35 lakh square feet of its commercial project at Bandra-Kulra Complex (BKC) to Abbott India for Rs 1,479 crore. The project was being developed for Jet Airways on a 50:50 profit-sharing agreement.Speaking to CNBC-TV18, Pirojsha Godrej, MD & CEO, Godrej Properties says the company will utilise a large amount of the sum to reduce its current debt standing at Rs 2,500 crore. The residual amount will be used to focus on residential projects.The deal is valued at Rs 34,000 per square feet, which is much higher than its previous average price of Rs 28,000 per square feet, Godrej adds.The company is in talks to sell 3,00,000 square feet of its unsold inventory going forward, he says. Below is the transcript of Pirojsha Godrej's interview with Latha Venkatesh, Sonia Shenoy and Ekta Batra on CNBC-TV18.
Latha: Take us through the deal itself, at Rs 1,500 crore what does this mean in terms of comparable valuations? You think you have got a very good value for this, have you sold it now because you are seeing real estate valuations going down at all?
A: This is certainly very important deal for Godrej Properties and we think the terms are very attractive. It has been a stated strategy to monetize the commercial portfolio that we have within the company and focus from a new business perspective mainly on the residential space. So this is very much in line with those plans. I think the scale of the deal which is a largest single deal ever done in India in commercial real estate plus the valuation both make this a very important deal from our perspective.
Latha: What will you do with the money?
A: We are seeing a lot of exciting new opportunities. Of course the general mood about real estate sector in the media and elsewhere currently is very gloom and doom but we think it is quite an exciting time to be looking at new opportunities, there are some opportunities at good valuations available. We have also said that we would like to reduce our current debt levels so this would certainly help in a big way with that as well. So I think those are the two key things we will look to do with the money from this.
Ekta: Who is the buyer of this deal and will this close to Rs 1,500 crore figure be split with Jet Airways?
A: The buyer is Abbott and the project overall is a profit sharing joint venture (JV) with Jet Airways but that will only be the sharing of the profit at the end of the project. So from a cash flow perspective, all of this cash flow will come to Godrej Properties.
Sonia: Can you confirm for us whether this deal has been valued at Rs 34,000 a square feet?
A: Yes that is correct.
Sonia: That is much higher than the value that you transacted earlier. What was the average price that you have been doing so far?
A: The previous sales we have done before this were about Rs 28,000 a sq ft and a while ago we have done it at even lower value. So I think the valuation is a very positive one. At the same time, the project is now nearing completion so we expect to fully complete the project over the six-nine months.
Of course as a commercial project gets closer to its completion, the value does improve. So it is a great deal for both sides. We have gotten in a single shot a huge amount of unlocking in our commercial portfolio, which is something that is very important for us. At the same time, the buyer has gotten a very significant chunk in one location at what we hope will be BKC's best commercial building. So certainly this deal has good merits for both sides.
Sonia: What is the unsold inventory that you have in the project currently now?
A: Post this, we will have about 300,000 sq ft of total space. The total project is about 1.3 million sq ft, so the majority of the project now is committed. Keep in mind also the Jet Airways will be occupying some of the space in the project but the remaining inventory we have to market is about 300,000 sq ft.
Sonia: Considering that you will be splitting this consideration of Rs 1,500 crore with Jet Airways and supposing you get about Rs 750 crore through the sales, will all this money be pumped in to reduce your debt?
A: That math is not correct because what will be shared with Jet Airways is only 50 percent of the profits, which will be calculated at the end of the project next year. So all of the cash that we get from this deal will be with Godrej Properties, a large amount of it will be used to reduce debt. As I was saying to Latha, there is also a lot of opportunities we see on the new project site but certainly we don’t think those opportunities will require this kind of capital to be put into them.
Sonia: Can you tell us exactly how much will you be using to reduce debt and from Rs 2,500 crore debt that you are sitting at currently, how much will it go down to?
A: It is not that we will immediately necessarily use all of it for one purpose or the other and of course some of the cash flow will also come as a project is fully complete. However, certainly we think this will be a big and immediate contribution to reducing our debt levels.
Sonia: Since you still have about 300,000 sq ft of unsold inventory, are you in talks with anyone to sell this amount as well, anytime soon?
A: Nothing at a stage where we can talk about it now but certainly there is interest for the remaining space, we are having discussions with several parties for potential additional space and of course we think the benchmark set with this deal both in terms of scale and pricing will be helpful as we look to monetise the remaining space.
Sonia: So the average of the remaining space will also go at about Rs 34,000 -- I am just trying to understand whether there is enough appetite at this high price of Rs 34,000 a sq ft as well?
A: I think each deal is a little bit different. So I won't comment on what the pricing will be. Generally we were quite confident when most people were very negative about the commercial market over the last two-three years, we have always said that this project would be completing at the right time and I think that has fortunately proven true. Commercial markets are on an upswing. So I think we are quite confident of getting a good value.
At the same time, I think one of deal of this scale cannot necessarily be compared from a pricing perspective. So we will have to see where that ends up but I will certainly think there is a good amount of reason to be quite optimistic on our ability to monetize it and get a good price.
Latha: Should we hear about the monetization of the rest of the land this year itself as in 2015?
A: I wouldn’t want to comment on it, the building is slated to be completed, we will start handing over to tenants by mid-year next year. So I think certainly this is the time, when commercial end users who want to take a little bit of time to do their interiors and occupy the building, will be interested. So hopefully we can crack a few more deals this year but of course time will tell.
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