Looking to segregate businesses into separate segments: Prestige Estates

Below is the verbatim transcript of the interview.

Q: Can you take us through the contours of the restructuring that you have in mind?

A: We are dealing in different asset classes and each of these asset classes; the business has grown to quite a large extent. So we felt, at the company level, to segregate each of these business like office, retail, hospitality and residential into separate segments and put them into separate special-purpose vehicles (SPVs). So there will be a separate expenditure, separate profit centre for it, there will be a separate leadership for it and more focus on it. Therefore, we will come to know which business is doing well, where is the weak point, where we can strengthen ourselves, where we can focus more and since we will be also giving it a new push by way of setting up stronger leadership for each of these SPVs, it will make us stronger. We are pretty good in all these asset classes. We have got a large base in retail as well as office. So the whole idea was to bring in a lot more focus and a lot of leadership into it.

Sonia: By when will this restructuring be completed and particularly for commercial business, are you thinking of bringing in any kind of strategic partner any time soon because we are seeing a lot of interest in this space?

A: As of March 31, we have already done the paperwork and in this financial year we will be having four separate entities that will be running the businesses separately.

However, as you said the opportunity is great even in the office segment but once we stabilise with what we are doing, hopefully we will take next course of action and decide what's to be done.

Latha: Will you list any of them separately, but more importantly, why not a Real Estate Investment Trust (REIT)?

A: REIT has been talked about for the last two years. It is an option. I am not saying that it is not an option. Nobody else has done it as yet. We are still working out the legalities and what really needs to be done to list a REIT. So, probably we are also waiting for us to get a little stronger, get a little more traction, get that much more extra built-up area and rental income. We have a fairly healthy rental income in the company just now, but the idea is to add some more because a lot more is under construction and once that gets completed, leased out, it will be a lot more meaningful.

So, at the moment, I am not ruling out any options, but there are many options which are available to us. But, if you ask me whether we are just planning a REIT just now, the answer is no. If it can happen sometime, you never know, it is an option and we will always look at it.

Sonia: What could the growth in the commercial leasing business be over the next two years because there are some brokerages that expect the rental income to reach about Rs 850 crore by FY19? Is that a reasonable estimate?

A: That is as good a reality because we are getting there and there is substantial amount of space that is also under development, both retail as well as office. With these two asset classes, we are surely likely, most certainly likely to get to that Rs 900 crore plus mark.

Sonia: What about the leasing volumes? Nine months of FY17, you have done about half a million sq ft of leasing volumes. What does the growth look like there? I am asking because in the residential space, things are not picking up as much as the commercial space, we understand. So what growth you would be seeing in leasing volumes?

A: Having said that, what really happens is we do not have space just now. If at all we have leased out something, it is basically some building what I have got ready and then we have got it leased out. Now, there is something under construction which is about a 1.5 million sq ft which should get ready by end of next year. We are discussing with various clients to pre-lease. In fact, we are doing another development which is under approval which is about a million plus sq ft. Even that is in all likelihood, we will tie up a definitive agreement soon.

Unfortunately, I cannot spell out the locations or the clients just now because we have non-disclosure agreements (NDA) on it. But, it looks good and I believe the traction is there and we also have a strong pipeline in strategic locations. We are also looking at cities, we have tied up something in Pune. We have recently tied up something in Chennai, some two or three large developments there in strategic locations. Now, those approvals are getting in place. So, there is a time cycle for us to develop this and build it and then lease it out. So, it is a process and there is a plan behind it and there is a strategy behind it and obviously, these all will become reality.

However, as we have seen in the past, there could be some blips here and there that is part of business, certain times the leasing tractions may not be that fast. Certain times, it will be pre-leased even before you start breaking ground. Now these are some vagaries of business which will keep changing. Similarly, like we talked about residential, residential, in spite of what you have been saying, it has been a healthy market; it has been a steady market. Yes, we did have a bit of confusion in the last quarter of 2016 that is October, November and December or maybe even January, 2017 because of the confusion of demonetisation and all that. And now, things are back to normal, they are stable, business has picked up. Even luxury properties are now selling, people are committing themselves because there is a need and there is a requirement. Ultimately, how long can someone wait for the confusion. Once the confusion has disappeared, business has come back to its normal self.

And of course, now since it is a new year, now the Real Estate Regulatory Authority (RERA) Bill is also coming in quickly. May 1 is the date which is slated for and then the authority needs to be established. We need to understand the way ahead. So, the new launches also have to be timed accordingly. There is a lot on the plate. There are plenty of developments which are under approval, some have got approved. This will add up to the sales volumes and real estate being real estate you will also have the highs and the lows. It cannot be a steady one sort of thing where any line where you put it in manufacturing, doing 'x' amount of units and everything gets manufactured and then it is only a question of whether it is sold or not, but we have our ups and downs, approval processes, land, all of this has the variables that keep on happening in this business.