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Prestige Estates gets a leg-up from success of 1st REIT IPO

With a net debt of Rs 7,600 crore, the company’s debt was two times the equity.

, ET Bureau|
Mar 26, 2019, 07.46 AM IST
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This would also help unlock the value of the company’s commercial portfolio.
ET Intelligence Group: After a strong response to Embassy Office Park’s REIT (real estate investment trust) IPO, investors have turned bullish on another Bangalore-based realtor, Prestige Estates Projects, which has a significant share of commercial assets.

Until recently, analysts were worried about the company’s rising debt and its high unsold inventory, but a successful IPO of the first real estate REIT has come as a relief.

Analysts expect Prestige to generate around Rs 1,200-crore rental income from its commercial properties in FY19. At 9 per cent internal rate of return (cap rate), the rental portfolio can be valued at Rs 10,200 crore after adjusting for net debt of Rs 3,100 crore in the real estate segment. Monetisation of these assets can help Prestige reduce its debt significantly.

With a net debt of Rs 7,600 crore, the company’s debt was two times the equity. This remains a concern amidst slowing property market and high unsold completed inventory of over Rs 3,000 crore. Some of the analysts ET spoke with remain optimistic about a possible REIT IPO by the company.
prestige graph

This would also help unlock the value of the company’s commercial portfolio. Apart from the commercial property, analysts estimate the value of the company’s residential business including land banks at nearly Rs 7,000 crore. This is after adjusting for the Rs 4,050 crore net debt in this segment.

Currently, the street is not assigning a separate value for the commercial portfolio but in case of REIT, value discovery for the rental portfolio will occur.

Together, both the businesses, commercial and residential could be valued at Rs 17,300 crore according to analysts against the company’s current market capitalisation of Rs 9,834 crore.

Prestige Estates’s stock has gained 20 per cent since the launch of Embassy REIT IPO two weeks ago. On Monday the stock price fell by 2 per cent to Rs 263.8 on the BSE.

The south-based developer has exposure to Bangalore, Hyderabad, Chennai and Mysore. Its rental business which contributes nearly two-third of the operating profit includes office space, malls and hotels. In the first nine months of FY19, Prestige reported pre-sale of Rs 3,185 crore, largely through the residential projects, up 54 per cent year-onyear. Its rental income increased by 20 per cent to Rs 553 crore. Net profit was 9 per cent higher at Rs 300 crore.

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