DLF's rental subsidiary plans to put 'One Horizon Center' in REIT

Realty major DLF's rental arm -  DLF Cyber City Developers (DCCDL) - will place the One Horizon Center in Gurugram in its planned real estate investment trust (REIT).

The DLF rental arm on Friday said it had entered into an agreement with its joint venture (JV) partner US-based Hines to buy the latter's stake in One Horizon Center for an equity value of Rs 780 crore. 

“We will put the premium commercial project in REIT," said Sriram Khattar, managing director-rental business at DLF. 

He said the company would use its cash and raise debt to fund the stake purchase. "We will decide in a week’s time," he added. 

DCCDL is a JV between DLF - the largest publicly listed real estate company in India - and Singapore's sovereign wealth fund GIC. 

 

In a media release issued on Friday, Khattar said, "We believe this acquisition will be highly value accretive and will add approximately Rs 150-160 crore of rental revenue annually. After completion of this acquisition, the DCCDL platform will have approximately 34 millon square feet (msf) of operational rental portfolio."

In October this year, Ashok Tyagi, whole-time director at DLF, said it would take 15-18 months in becoming REIT-ready, but said the actual timing to launch the public issue of REIT would be decided by the two shareholders. 

Besides the completed leased assets, he said DCCDL was also developing its asset pipeline. Tyagi said the JV would have to decide on a framework - 80 per cent of the assets would be a completed leased asset portfolio.

Last year, the Embassy and Blackstone JV listed the country's first REIT.

In August this year, K Raheja- and Blackstone-backed Mindspace Business Parks had launched the country's second REIT to raise Rs 4,500 crore. 

Global investment firm Brookfield had recently filed documents with the markets regulator Securities and Exchange Board of India to launch the country's third REIT. The issue size was over Rs 4,000 crore. 

Khattar said the company would be able to develop 17-18 msf in seven-eight years. "We have unused floor area ratio of 10 msf in DCCDL and another 10 msf in DLF Downtown. We can develop this without acquisitions over the next seven-eight years," he added.

 

DCCDL has a gross debt of Rs 19,000 crore and a net debt of Rs 17,500 crore. It can generate rental income between Rs 3,800 crore and Rs 4,000 crore in 2021-22, say analysts.

"For the annuity business, some debt is healthy. The steady income from business can be used to repay debt,” said Khattar.

On his outlook for office properties, he said while growth would be muted in 2020-21, the underlying demand would be there. 

“India’s competitive advantage makes it attractive to companies setting up third-party outsourcing centres and captive units. They pay a rent of $1.2-1.4 per square feet, which is very competitive,” said Khattar.

He said the mall business was picking up. "By March, we will see 85 per cent of last year's sales," he added.