The success of the 1st REIT IPO ensures that the Prestige Estates get a leg-up

There has been a strong response for the Embassy Office Park’s Real Estate Investment Trust or REIT IPO. After that, there has been a turn down towards the Prestige Estates projects, a Bangalore based realtor with a huge share in commercial assets.

The company had a steady rising debt and its inventory was mostly unsold, but due to the 1st REIT IPO being successful, there has been a sense of relief among the analysts.

Current Situation

According to the analysts, the expected rental income of Prestige can be around Rs. 1200 Crore, from the commercial properties of FY19. The internal rate of return is at 9%, and Rs. 10,200 Crore is the rental portfolio which is acquired after adjusting the net debt amount of Rs. 3100 Crore. Prestige can reduce their debts in a huge manner if the monetisation of the assets are being done properly.

Rs. 7600 Crore was the net debt, which equalled to two times the equity of the company. The property market is slow as of now and in the increasing number of unsold inventory which are completed and are worth Rs. 3000 Crore, this can come as a concern. There have been statements by the analysts ET and the main topic was to remain optimistic for a possible REIT IPO by Prestige.

Obviously, this is going to help to expose the real value that is worth for the commercial portfolio of the company. When the commercial property is left aside, and the land banks are included, the estimated value of the residential business of the company is about Rs. 7000 Crore. This amount is after adjusting the net debt that occurred in the segment, which rounds up to Rs. 4050 Crore.

The Recovery

At the present, there has been no allowance of any additional external value that is worth for the commercial portfolio of the company by the street. However, since the REIT is also being considered, the occurrence of the discovery of the value for the rental portfolio of the company is bound to happen.

When both of the businesses of the company, that is the residential and the commercial ones are put together in the same table, Rs. 17,300 Crore can be the total net value of the business, as per the analysts. This value is important since it is much more than the current capitalisation in the market by the company, which sums up to Rs. 9834 Crore.

Positive result

There has been a rise of 20% in the stock of the Prestige Estates since two weeks, just after the Embassy REIT IPO was launched. As per reports, there has been a reduction in the stock valuation, or the stock price has fallen by 2% as of Monday. The current stock price on the BSE is 263.8 as of now. Prestige Estates has been on the realtor business for a long span of time, and the mainly south based developer has had a lot of exposure, mainly in prominent cities like Hyderabad, Bangalore, Mysore and Chennai. The rental business of Prestige Estates contributes a lot of profit, and it roughly equals to a two third amount of the total operating profit of the company. This is of course, after including the office space, hotels and the malls. For FY19, the reported pre sale of Prestige has been equal to Rs. 3185 Crore in the first 9 months. This was mainly due to the residential projects, which received a rise of 54% in one year. The rental income amounted to Rs. 533 Crore, after an increase by 20%. There has been a 9% increase in the net profit as well, which amounted to Rs. 300 Crore.