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Lease pickup augurs well
We maintain NEU on BEL with increased SOTP-based TP of Rs 252/sh (vs. Rs 228/sh earlier). BEL maintained strong residential pre-sales momentum and completely leased out Chennai WTC. We await pick in Bengaluru Tech Garden leasing (30% leasing till date).
HIGHLIGHTS of the QUARTER
* 3QFY20 Revenue/EBITDA dipped 20/12% YoY to Rs 5.5/1.6. Reported APAT at Rs. 0.49bn, up 0.8% YoY. Real Estate segment contributed ~66% of the total revenues with balance equally contributed by Hospitality and Lease Rental segments.
* The company recorded strong pre-sales for a third consecutive quarter with ~1.1mn sqft of sales (+38% YoY) with an average realization of Rs 5,578/sqft. During 9MFY20, the company recorded pre-sales of ~3.2mn sqft (+60% YoY) with an average realization of Rs 5,535/sqft.
* 3QFY20 saw new leasing of ~0.87mn sqft (2.24mn sqft in 9MFY20, expected to yield rentals of ~Rs2.1bn). BEL has an inventory of 1mn sqft (out of 6.7mn sqft of existing total leasable area) across office and retail properties. Lease pipeline is strong at ~2.9mn sqft largely across Brigade Tech Garden, Brigade Financial Center (Gift City) & WTC Kochi. BEL has already tied up 1.5mn sqft of leasing for WTC Chennai with an additional 0.4mn sqft in hard option and is expected to be handed over to tenants in March for fit-outs. In Brigade Tech Gardens, of the 3mn sqft of leasable area, 0.9mn sqft has already been leased out with an additional 0.4-0.5mn sqft to be closed over the coming quarters. Hard option stands at 0.3mn sqft. Tech Gardens is expected to be completely leased out over next 2-3 quarters.
* The transaction for stake sale in Hospitality business has progressed further with the valuation for the business being agreed upon. However, this transaction is not expected to be completed by March-20 as earlier expected, due to some pending legal issues yet to be ironed out between parties.
With a balance launch pipeline of ~5.1mn sqft in residential segment and ~2.9mn sqft leasing in commercial segment the company remains well on track to achieve the pre-sales guidance of ~4mn sqft in residential and ~3mn in pre-leases for FY20E ex 0.7mn sqft of hard option. The quarter witnessed improvement in collections (+27% QoQ). Midincome and affordable segments are expected to drive residential sales with ~86% of BEL new launches in the affordable housing segment. Whilst pending pre-tax cash flows of Rs 22.9bn from real estate projects should cover the capex requirement of Rs 9.3bn primarily towards commercial projects, timing mismatch could result in further increase in D/E ratio. We maintain NEUTRAL. Key monitorable: (1) Leasing velocity in Bengaluru SEZ project and (2) Timeline for conclusion of hospitality business divestment.
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