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Oberoi Realty Ltd
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Ladies and gentlemen, good day and welcome to the Oberoi Realty Q2 FY '21 Earnings Conference Call. We have with us Mr. Oberoi, the Chairman and Managing Director of the company; and Mr. Saumil Daru, Director of Finance of the company, with us for the call. Please note that this call will be for 60 minutes [Operator Instructions] This conference is being recorded, and the transcript for the same may be put on the website of the company. [Operator Instructions]Before I hand the conference over to the management, I would like to remind you that certain statements made during the course of this call may not be based on historical information or facts and may be forward-looking statements, including the relating to general business statements, plans, strategies of the company, the future financial condition and growth prospect. The forward-looking statements are based on the expectation and projections, and may involve a number of risks and uncertainties, and other factors that could cause actual results, opportunities and growth potential to differ materially from those suggested by the statements.I now hand the conference over to Mr. Oberoi, the Chairman and Managing Director of the company. Thank you. And over to you, sir.
Good morning, good afternoon, good evening to all of you as per the time zone from which you have logged on, and welcome to the conference call Q2 FY 2021 results and business updates.I want to firstly thank you all for taking this time. I also hope that your family and you are doing well and keeping yourself safe and none of your near and dear ones are affected by COVID.Before I begin, I want to share a quick update with you. I'm very happy to tell you that we have crossed the INR 3,000 crore booking value mark from our delivery project, and we are now gearing up to deliver delivery to our customers ahead of our committed schedule. We've also raised INR 700 crores of NCD, and this capital helps us extend our existing debt maturity and makes us even more financially solid.With this, I want to hand over the call to Saumil for the details of the numbers. I'll be happy to address your individual question once we begin the question-and-answer section. Thank you.
Thank you, Mr. Oberoi. I guess most of you must have seen the presentation uploaded by the IR team. And if not, the same is available even right now on the website along with the results filed with the exchanges.
Mr. Saumil?
Yes.
Sir, just request you to speak a little closer to the device.
Okay. Is it better now?
Yes, sir. Thank you.
Thank you. So as I said, I guess most of you must have received the presentation or you must have seen the presentation. And if not, the same is available on the website, along with the results which have been filed with the exchanges.Just keep this thing short and sweet so that you'll get more time for Q&A. In terms of consolidated financials, our consolidated revenue for this quarter was INR 325 crores for Q2 FY '21 as against INR 126 crores for the preceding quarter and about INR 505 crores for the same quarter last year. The consolidated PBT was INR 168 crores for this quarter as against INR 39 crores for the preceding quarter and about INR 192 crores for the same quarter last year. And the consolidated PAT was INR 138 crores for this quarter as against INR 29 crores for Q1 FY '21 and about INR 138 crores for Q2 FY '20.Moving to the asset level performance and beginning with the investment property. The malls, this contributed about INR 35 crore to the operating revenue in this quarter as against INR 1 crore in the preceding quarter and about INR 40 crores Q2 FY '20. The EBITDA margin in this vertical stand at about 94%. Commerz, which is the office space asset, contributed about INR 5 crores to the operating revenue for this quarter as against INR 4 crores for the first -- or for the preceding quarter and about INR 10 crores for the same quarter last year. The EBITDA margins in this vertical is in excess of 88%. And from Commerz II, which is the other office building, be contributed about INR 32 crores for this quarter as against the same number for the preceding quarter and about INR 30 crores for the same quarter last year. The Westin Mumbai Garden City contributed about INR 6 crores to the operating revenue for this quarter as against INR 2 crores for the first quarter and about INR 31 crores for the same quarter last year.Moving on to the development properties. For Exquisite, this quarter, we booked a little over 29,300 square feet; till date about 14.79 lakh square feet, which is about 95% of the total project. The total booking value for this quarter is INR 67 crores, and cumulative booking value till date is at about INR 2,467 crores. The total revenue recognized for this project in this quarter was again INR 67 crores on account of 100% project completion.For Esquire, of the total project of little over 21 lakh square feet, we have booked over 14,000 square feet this quarter. Till date, we have booked about 17.43 lakh square feet, which is about 82% of the inventory. The total booking value for this quarter is about INR 30 crores as against INR 16 crores for the preceding quarter and about INR 41 crores for the same quarter last year. And the cumulative booking value till date is INR 2,867 crores. And the total revenue recognized for this project is -- in this quarter is INR 41 crores on account of 100% project completion.So moving, totally between Eternia and Enigma, this quarter we booked about -- booked over 26,200 square feet, till date over 11.62 lakh square feet, and the total booking value for this quarter is INR 42 crores against -- as against INR 5 crores for the preceding quarter and INR 39 crores for the same quarter last year. The cumulative booking value till date is about INR 1,700 crores, and the total revenue recognized in this quarter stands at INR 29 crores and cumulative revenue recognition till date from Mulund stands at about INR 1,047 crores.For Sky City in Borivali, this quarter saw bookings at over 36,000 square feet. Till date, we have booked about 19.18 lakh square feet. The total booking value for this quarter was INR 60 crores as against INR 2 crores for the first quarter and INR 72 crores for the same quarter last year. Okay. And till date the booking value is about INR 3,057 crores. The total revenue recognized for this project in this quarter was INR 75 crores, and cumulative revenue recognition till date has been at about INR 2,139 crores.Coming to Three Sixty West. This quarter, we did over 24,600 square feet. Till date, about 6.26 lakh square feet, and the total booking value in this quarter was at about INR 126 crores.Coming back to some key financial diameters. Our adjusted EBITDA margin for this quarter was 55%. PAT margin was 42% for this quarter. And EBITDA margins from the Mall and Commerz are much higher than average as I mentioned earlier. And excluding them, the margins for our pure residential business is about 43% for this quarter. With this, I'll hand over the floor back to you all for any questions that you all will have. Thank you so much.
[Operator Instructions] The first question is from the line of Abhishek Bhandari from Macquarie.
Actually, I had 3 questions. First, on your residential business. If you could share some update on your launch pipeline, the time line firstly around Thane and Goregaon Phase III? And do you want to use, looking at the current lower stamp duty [ very probably ] to accelerate your launch plan here?
Abhishek, Vikas here. Very good question. I must say, in fact, very happy to answer. We are going to launch Borivali second phase. The reason is that it's -- just starting doesn't compete with our existing inventory. This will also allow us to sell some lower floors. We are also starting our Goregaon launch. Again, here, it doesn't compete with our existing inventory because this is a good 3 years away. These are the 2 projects that we will be starting. Thane, as you all know that the government is in the process of coming out with a unified DCR, and we don't want to start with something that we've seen that happen earlier, so we don't want to start something where we know that the rules are going to change and then cut a sorry figure with our customer.So we want to be very sure on how the unified DCR plays out and what sort of planning permutation combination restrictions that will bring in, what areas will be counted in FSI, what will be free of FSI. So we want to first see that and then probably launch Thane. We are fully ready with our plans. If the government were to come out with a unified DCR in the next 2 weeks, we could pretty much surprise the market and start Thane as well. But if not immediately then maybe as soon as these guys come up with the new DCR, unified DCR. So that's where we are for the 3 projects.
Okay. My second question is on your retail business, on Slide 13, where you have booked the revenues for both Q1, Q2 put together at INR 35-odd crores for this quarter. So if you could share what kind of restructuring of contracts or waivers you've offered to your tenants? That's one. And what's the time line of opening of Borivali mall and what's the starting average rental you're looking at over there?
So we were very -- we very simply went out to everybody and said that look, this is not a win-win, this is a lose-lose situation, and both parties have to be ready in losing monies. So people -- we said that whoever does not opt to litigate and wants to instantly [ cure ], we offered them that we will charge you only 50% of the rent for the entire 2020-2021, that is April of 2020 to March of 2021, we will only change 50% of the rent. And everybody was very happy. We did not go into this staggering base and all that.I said, you know, listen, let's cut the losses to half and half. You bear half of the loss, and we'll bear half of the loss. And that's how we rolled this, and we've got fantastic response. What we also did was that we said that we literally not count this year. So if your lease term was for 3 years, and this we literally treated as a blank year. We increased your lease by 1 year. So your lease technically is continuing to be 3 years, but this year doesn't get counted.So that way, we also have enough opportunity to earn that revenue from you, and we understand that this is literally being a dot year, and we will take a hit of 50% and individual tenants were taking a hit of 50%, and that's really gone down very, very well with everybody and again that's why you see our mall has pretty much opened up, almost everybody, barring, of course, cinemas who haven't been yet permitted. But -- and the footfalls are back. Their sales are back. Of course, I think the festive season is going to help.But you can clearly see there is demand. I'm seeing numbers of people whose sales I'm noting, they are really back in a big way. So that's been a big, big relief. And on the Borivali front, we continue to build the same way we believe in the project. And like I said that, India is a -- there's an undersupply of retail in India, especially in Mumbai. And in the deeper suburbs of Borivali, nobody is building a mall to the scale that we are building rather there is no new mall that's coming up. So I think it will be well received. We have certain numbers, but we have not -- and they are all different. So different floors have different number -- rentals, different locations have different rentals, different size tenants have different this thing. So I can't just give you one number as such, but being very, very well received.
Sure. And then last question is on your office portfolio. While Commerz, there is no incremental price and vacancy, stable as at 33-odd-percent, is there any plan to jump back to a higher level? If at all yes, what kind of measures are you going to take? And you -- this work-from-home you have spoken about and the companies, do you think there could be a need to drop the rentals to attract tenants? And related question is, there's a minor drop in occupancy in Commerz II. Is it just small tenant going away? Or do you have any more tenant who are likely to vacate, on Slide 14?
Did you say Commerz II or Commerz 1?
Commerz I is 33%, that I understand. But the Commerz II 100% has come down to 97-odd?
No, no, no. There is no drop in any occupancy in Commerz II. In fact, let me tell you, here again, I feel that, going forward, there is going to be a space crunch in a country like India, one. Not many people are able to raise monies. So obviously, these capital assets require a lot of money that needs to be pumping. Very -- virtually, very few developers are left with that sort of cash where we can go ahead and build new assets. I clearly see there will be a huge supply shortage, and demand will actually end up increasing I see. And whoever will be able to build it in the next 2 years with all the constraints that are there in the market, financial constraints, labor issues, this, that and the other will eventually be the winner.So we are really backing ourselves to build. You all know that we have done a very large transaction for Commerz III for our new project, literally, 40% of the building is free leased. We are going ahead and building that. We are going to go ahead and build early commercial building. So we are betting big on this.I also want to tell you that we had huge interest from a lot of investors who want to participate in our platform. We don't want to wait. We want do it right away . We are talking to people. Here again, literally, all our income-yielding assets are debt-free. So we don't really need the money. But what we are intending to do is, we will be making a kitty of these rent-yielding assets and bringing an investor to crystalize the value of our portfolio. So this is what we intend to do.And if things go well, we'll probably do this in the next 2 months. And this is for the commercial portfolio. And the similar thing we will do it for the retail asset also. We already have 1 mall. We are building Borivali. And if there is a mall that we build in Worli, then we'll have 3 assets, which will be for retail, and we'll have these 4 buildings which will be for offices. So this is how we are panning it out. And if you really put numbers on the paper, you'll realize that my annuity assets' net present value is bigger than the value of my company.So what really want to do is we want to unlock the value of our so-called assets and bring in a partner, a very credible marquee investor who will put his money where his mouth is and literally crystallize the value for the rest of the investors. Again, like I said, we are not doing this for money. The amount of investor will bring in, they have more than the ability to discount our rental -- rent ticket, but it's just about crystalizing the value, and that's what we want to do.
The next question is from the line of Puneet Gulati from HSBC.
Just a little more clarity on the number on the retail side. So is the collection also in the order of revenue? Or there is still a lag in the collection of rentals from the mall?
So collections are coming. I mean, obviously, whoever have started is either paying or had started paying and they are pretty much there. It's not like -- that's not an issue. Again, all our retailers have a 1-year deposit with us and stuff like that. So that's not a worry at all.
Okay. So the 50% rental negotiation should translate into as much revenue…
No, it is, in fact. Not should, it is. And people who have opened have agreed, and that's why they've opened. So it's not like they have not agreed to it. And I think we have given probably the sweetest deal to all the retailers. And I have individual people complimenting me on understanding the pain they are going through and really appreciating the -- obviously, some people just wanted for free, they are saying, don't charge us anything, but they also understand that that's completely unreasonable. Almost all my investors have been -- rather all my tenants have been very happy. I've got people genuinely complimenting reaching out to me and thanking me for the decision we took, and it's really worked well.
So in terms of details, will it be fair to assume that the 50% discount is on minimum guarantee and obviously there will be no revenue share this year? And secondly, is this applicable for cinemas as well?
So firstly, the minimum guarantee is the rental bit. If, let's say, they really do well. If they are able to really do very well, then my revenue share kicks in. And if my revenue share kicks in, I will get an upside over that also. Let's say hypothetically to what you're saying, if they were to cover the business that they would have done in the -- in 1 year within 6 months or 8 months, then I will actually end up getting 100% of the rentals. So that part -- but it's wishful thinking. I wish it happens. But one can't really say that they'll be able to do that. If they do, then our numbers will be back to that. But the minimum guarantee of 50% rental or the revenue share, whichever is higher, is always the case. And as far as cinemas are concerned, obviously, we have given a similar deal to everybody, and they should also fall in line.
Okay. But they are yet to agree on that?
Correct. They are yet to agree on that.
Okay. My second question is on your platform deal. You obviously have one of the best assets here and you're building a pretty nice portfolio. Are you putting all your under-construction assets also in the portfolio?
Correct. See, that's the only thing -- the only reason why we are going to an investor and not into a REIT. If these assets were ready or if the REIT would have permitted, then we would have obviously done a REIT. But because these are under construction and these are going to take 2 years and 3 years for us to build, we are going to an investor and doing this transaction.
But why do it now? Why not wait for a time when they are rented out, maybe you'll get a better valuation? What is the hurry to share it with outside of the existing shareholders of Oberoi?
I just told you that if you really see the value of my -- the net present value of my annuity asset, the ones that I have built and I am building, is more than the market cap of my company. So if I were to do that, at least I'll be able to tell the rest of the investors that I'm worth this much more than what they are actually valuing me. So today, either the residential is free or the annuity asset is free at the price that it's being traded at. So basically, we are only unlocking the value, and in turn actually doing a greater service to my existing investor rather than harming them. I'm not taking anything away from them. This actually will help them crystallize better value, unless you agree otherwise. Happy to hear from you.
Yes. That's fine. Okay. And my third question is the debt obviously has gone up. You alluded to the fact that you're trying to refinance for a longer tenure. Would you think you're also accumulating for some kind of acquisition which is around the corner? Or do you think it's just…
No, no. I mean everything put together. I mean, today, that's exactly why -- I mean whatever little money also comes in from this third-party investor on the platform will, again, again, go into growing that business. So obviously, we are getting ready for some sort of business expansion of all sorts.
The next question is from the line of Parikshit Kandpal from HDFC Securities.
Congratulations on a very good set of presales numbers. But I think we all were positively surprised. So can you explain a little bit in detail so what went about achieving this? So is it the only the stamp duty part that was the key driver? Or what are the other things which could have driven this kind of numbers?
So I want to tell you that we were also pleasantly surprised. The minute the lockdown opened, we saw people coming -- we were shocked that in the first week, we had more than 200 people visited -- visiting our show apartment in a week. Literally, in a week, we had 200 people. And obviously, given the pandemic, given the seriousness, these guys are not like stepping out for an outing. They were serious buyers. And conversions took place much faster than normally what they would take place at. And suddenly, I feel that people did realize the value of a house. When they were locked down for so long, they actually felt that they must stay in a better home and a safer home and so on and so forth. So a lot of that decision got taken. In fact, if you see, we were able to sell almost 5 or 6 penthouses in Exquisite, which were -- I mean I had built 18 of them, and almost 50% of them got sold post this lockdown and stuff like that. So that was -- that's probably what has driven people.Again I want to also tell you that this quarter still does not tell the real story because if you technically see, because of shradh and adhik maas, we literally lost all of September. So technically, this is only July and August not even September really playing out. And October also started as a bang. Again, after this adhik maas got over and stuff like that. I -- again, I want to not speak too much, but I feel as far as real estate goes, we probably will be able to claw back and sell even more than what we sold in 2019 in the 2020 year. We'll be able to catch up. And not only catch up, we'd probably able to beat that year also.Again, it's too early to say anything. But the way the trends are looking, we see -- we have huge confidence. And moreover, we are very lucky. Borivali will start going into possession next year. Mulund will start going into possession next year. I mean we have time. I'm just saying that it will either be possession or near possession by end of next year. So all these projects are really looking ready. And we feel that given the slowdown in the industry, not many developers will be able to build it given the constraints, financial or otherwise. So we literally have a nose ahead, and I think we should capitalize on that. We are very well positioned to capitalize, and we should do that.Worli also, it's now almost over. We are giving possession for fit outs. So -- and these are high-ticket items. People don't want to risk their money in an under-construction apartment. And more so, I mean COVID has really taught people that beyond the uncertainties that you kind of imagine, there is something more which is not really even imaginable. So people are that much more risk averse. And luckily for us, if you see, we are -- in all our projects, either we are completely ready like Esquire, we give you a lock -- literally your key in your hand. To Worli, we are like months away. To Borivali, we are like literally a year away. Mulund, we are a year away. So these are things that will really work in your company's favor, and I think we will be able to do a good job out of this.
Sounds great. Second question is on the -- just getting the investor to the platform. So you had talked before that. I mean are you looking to add some more like available FSIs in Mulund, maybe if you are looking at reconfiguring the hotel in Worli and adding commercial, so any thoughts on that? Plus, your own stake in the Worli mall. So will it be streamlined before the deal happens? Your thoughts on that. That will be my last question.
So again, I want to say that, firstly, we are only talking to them on the existing assets. We are not talking to them anything on the ones that we are -- we can convert or we will convert or we will not. I didn't want to add to the confusion. For us, as a company, Comm I, Comm II is ready. Comm III is under construction. We are very clear. We already have a marquee tenant in place. Comm -- sorry, and then the Worli asset, the one that we have in hand, we are, again, going ahead and building that also as a commercial building.So these are things that we are ready with. We didn't want to put too many other assets in the basket. I mean if there is value and if a investor agrees, all these will obviously come back into the same platform. We will commit. Ideally, we will like to commit to the incoming investor that we will do all our commercial office building under this platform only so that they have the confidence and they know that our interests are aligned. So this is how we want to play that out.
Are regarding your stake in the Worli mall, any update on that?
Again, nothing done there. Whatever will be done, again, like I always said, it will be done at an arm's length. And now that much more, if suppose an investor comes in, you also have a third-party who kind of continues to monitor what is happening to the eventual stakeholders and all. So nothing done there. There are other challenges. More to do with the tax planning and that's a BMC land.So how do you circumvent that or I mean how do you manage that? Those things are a challenge right now to kind of me getting out of that. But having said that, like I said, I've always been very mindful. It's not only important for us to be correct, but it's equally important for us to even look correct. So given that thought, we will make sure that things happen properly.
Okay. And the Three Sixty OC is expected when? And what will be the final number of units in the entire -- the total number of residential units [ to find ]?
So I'll let Saumil give that number to you, exact number to you off-line. I mean it's less than -- so 28 apartments in Tower A, and I think 100 and…
170 in Tower B.
170 in Tower B. So totally 198.
Okay. And OC, when is OC effective?
So we have applied for OC. Again, maybe in the next 45 days or 60 days, we should get OC.
The next question is from the line of Abhinav Sinha from Jefferies.
Just a few things. So one, on the sales that we have seen this quarter, it's good to see the jump up. And what do you expect the sales vector to be from here on? Because it does seem that the completed units were selling better in the current quarter.
I must say that this is just the beginning, and it will only continue to do better, for multiple reasons. I already gave that. One -- I'll just reiterate. One, that not many developers are in a position where they are able to deliver their product. Us is like way ahead, we are ready. In some places, we are 1 year away. That's one. Two, the brand name, the quality that we've delivered, the assurance that we come with, this also plays a large role. Financial stability of the company, that plays a huge role. So given what is happening in the market, there is a silent consolidation amongst buyers. And we don't have to do anything extra.We are only doing what we were doing and what we were good at. And automatically, these customers are now coming and buying apartments from us. And I want to tell you all and use this platform that we have not given a single rupee discount. There is no discount, no COVID discount, nothing. We haven't lowered the price to increase the velocity. The velocity has gone up on its own by basis the facts that I told you. And we continue to believe that we'll only do better and consolidate more within the times to come now.
So when you are hoping for the sales in the next year or let's say FY '21 to be better than FY '20, how much of that we can expect to come from the new launches? Are you like expecting, say, Borivali and Exquisite 3 to contribute significantly this year itself?
So Borivali, Exquisite 3 and Thane, all 3 will contribute a lot. And I genuinely feel that the FY '20/'21 will be even better than the '19/'20.
Okay. Thane launch is still likely this year, right?
Yes. 100% this year because we believe that it's only a matter of days that these guys will come up with the unified DCR. Once they come up with the unified DCR, we know what to calculate, how to calculate, and what all should one give because present DCR approves certain things are free. Then in the new DCR, certain things are free. So we don't want to get stuck wrong call there. That's why we are waiting. Otherwise, as I said, we are ready with the plan. We are ready with design. We're ready with everything.
Okay. And sir, just one last question. The revenues are still a bit sluggish. And -- but what should be free in, let's say, 3Q and 4Q on execution rate?
Again, see, like you are looking at the revenues which are technically only 2 months. I told you even September per se was a washout because it had that shradh and adhik maas where people don't buy apartments and people are very finicky about these things. So we are only looking at 2 months. And even these 2 months have literally got us back to numbers which are better than the same quarter last year. So I'm only telling you that -- and again, the way October's opened up also looks fantastic. So I don't see any problem at all. I think the numbers are going to continue to only improve.
And significantly what you see on labor count now?
We are back to pre-COVID. In fact, in some of our sites, even better than that, because you have to also understand that not many developers have been able to start their sites because you only don't need labor, labor needs money, and some of these guys are really struggling to fix their balance sheets. So given that, we have more than enough labor that we want now. I mean that I will say will never be the reason why we were not able to deliver or to work faster.
Next question is from the line of Alpesh Thacker from Motilal Oswal Financial Services.
Congratulations for a very good set of numbers this time, sir. Sir, my first question is on -- we saw realization coming up for most of our projects. So just wanted to understand, is it because of the inventory mix seems like upper floor rise apartments were sold or anything that you see here?
You're spot on that wherever we are selling higher floors, they are sold with floor rise and hence the realization and the numbers are higher. You're absolutely correct.
Okay. Okay. And sir, just wanted to understand on the commercial side that Commerz II -- sorry, Commerz I, when can we see the occupancy levels reaching back to pre-COVID levels? It used to have like around 70%, 77% kind of number?
So some of these are already leased out. The rent has not commenced. Once the rents start getting come in, as they start paying us the rental, you see the numbers claw back to the pre-COVID this thing.
Okay. Fine. And sir, last one would be on our Worli project. So we were thinking of reconfiguring certain parts like hotels and stuff. So what is the final thought on that? So how much would be the commercial that we are planning and how much could be the retail part, sir?
So as we know, these are -- so they are all, unfortunately, even our thoughts travel. Forget these speaking to anybody, but our thoughts also end up traveling. So there's no such plan of reconfiguring or anything like that. We did, at one point, think that given COVID should you be doing -- should you downsize the hotel or not or anything of that sort. But we haven't done anything of that sort. If ever we do, which is very unlikely, but if ever we do, we'll surely come back and tell everybody. Right now, it's business as usual, as planned. There's no change there.
The next question is from the line of Pulkit Patni from Goldman Sachs.
A few of them. My first question is on Borivali. Given that we have in the first phase also something like 600 flats worth of inventory yet to be sold, which if I was to look at the pre-COVID run rate also is about 12 months' worth of inventory. Just wanted to understand what's the rationale behind looking at launching the second phase right now.
So Pulkit, we have now apartments only on higher floor. That's number one. Number two, there is also a configuration where we have a 1-bedroom unit with a 3-bedroom units, which if a family buys it together, it becomes like a 4 bedroom. We've run out of all of that. It's surprising but true that these units have been very well received. So we want to start booking there. That's point one.The second aspect is that we have inventory only of higher floors. Higher floors, of course, are a premium and they give you a beautiful view and things like that. But one must also remember that they tend to become expensive. So we have people who want lower floors for whatever reason, and that's why we are starting this.And again, you just rightly said that we have 1-year worth inventory. We are 1 year away from completion. So it's best that I start these projects today and balance that out. Like -- so there are people who don't want an apartment in a year. They may want an apartment in 3 years. So that's why I said that though we have inventory, they don't really compete with each other.And the new apartments actually come with the servant's toilet and servant's room also. So this is the COVID effect that people realize that if they have help at home, they need to provide them with an area where they can stay and stuff like that. Of course, if you don't have that, when you use that room as a store, you can use that room as a temple. But -- so there has been some design change. And I'm sure that people will really receive this very well.
Fair point. My second question is on Oberoi Mall. So is this understanding right that next year we are going to reset the rent at normal levels? And if yes, do you think it will be feasible given that tenant is used to 50% rent for 1 year, would it be easy to shift back to the normalized rents in case of Oberoi Mall?
So we don't -- that's the normal. This is the reset. So that's how it is. And I mean all these are well legally enforceable contracts. So it's not like -- I mean they get used to it, and we give them that convenience or comfort that you have now. Since you're used to it, you only pay us as much. That's not the way the world works. And they clearly know that we've been more than generous in accommodating them, and that's where we are.
Sure. I'm assuming there would be some tenants who finish this 1 year and decide to exit. Is there a possibility given that you've been generous giving them 50% right now? I'm just worried about that occupancy in FY '21. Could we see some bit of fall the moment you move from 50% to 100%?
So if let's say, I'm using hypothetically, they were to do that. They could even do it today. But then we will enforce the lock-in period contract, and you'll have to pay me for the balance of the lock-in any which way, plus we have 1 year rent as our security and so on and so forth. So it's a very strong, legally enforceable document. And so it's not so easy for anybody to dishonor it or walk away. So we are pretty secured on that account.
Sure. And my last question is more of a bookkeeping question for Saumil. Where this operating margin analysis, when I look at the property management services, our margins have jumped up quite meaningfully at about 60%. Anything of note there?
No, not really because basically -- just give me a second. Typically, these are all supposed to be what we can say they net themselves out eventually. So if this slightly basically coming out, I'll have to check it out, but it might be coming out of what has happened in the first quarter. But as we begin the -- as normalcy comes in, you will see that -- typically, this -- they will come back to the normal number.
And we don't make any money out of this actually. They just pretty much pay the cost, and we run a pretty transparent book with people. So that's how it works.
The next question is from the line of Sameer Baisiwala from Morgan Stanley.
So I made a hat-trick of dropping from this call, so I may have missed some part of it. But just a few questions. So one is on the platform. If you can tells us -- I mean it's a strictly near-term thing that you were going to do. So still on the buy side you are looking at and I guess you were trying to get a private equity investor in. And how would you plan to be deploying that capital? Is it for the construction financing for these commercial assets? If you can just share some light over here.
Okay. Excellent question, Sameer. What we really want to do is we want to use this money for growth capital. Right in the beginning, I had said that I want to expand my company. I've gone and spoken to investors individually that we want to literally 3x our company. How do we do that? We said residential is continuing to do well. But we realize that the office portfolio needs to increase and the retail needs to increase. So we literally pulled these out. And when we did a math, the assets that we have in hand and the ones that we are building, if you do the net present value of these, they are pretty much the value of the company that the stock market is paying us.So we said that if we will pull this out or rather if we bring in an investor, we will crystallize the value. That's point one. Two, obviously, whatever we will dilute, we will get in money, and we will use that money to springboard ahead. Financials for the development of these 2 assets are fully tied up. And so that -- for that, one doesn't need money. And these investors also want to see growth. We also want to do growth. And we will -- we want to be a very serious office development player. And that's why we've taken this step. And this will propel us into doing that. Now we want to go ahead, identify and acquire land which can be build as an office asset. That's where we are.
Okay. Great. So this would be used for new project acquisition?
Absolutely. Absolutely.
Okay. Great. And Vicky, on the same [ page ], if you can update us on new project acquisition for the -- on the residential side? How are you thinking about it?
Again, see, we have for Borivali, I've got 3 buildings to be made. I have 5 here. I have a little over 5 million square feet to build in Goregaon. So existing assets continue. But at the same time, we continue to look at new assets. You know what we like and how we like our land to be. Ideally, if it were to be a GSK or a Novartis or a Tata kind of company who is selling their land, we would love to buy something like that. We typically don't do these off-market land transactions because we prefer dealing with these so-called multinationals. But again, never say never. We are open to looking at land again. And if we get something, we are very happy to buy. There's nothing holding us really.
And just on this point, how is the pipeline for these targets? I mean did you get land for or I think it's going to take time?
Yes, yes. There are plenty. In fact, the good part is not only there are plenty, and we have all the time in the world to decide. So it's not like, oh, you don't say yes and that guy will go and deal with someone else. That's not the scene anymore. We have very few of us left who can actually buy or build, whether it's a JV or any sort of understanding. We have very few developers who can actually do that. So if we really don't rush into anything, I think we can get fantastic deals going forward. And we are very, very clear that we will.
Okay. One final question from my side. So the INR 700 crore NCD that you have mentioned, is it basically replacing the higher cost debt with the lower cost? That's one. And second, I saw it 5.85% for 5 years. Is it fixed or is it variable?
So Saumil will be better telling you on this. Saumil, can you take over from here?
Yes, sir. Sameer, Saumil here. So the coupon is fixed, Sameer. So that's the first one. And the second one is, yes, the idea is to basically -- it's not just to work on the interest arbitrage. What we have been doing over a period of time is also to see where the debt maturities lie at. So this also -- for example, if something was maturing 2 years down the line, if you saw that it's a n5-year paper, so it also pushes the debt maturity to 5 years down the line. So there are twin objectives being achieved here. One is obviously the extension of debt maturity and coincidentally, along with that, there is an interest arbitrage which comes in.
And Sameer, both these are backed by assets that are ready. So whenever the liquidity takes place, we can -- we have a right to prepay also. So technically, if we want to repay, we can repay faster, but we have the ability to take it to 5 years. So we got convenience of time. We've got the convenience of prepaying it. And we got it at a cheaper price. So all 3 put together.
Okay. And with your permission, one final one from my side. Because I was thinking about Three Sixty Worli greater sales velocity. Is it 3 units in the quarter? I mean, because a long sales cycle over here, was this a coincidence, let's say, you booked in this quarter? Or is something else going on?
No. So in fact, I can only tell you that Three Sixty is a product that will sell once it's ready. In fact, we are very lucky that we've been able to sell so many of them. And the product, I would actually invite all of you, whoever wants to, please touch base with my office, and I'll be very happy to show you guys around. And you will realize that the product that we've made is unparallel. It's probably one of the best in the city. I'd love for you guys to have a look at it.Now that it's ready, it's attracting a lot of people. There is huge traction, number one. Number two, we've also not lowered the price. So these are 2 things that we've been very mindful of. And I see velocity will clearly go up once OC is in place or -- which we are probably less than 60 days away. And some very marquee names in the city from the city about that. So that also one. And these guys have all started doing their interiors and stuff like that. So that project is -- it gives us a very different sort of confidence. Very, very clear on that.
The next question is from the line of Adhidev Chattopadhyay from ICICI Securities.
[indiscernible]
Mr. Adhidev, sorry to interrupt, but your voice is breaking up. Can you move to a better reception area, please?
Yes. Is it better now?
Yes, sir.
Yes. Yes. Sir, my question was, now that we have sold 67 units in Worli, how does the revenue recognition work now, going ahead?
So technically, we are just about close to selling 25%. Once we cross that or once we get OC, we'll have to recognize revenue, and that will be it.
Okay. So it is based on an area? Just sorry to clarify.
This is based on the area. And see, when we say we've sold that many, we also need to collect an x amount of money. And if some of them have not paid us, so we don't count them as sales from the P&L point of view.
Okay. Sure. That is clear. Sir, next question is listed on the platform. Is the strategic investor, they would come in at the SPV level? Or if you are looking to divest stake? Just wanted to clarify.
No, no, no. They will come at an SPV level.
Okay. Just like an indirect equity raise.
No, no. Not an indirect equity raise. We are actually going to create a platform. This platform is what we are serious about. We want to grow this platform first. And then we want to read that out. That's the strategy. And finally become a very serious commercial real estate developer.
Sure. Sure, sure. And just lastly on just I've been recently reading in the media that now you have given proposals to construct, I think, sky bridges from the Metro, both your Goregaon and Borivali projects.
Yes.
So would you -- [indiscernible] like the first -- the Metro I think is going to be operational fast maybe by beginning of next calendar year. So would you wait for that Metro to start before you launch the new phases in Goregaon and Borivali?
We will -- see, people believe they are seeing the Metro happen. A lot of people will want to benefit out of booking early because they know that either we'll not get what they want or the prices can go up or many things can happen. So they are -- obviously, we would like for early movers to get that advantage, and that also gives us velocity. So it's a win-win for both. And what Metro has done, they have simply followed what's happening in the west.And this will give commuters the convenience, because, see, at the end of the day, the Metro is made for people. If people can conveniently reach that, Metro business also grows up because they don't want -- despite the Metro people taking cars wherever they go they have to walk in this area, why would I do that and all. So it's a win-win from the -- for the customer, for the Metro authority and for the developer. So it's a win-win for everybody. It's been done like very aggressively internationally. And that's what these guys are following.
The next question is from the line of Kunal Lakhan from CLSA.
So on a collection slide, our sales seem to have revived, but our collection still seems to be lagging. Considering that our labor strength is back to pre-COVID levels, do you see this traction increasing in collections in subsequent quarters?
Saumil, you have a point?
Sorry, sorry, I was on mute. Kunal, as far as collections are concerned, if I really look at it as far as Sky City and all are concerned, everything is working on target. The only thing is where you look at projects like Exquisite and Esquire, obviously, as people book today, 100% of the consideration is due. So typically, they get anywhere between 60 to 90 days to pay. So even if, for example, the booking has happened in the middle of the quarter, they typically end up taking up around 90 days over which the cash comes in.So that has not been -- that is not a issue. The other thing, most importantly, as far as projects like Borivali and Mulund are concerned, we have also been able to raise certain construction-linked demand during the course of the last quarter. And again, within that context, very happy to say that we have had a 100% collection rate as far as those demands are concerned. So it's all a question of credit period which has been given to customers for the new collections. That's about it. I don't read anything more than that.
So can we expand in the next 3 to 6 months going back to the 500 crores to 600 crores kind of collection run rate on a quarterly basis?
Yes. Yes. Yes.
That's very helpful. Also, considering like we've seen a lot of traction, across the board, not just for us, that in terms of like sales happening in the completed or the near competition bucket, how are we looking at the sales strategy -- on the payment strategy rather for the new launches that we are planning? Would we introduce some deferred payment schemes there to do some traction in the initial period?
Saumil, you want to take that?
Sorry, if you can take that, that's around sales strategy, so.
So by and large, again, like I said, that our strategy towards sale is going to continue to be we are digitizing it firstly. We are now going to be using different methods of reaching out to people. And we continue to feel that it will only grow from hereon. And given the way, like I said in the past, that we will have very little competition, not for our own doing, but their own doing. And that probably will help us propel sales.
Sure. That's fair. But just continuing on that point, considering our experience with the Goregaon and Mulund where sales actually has really picked up once projects were nearing completion or rather complete. Here we are launching phases in, say, another phase in Goregaon and then virgin territory like Thane. Do you think a payment -- deferred payment plan is -- will be necessary, despite our digital strategy, will be necessary for increasing traction?
I'll just tell you. Look, at the end of the day, at least I can tell you all this because you all are financial guys and understand that at the end of the day, it's a price. There's a net present value. Whether I give you time to pay or whether I take money upfront, there's a cost to funding. Somebody has to pay for it. And that's the real strategy behind marketing.I mean even if you -- when you see that, oh, you're getting cars at 0 down payment or where you're getting a refrigerator at monthly installments, somebody is adding up that interest and somewhere that cost gets loaded. Now most customers don't mind paying it in a pretty clear way. And there are many reasons why they do that. So we don't have to look at it only from one lens and which is like the price lens. We have to look at it from the convenience lens also.If I'm a buyer of a product where I already have an apartment and I want to sell it to buy a new apartment, suddenly, if the developer gives me time to pay, and even if he adds that cost, I don't mind that because I have that convenience now to sell my existing apartment and seamlessly move into this new house or where Esquire we had this pay 25% and pay 15% over the next 5 years. There again, if somebody had a house and wants to move in to this house without having the stress that, oh, when will I be able to sell my house, he knows that within the next 2 years, 1 year, 3 years, he'll be able to sell it.So this helps him prepone the decision. So if you see, globally also, people have used financial tools to market their product. Nobody goes in at a loss and does it. I mean this a myth that people carry. But there's no loss here. It's all -- only financial engineering or restructuring or structuring in a way where all parties are happy. Makes sense?
Yes. Sure. That's very helpful, Vikas. Just my last question on the platform deal. So if we were to divest stake in the annuity portfolio, what kind of stake will we continue to hold in the platform post such deal? Or do we intend to hold?
No. We'll always hold majority. And like I said that for us, idea is not to kind of raise money. The idea is to crystallize the value, and that's about it. And we have a lot of criterias. The first is that, that investor has to be a marquee investor. We don't want any and everybody with us. So given those criterias, we will work around it and come back.
Ladies and gentlemen, due to time constraint, we take the last question from the line of [ Manish Gandhi ], an individual investor.
Yes. So I just have one question and one clarification. So first, a clarification. The platform is only for office rentals, right?
Correct.
And you mean to say that, that platform value you are seeing more than the market value of the -- right now?
Absolutely.
Right. Happy to hear that. Now a contra question. So in AGM, you said that you're looking at office buildings, independent office buildings. And you're looking at IRR of high teens. So the question comes, I don't know how the platform changes the IRR. But as we have seen with you, your ability to create value, say, in mixed use developments in Goregaon, Borivali and I'm sure in Thane, your RRR, if I use the word is insane. So why would you go for high-teen IRRs?
No, no. So you -- I think I want to clarify. The difference is between margin and IRR. Our margins are great. You rightly said that we get 50%, 60% margin. I'm now talking of IRRs, the return on the investment I make. And that's when I said that it's high teen. Even though our margins are higher, our IRRs are low, which we want to kind of correct and set them right. And that will happen when we do -- when we work faster and we churn things out faster. That's how we intend to do.And again, the reason why we'll be able to do it here is because, unlike, let's say, a Black Stone or a Brookfield, we build our own assets. So as a company, there is a profit margin from raw material to finished product. And then you play the, what you call -- you pay the arbitrage for, what you call, your REIT gets a certain value and so on and so forth. So that's a separate game again.
Right. Yes. So you're right. I was not getting confused about margin and IRR. But I was thinking that your overall long-term IRR, say, from Borivali or Goregaon it's a different example. But even if Borivali after, say, mall and all, it goes to more than 20%, 25%.
Correct. I agree with you. I agree with you.
Right. So that's why I was thinking.
Okay. Okay. Okay.
I would now like to hand the conference over to Mr. Oberoi for closing comments.
Thank you for taking time out for this call. We like receiving feedback from you all, and it only helps us think harder and perform better. Please continue with all your questions and inputs. And like I said, I'm very happy to let you guys visit any of our sites. There's nothing like feet on ground. And my office will be more than happy to arrange that. And if there are any follow-up questions, please feel free to connect with Mayank or Saumil, and we'll all be very happy to answer them as well. Thank you. Have a great day ahead. And wish you all a very happy Diwali and a prosperous new year ahead and safe Diwali as well. Thank you.
Thank you. Ladies and gentlemen, on behalf of Oberoi Realty, that concludes this conference. Thank you all for joining us, and you may now disconnect your lines.