Godrej Properties (GPL) announced a second investment platform for new business development, thus maintaining its asset light strategy. The $275 million platform will be advised by Godrej Fund Management. GPL will own 20% stake in the platform’s investments and get project management fees as well as fund management fees. Unlike before, we believe GPL will be able to contribute its $55 million share through internal accruals.
GPL has got external commitments of $220 million ($275 million platform size) for investments in residential projects. Unlike the previous platform, GPL has created a 100% owned fund management arm which will be advising on investments.
In addition to the project management fees, GPL will also be getting fund management fees, we believe.
Ownership in fund platform: GPL will own 20% stake in the fund platform. It will have to contribute $55 million towards acquisition and development of the projects. Unlike before, we believe GPL will contribute towards its investments from internal accruals.
GPL’s operating cash flows have been improving and turned positive in FY2016E. With three commercial projects complete / nearing completion, sales from these projects (net of debt repayment) could be used to contribute to new investments.
The fund platform allows GPL to acquire large projects (some in outright format), near city centers. Limiting GPL’s investment in large projects not only keeps the business model asset light, but also augments cash flows given the scale of development.
