We don't change standards depending on market cycles, says Xander's founder

Xander Group has been a major investor in commercial property, with $3 billion put into various assets. Sid Yog, founder of the institutional investor entity, discusses his strategy and how they managed during the recent credit squeeze. Edited excerpts of the interview with Raghavendra Kamath:


Competition in buying of commercial property is increasing by the day and Xander seems to be going slow.

We continue to evaluate commercial office opportunities across all major Indian markets. We signed a $350 million deal to acquire a 5.5 mn sq ft under-development office park in Hyderabad in September 2018 and are close to completing a major transaction for acquiring over a million sq ft of operating office buildings in the western part of the country in the next few weeks.


We are attracted to office deals where we see the opportunity to generate value-add returns by using our extensive operating expertise and boots on the ground, by repositioning buildings and increasing the top line. We are currently not in the market to buy core buildings, as we just don’t see the risk/return justification for doing that in India for foreign institutional investors, at this stage of the commercial market cycle.


How has Xander Finance tweaked and re-calibrated its business after the liquidity issue faced by non-bank finance companies after the IL&FS issue?


Apart from the fact that both our deal flow and the quality of the deals we are seeing had improved substantially since the ILFS issue, not very much has changed. Our underwriting standards remain as stringent as they have always been. Being conservative and disciplined has helped us avoid the issues many of the NBFCs are going through or will go through as the passing-the-parcel is forced to stop. Our (loan) book is robust and we are looking to grow it as we have over the past many years, in a prudent, consistent, manner.


This market dislocation gives us a great opportunity as others retreat because of their historically loose underwriting, growing NPAs (non-performing assets) and asset-liability mismatch or because, simply put, they are out of business or going to be soon out of business. We never had any short-term financing. So, we have not been affected like the others who were taking on short-term liabilities to fund long-term assets. And ,our underwriting standards remain the same. We don’t change our standards because the market cycle has changed. Not in an up-cycle and not in a down-cycle. We are just happy to do less or more deals, depending on the quality of deals available.


Could you throw some light on the operations of Virtuous Retail SA? What is it doing, of late?


The 100 per cent owned portfolio now stands at about 10 mn sq ft. Four VR centres approximating 5.3 mn sq ft in the north, south and west of the country are operating, generating sales and income. A fifth will become operational later this year, taking the operating portfolio to 6.3 mn sq ft. We have two large developments (more than two mn sq ft each) underway in prime Delhi and Mumbai locations, where we are building ground-up VR flagship centres. That takes the current VR operating and under-development portfolio to over 10 mn sq ft.


We are also about to close the acquisition of two operating centres, one in the north and one in central India, adding another 1.5 mn sq ft of such centres to our portfolio and, of course, operating income as a result. We should be announcing the exact details by early May. Both will be rebranded and repositioned as flagship VR centres for their cities. Finally, we are in advanced talks for a couple of additional acquisitions, where we are either entering JVs or buying half-built projects outright, in a few other key cities. And, we remain hungry for new acquisition opportunities of all kinds.


How do you look at the state of residential markets in India? When do you expect broad-based recovery in these?


It will take some time. There is excess inventory in most markets at the mid to high segment and I expect that will take some time to absorb. Also, the nature of the residential developer has to change. From value capture in the land assembly/approval stage, the value capture/add needs to be in the development stage. The worst kept secret in the residential industry is that most 'developers' are glorified land assemblers (where the skills required traditionally were not business skills but rather other skills which in most developed markets would be a negative, not a positive) or construction contractors. That’s not development.


With the introduction of Rera (the stringent regulation law for the realty developer sector) and other policies, a lot of that is changing. It will result in new ways of doing business. Rewards for real development will be possible. New asset classes which require more operational expertise will develop. That is all good for the market in the medium to long term.


So, there is a lot going on. There are some simple steps which can help the market/industry but we need political will, uncompromising policy and implementation of such policy. And, finally, some industry leaders to show the way. Right now, the residential market is not an attractive place to be. It definitely could be and should be in a country like India.


Are you planning to float any REIT (real estate investment trust) in India with your assets? If yes, by when?


At the right time, we might consider it for any of the platforms we own and operate. We are in no rush, as many of our platforms are evergreen and do not require a hurried or forced exit, full or partial. Also we are pretty well capitalised and so there is no rush to raise retail financing, although it’s always a nice option. If the time, rationale and market demand is there, we might consider it.


Planning any exits in FY20? If yes, which assets are you looking to sell?


Any where we see our value-add being fully priced, and our original underwritten thesis having played out, are obvious candidates for an exit. One or more of our value-add commercial properties might soon be at that stage. Also, sometimes, people have different perceptions of risk or of what value an asset might be, due to their own unique situation. So, when someone comes and makes you an offer which is more than you believe is the intrinsic value to you, or the value you can add, one would sell. So, we always have an open mind. We are always looking to buy and everything we own is always for sale -- at a price!


Any fund-raising plan in the current financial year?


We are constantly raising capital and also providing distributions to investors. Since we have multiple strategies and multiple investment vehicles at any given time, we are likely to be winding one down as exits happen and raising new ones. Having other platforms with permanent capital also helps, as we can take advantage of the best opportunities as these arise, move very quickly when needed and not feel pressured to deploy (the worst thing you can do) when good opportunities are not presenting themselves or when one believes the market for one or more asset classes is heated and there is too much capital.


We might soon announce a new asset platform. Watch this space!

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