Unitech Corporate Parks Results & Leasing Update

Unitech Corporate Parks (UCP) recently released its audited results for the year. The report has very limited disclosure on how the valuations have been computed. The stated NAV is £1.7408 while the stock is quoting at less 50 p (a discount to NAV of over 70!). Obviously, the market assessment of the valuation is very different from Knight Frank's assumptions.

UCP also released a leasing update that indicates the company has been able to lease 11.9% of total leasable area (across all planned projects). Considering the broadbased slowdown in the economy and the huge supply of office space coming on stream, we expect the run-rate for leasing to be much lower going forward.

Earnings Season Nuggets....

As we come to the close of Q1 earnings, a couple of interesting nuggets caught my eye

1. DLF continues to sell a large chunk of its assets to DLF Assets. DLF Assets currently owes DLF Rs. 3,383 crores. To put things in context, so far DLF assets worth Rs. 9000 crores to DLF Assets. Of the Rs. 5,700 crores paid out by DLF assets, Rs. 4,900 crores seems to come from private equity investors. Interestingly, the last tranche of about Rs. 2,000 crores was in the form of convertible preference shares with ultimate conversion price tied to the listing price of the DLF Office Trust in Singapore. Given that Indiabulls Property Trust is trading at a 30% discount to issue price, less than 2 months after issue, the prospects for DLF Assets look daunting to say the least.
2. Sobha Developers has changed its revenue recognition policy. Now, revenues from the land component will be recognized when EITHER 20% of dues from customer are collected or agreement for sale is executed. So, for properties where the land cost forms a large fraction of total price, recognized revenues could be greater than the actual cash received.
   

As the difficulties facing Indian developers intensify, we won't be surprised if developers try other accounting shenanigans to boost revenues/profits.