ambit real estate thematic 04sep2014

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Ambit Capital and / or its affiliates do and seek to do business including investment banking with companies covered in its research reports. As a result, investors should be aware that Ambit Capitalmay have a conflict of interest that could affect the objectivity of this report. Investors should not consider this report as the only factor in making their investment decision.

The missing secret sauce

In this first-of-a-series, we present a primer on the potential Indian REITlandscape and illustrate how developers and investors are likely toposition themselves in anticipation of the REIT regime. Our analysissuggests that the proposed tax legislation favours debt contribution overequity and is skewed towards non-resident investors. We expect highly-levered, operational commercial assets (within a REIT-able universe of~110msf) to find REITs as an ideal means of raising perpetual capital toreplace domestic debt at the SPV (company) level. We expect high-qualityretail assets to command better valuations than comparable office spaceassets and we present a short case study on The Phoenix Mills toillustrate the potential of India’s retail real estate.

REITs in India - The need for perpetual capital in the real estate sector

Despite recent signs of a turnaround in the nature of capital coming into the realestate sector (long-term, sovereign and pension funds), there is a severeshortage of long-term risk capital. Hence, an enabling legislation for REITs willoffer an avenue for replacement capital and exit opportunities for developers andinvestors, allowing them to unlock capital employed in completed assets. Proposed tax legislation and final norms - Necessary but not sufficient

Whilst the current tax proposals (proposed in the Budget) are kick-starting theREIT regime in India, the tax structure is sub-optimal for sponsors and investorsalike. In fact, the proposed tax legislation is skewed towards non-residentinvestors and favours debt over equity and needs to be tweaked in order to makeIndian REITs more palatable to sponsors and investors alike. Quality of investible universe will determine quality of investorsThe quantum of Grade-A assets (investible stock of income-generating assetsacross office and retail space) available for injection into Indian REITs is limited inthe Indian context. Experts suggest that the investible universe is restricted toabout 30% of Grade-A office space (amounting to ~100msf) and about 20% ofIndia’s total retail space (amounting to ~10msf).

Developers likely to fold yield-bearing assets into SPVs (companies)

We expect developers to wait until the next budget to see whether the taxconcessions are extended to other ownership structures. In the absence of anyfurther developments on taxation, we expect developers to fold their portfolio ofyield-bearing assets into SPVs (in the form of a company). We expect sponsorsand developers to lobby for further tax concessions in this structure.

New investment vehicle will call for a new set of disclosures

We believe that current disclosures around yield-bearing assets are insufficient toarrive at a sensible valuation of such assets. We believe investors need to seekgreater clarity around tenancy mix, nature of lease contracts and tenure of leasesto efficiently value assets. Until then, we expect Indian assets listed in Singaporeto set the upper end of the valuation band for yield-bearing assets.

Valuation - What is an appropriate cap rate in the Indian context?

Our discussion with experts and potential sponsors suggests that REIT yields at150-200bps below base rates would be viable. Whilst yields are determined by acombination of factors such as location, tenancy mix, outlook on vacancy risk and

residual lease tenures, we believe that Grade-A retail assets will command bettervaluations (lower cap rates) than comparable office assets.

THEMATIC YIELD-BEARING ASSETS September 04, 2014

Real EstatePositive

Completed commercial asset portfolio -Listed developers (msf)

Office Retail Total

DLF 27.74 1.61 29.35

Prestige 4.59 0.70 5.29

Phoenix 6.05 6.05

Oberoi 0.37 0.55 0.92

Brigade 0.77 0.82 1.59

Source: Companies, Ambit Capital research

Analyst DetailsKrishnan ASV

+91 22 3043 3205

[email protected]



Real Estate

September 04, 2014 Ambit Capital Pvt. Ltd.

CONTENTS

Why does India need REITs?..................................................................................... 3

The distance already covered………………………………………………………………….7

The missing secret sauce…………………….…………………….………………………… 12

What about the supply side? …………………….…………………….…………………… 14

Valuation - The ‘cap rate’ methodology…………………….…………………………….. 16

Understanding retailer economics…………………….…………………….…………….. 24



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Why does India need REITs?

The need for perpetual capital in Indian real estate

Real estate, being a capital-intensive sector, faces a burgeoning need forfunds, especially in the form of long-term institutional capital. Despite recentsigns of a turnaround in the nature of capital coming into the sector (long-

term, sovereign and pension funds), there is a severe shortage of long-termrisk capital. The Indian real estate industry has witnessed exits from a fewprivate equity (PE) investors with mixed results. A larger chunk of exits (ofUS$2bn) is likely over the next 2-3 years when the sector completes its firstfull cycle, which is where the key challenge lies. In this context, REITs willoffer replacement capital and exit opportunities for developers and financialinvestors, allowing them to unlock capital employed in completed assets byinjecting such assets into REITs.

Real estate companies have two primary sources of funding: banks and high net-worth individuals (HNIs and ultra HNIs).

Exhibit 1:

Major channels of real estate funding in India

Pre-2005 2005-2007 2008-2009 2010-2011 2012-2013Offshore listing Offshore listing Offshore listing Offshore listing Offshore listing

IPO IPO IPO IPO IPO

QIP QIP QIP

PE funds PE funds PE funds PE funds

ECBs ECBs ECBs ECBs

NBFC lending NBFC lending NBFC lending NBFC lending NBFC lending

Bank lending Bank lending Bank lending Bank lending Bank lending

Private lending Private lending Private lending Private lending Private lending

Source: JLL publications; Note: Cells highlighted inOL

indicate very high levels of activity in that channelduring the period, cells highlighted in RED indicate average levels of activity in the channel during the period

As captured in the exhibit above, bank funding (direct) to the real estate sector hasbeen sporadic. On the other hand, the NBFC channel and the private lendingchannel have consistently seen high levels of activity nearly every year. This isreflective of the existing regulatory arbitrage between banks and NBFCs that lend toreal estate.

Exhibit 2:

Regulatory arbitrage between bank lending and non-bank lending

Source: Ambit Capital research

Construction finance from banksremains the cheapest source offunds for real estate developers;

however, relatively greater scrutinyof banks’ exposure limits and end-use monitoring of funds provideNBFCs with a significant regulatoryarbitrage

Bank

Real estate company

Bank

Housing finance

company (HFC)

Real estate company

Bank

Other NBFC

Real estate company

Sensitive sector - hence,greater regulatory

scrutiny

Relatively lowerregulatory scrutiny leads

to arbitrage



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NBFC lending to real estate - Capitalising on regulatory arbitrage

It is worth highlighting that since Indian banks are not allowed to lend to real estatecompanies for the purpose of land acquisition, developers either use internal accrualsor other sources of funding for the purpose of land acquisition. Given the regulatoryarbitrage (around exposure limits, extent of scrutiny and end-user classification)between banks and NBFCs that lend to real estate companies, the NBFC route is thusconveniently exploited. In fact, we argue that a significant proportion of what appears

to be non-bank debt to real estate companies is also bank lending to the sector,albeit in an indirect manner.

Banks are under far greater regulatory scrutiny from the Reserve Bank of India (RBI)on exposure to the real estate sector. In fact, bank exposure to commercial real estate(CRE) is mandatorily classified under sensitive sector exposure as part of banks’statutory reporting. Another area that contributes to the regulatory arbitrage betweenbanks and NBFCs that lend to real estate companies is the prevalent laxity in end-user classification at NBFCs, where exposure to real estate is often camouflaged asMSME (Medium, Small and Micro industries) exposure or unsecured personal lending(whereby HNIs and ultra-HNIs leverage themselves to fund special purpose vehicles).

Given this regulatory arbitrage, banks find it easier to lend to real estate companies

through intermediaries like NBFCs, as shown in Exhibit 2. Also, given the NBFCdependence on bank funding (80%), a large proportion of NBFC lending in Exhibit 3is, in fact, disguised bank lending. It is worth highlighting that growth in bank lendingto NBFCs has been consistently north of the headline credit growth being reported bythe banking system and also it does not undergo as much regulatory scrutiny as banklending to other end-user industries (like infrastructure).

Exhibit 3:

Growth in loan book – Reflection of regulatory arbitrage

YoY growth trends (%) 2008-09 2009-10 2010-11 2011-12 2012-13 2013-14*

Non-food credit growth 16.8 21.3 16.6 13.3 14.8

Real estate -0.3 5.8 15.6 11.9 9.2

Housing 7.7 19.3 12.3 14.0 17.6

Housing (priority sector) 10.5 10.5 10.7 0.3 10.2NBFCs 14.8 62.3 23.9 12.6 17.6

HDFC Ltd 16.7 15.0 19.6 20.3 20.7 17.0

LIC Housing Finance 26.2 37.6 34.2 23.5 23.4 17.0

Source: RBI, Companies, Ambit Capital research; Note: * 2013-14 indicates YoY growth as of Dec’13

Private equity in real estate - Funds in exit phase

Although there are recent signs of a turnaround in the nature of capital coming intothe sector (long-term, sovereign and pension funds), there is a severe shortage of riskcapital in the real estate sector, implying that a bulk of the so-called risk capital in thesector is disguised mezzanine finance (quasi private equity coming in with debt-likefeatures such as assured returns built into the contracts).

To put the nature of private equity capital in perspective, out of the US$14bn investedin the sector since 2007, JLL believes that US$5bn has exited. More importantly, theprivate equity industry has seen considerable consolidation, with about 20 seriousfunds in existence now as compared to nearly 120 funds during the heydays in 2007.The consolidation, whilst indicative of a maturing investor community, has now begunattracting seasoned, long-term capital providers into the sector, as evidenced by theentry of sovereign and pension funds that are willing to offer the much-needed long-term risk capital to developers. Our discussions with experts in capital market teamssuggest that nearly US$4bn has already been raised for the Indian real estate sector,out of which nearly US$2bn is ready for immediate deployment.

NBFCs are capitalising on theregulatory arbitrage and arefulfilling most incremental fundingneeds in the form of ‘last milefunding’



Real Estate


Exhibit 4:

Private equity investment in real estate (US$ bn)

Source: Grant Thornton, JLL REIS

Whilst new money is being raised in anticipation of reforms in the real estate sector,existing investors are undeniably looking for an exit. Since 2005, US$37bn has been

deployed in the Indian real estate sector by institutional PE funds, out of which nearlyone-fifth, amounting to US$6.9bn, has been exited by PE funds. Whilst the residentialsector accounted for 58% of the exits, the office sector accounted for about 24% ofthe exits. Our discussions with experts also suggest that private equity of US$2bn iswaiting to exit office assets over the next 18-24 months and is keenly watching theREIT regime unfold in India in order to optimally time their exit.

1.29

6.76

3.31

0.88 0.94 0.85 0.66 0.66

0.0

1.0

2.0

3.0

4.0

5.0

6.0

7.0

8.0

2006 2007 2008 2009 2010 2011 2012 2013

Experts opine that private equity ofUS$2bn is waiting to exit office

assets and is keenly watching theREIT regime unfold in order to timetheir exit



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How can REITs fill this gap?

Replicating the global experience with REITs - Organised investment vehicles

Globally, REITs are pooled investment entities that predominantly invest in completed,revenue-generating real estate assets and distribute a major portion of the earningsamongst their investors. Typically, a majority of these investments are in completedprojects that provide investors with a regular stream of income from rentals derived

from such properties. About 30 countries, including most of the developed nations,now have laws governing REITs. REITs globally have recorded a 13% CAGR in marketcapitalisation from US$300bn (in 2003) to more than US$1trn (in 2013).

Exhibit 5:

Global REIT landscape - Most of the listings are in the US

Country /jurisdiction

Year ofintroduction of

REITs

Number of REITs(#)

Aggregate marketcapitalisation (US$

mn)

% of global REITmarket

Permissible gearingratio (%)

Profit distributionobligation#

Australia 1985 52 86,169 8.0Thin capitalisation

rules100%

Canada 1994 50 48,526 4.5 No restriction 100%*

France 2003 37 68,193 6.3Thin capitalisation

rules85% of tax-exempt

profits

Germany 2007 4 1,657 0.2 45% 90% of the netincome

Hong Kong 2003 11 23,925 2.2 45%90% of audited

annual net incomeafter tax

Japan 2000 41 64,414 6.0 No restriction>90% of distributable

profits

Singapore 1999 32 45,538 4.2 35%-60%90% of taxable

income

United Kingdom 2007 23 49,007 4.6 Interest cover test90% of tax-property

rental profits

United States 1960 163 621,924 57.7 No restriction90% of taxable

ordinary income

Source: EPRA, Ambit Capital research; Note: * Canada imposes full tax on any undistributed surplus - hence, in practice, 100% of the profits are distributed; # the

profit distribution obligation is usually imposed on the REIT’s ordinary income (excluding capital gains)Exhibit 5 suggests that a REIT market needs at least a decade of operations to maturein terms of market depth (the number of REITs) as well as in terms of capturinginvestor appetite (market capitalisation as a percentage of the global REIT market).With the exception of the United Kingdom, which has seen rapid acceptance of REITs,most other countries gain only about 20-30bps of the global market capitalisationshare every year during the evolution stage of REITs.

Mirrored on Singapore REITs but difficult to match the opportunity cost

Singapore offers the most liberal tax incentives for REITs across Asia, with hardly anyleakage through the value chain (from a yield-bearing asset to the unit holder). Also,there is no concept of capital gains tax in Singapore and hence, capital gains from

sale of assets are not taxable. Singapore also imposes no distribution/withholding taxon the REIT, as a result of which the Singapore REIT structure is amongst the most tax-efficient structures globally. A net rental income of ` 90 (net of cash expenses), whendistributed completely to unit holders, results in zero tax outflow across the valuechain. Singapore also set a precedent by waiving stamp duty on property transactionsfor five years from 2005, making it cheaper for REITs to buy buildings, which is hardto imagine in the Indian context.

The role of REITs in the Indian context

Ideally, REITs will offer perpetual replacement capital, fresh growth capital and exitopportunities for developers and financial investors (who have infused finite-durationcapital into income-generating assets), allowing them to unlock capital employed incompleted assets by injecting such assets into REITs. We believe that REITs, as a

source of funding, will attract highly-levered, operational commercial assets that seekto replace domestic debt (at the SPV level) with shareholder loans from non-residentinvestors (at the REIT level).



Real Estate


been accorded a pass-through status; dividend received by the REIT from the SPV issubject to dividend distribution tax at the SPV level). Although the pass-through statusfor REITs was a necessary pre-condition to kick-start the REIT regime in India, as weexplain in pages 12-13 of this note, the proposed tax legislation is not sufficient in itscurrent form to get India fully REIT-ready.

Government - Macro-prudential incentives to promote REITs

Whilst the REIT regime necessarily demands a few tax concessions that impose a coston the Exchequer, benefits to the Government and the economy, in the form offoreign inflows, comfortably outweigh the implicit costs. The tax proposals appearalmost tailor-made to attract foreign debt. Hence, REITs will not only attract foreigninflows that positively impact the economy’s current account deficit but also channelhousehold savings towards investment in REITs (as against the current habit ofphysical savings in gold and real estate), which is considered by rating agencies asfinancial savings.

Crucially, REITs would reduce the pressure on the banking system and make freshcapital (equity as well as debt) available to developers with a portfolio of yield-bearing assets. As an investment vehicle, REITs are likely to attract long-term financefrom foreign investors (pension funds and sovereign funds), domestic institutions as

well as the savvy non-resident Indian (NRI) investor community. In fact, the proposedtax regime is especially favourable for non-resident investors, with leakage restrictedto 5% (the withholding tax).

The proposed tax regime is skewedtowards non-resident investors



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Tax benefits for ownership through SPV (company)

REITs can own income-generating assets either directly or indirectly through an SPV(either a company or a limited liability partnership). However, the budget proposalsaddress only the SPV (company) form of ownership where the REIT owns yield-bearing assets by acquiring a controlling interest in an Indian company from thesponsor. Hence, tax concessions that have been offered in the form of a pass-throughstatus and capital gains deferral/exemption only apply to this structure currently.

Exhibit 9:

SPV (company) structure

Source: Budget documents, Ambit Capital research

Exhibit 10:

Tax framework

Entity Tax incidence Tax rate

SPONSOR

Dividend income Exempt 0%

Interest income Taxable Domestic @33%; Foreign @5%

Disposal of units (exchange of SPVshares)

Capital gains (CGT) LTCG @ 20%; STCG @30%

INVESTOR / UNIT HOLDER

Dividend income Exempt 0%

Interest income Taxable Domestic @33%; Foreign @5%

Disposal of units Capital gains (CGT) LTCG exempt; STCG @15%

REIT (TRUST)

Dividend income (equity contribution) Exempt 0%

Interest income (debt contribution) Withholding tax (WHT) Domestic @10%; Foreign @5%

Capital gains / other income Maximum marginal rate LTCG @20%; Others 30%

SPV (COMPANY)

Net income Corporate tax / MAT1 30% / 20%

Interest expense Tax shield

Dividend payment Dividend distribution tax 20%

SPV (PARTNERSHIP)

Net income Corporate tax / AMT2 19%

Interest expense Tax shield

Share of profits Exempt 0%

Source: Budget documents, Ambit Capital research; Note: 1 MAT denotes Minimum Alternate Tax; 2 AMT denotes

Alternate Minimum Tax

We present four scenarios to illustrate the leakage under different ownership andcapital structures:

Tax proposals are skewed in favourof non-resident investors

Real Estate Investment Trust (REIT)

SPV (company)

Yield-bearing assets

E q u i t y

I n t e r e s t

E q u i t y

D e b t

D i v i d e n d

R e n t a l

i n c o m e



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Our analysis and discussions with experts from PwC and EY suggest that the taxlegislation is evidently skewed in favour of non-resident investors (in terms of minimalleakage) and it favours debt over equity contribution.

Exhibit 11:

Least leakage under non-resident ownership and debt push-down

Key assumptions Scenario 1 Scenario 2 Scenario 3 Scenario 4

EV of SPV ( ` mn) 8,000 8,000 8,000 8,000

Third party debt ( `

mn) 3,000 0 0 0Internal REIT debt ( ` mn) 0 3,000 4,500 4,500

ECB debt at REIT level ( ` mn) 0 0 0 1,500

Rental (%) 12.5% 12.5% 12.5% 12.5%

Distribution from REIT to investors 100% 100% 100% 100%

Resident investor stake 50% 50% 0% 0%

Non-resident investor stake 50% 50% 100% 100%

SPV P&L STATEMENT

Cash flow (rental to SPV) 1,000 1,000 1,000 1,000

Standard deduction (tax) 30% 300 300 300 300

Interest 360 360 540 540

External debt 12% 360 0 0 0

Shareholder loans 12% 0 360 540 540

Taxable profit 340 340 160 160

Tax 34% 116 116 54 54

Profit after tax 224 224 106 106

DISTRIBUTION BY SPV

Distributable cash surplus 524 524 406 406

Dividend distribution tax 20% 105 105 81 81

Dividend up-streamed by SPV 420 420 324 324

REIT CASH FLOWS

Total cash flow to REIT 420 780 864 864

ECB interest 4% 0 0 0 60

Net cash flow to REIT 420 780 864 804

INVESTOR PAYOFFS (assuming 100% distribution)

Resident investor

Interest income (gross) 0 180 0 0

Interest withholding tax 10% 0 18 0 0

Interest income tax 34% 0 55 0 0

Interest income (net) 0 107 0 0

Dividend income 210 210 0 0

Total income - resident investor 210 317 0 0Non-resident investor

Interest income (gross) 0 180 540 480

Interest withholding tax 5% 0 9 27 24

Interest income tax 0% 0 0 0 0

Interest income (net) 0 171 513 456

Dividend income 210 210 324 324

Total income - non-resident investor 210 381 837 780

YIELD CALCULATION

Total outflow to investors 420 697 837 780

Investors' contribution 5,000 8,000 8,000 6,500

IMPLIED YIELD 8.4% 8.7% 10.5% 12.0%

Source: PwC, EY, Ambit Capital research

Scenario 1: Base case where theREIT is owned equally by residentand non-resident investor and the

SPV has external debt

Scenario 2: REIT is still ownedequally by resident and non-resident investor but SPV debt is

substituted by shareholder loansfrom the REIT

Scenario 3: REIT is 100% ownedby non-resident investor and debtcontribution by the REIT into the

SPV increases

Scenario 4: REIT is 100% owned

by non-resident investor, assumesECB debt, which is pushed down tothe SPV



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Regulatory guidelines around REITs

Globally, REITs typically invest in real estate formats such as business parks, industrialparks, hotels, retail space, office space, and serviced apartments (between 80% and95% of the investible capital is employed in these formats) whilst the residential assetclass accounts for less than one-fifth of the REIT assets. In India, SEBI has prescribedcertain norms around investment conditions, income distribution and ownership.

Exhibit 12:

Regulatory guidelines around REITs - A few accommodative changesParameter SEBI - draft guidelines (October 2013) SEBI - final guidelines (not yet notified) Impact of revised norms

Parties to theREITs

Trustee, Sponsor, Manager and Principal Valuer Trustee , Sponsor and ManagerPrincipal Valuer no longerconsidered as party to REITs

Number ofsponsors

There was no concept around number of sponsors Maximum of 3 sponsors A few smaller developers couldcome together to aggregatetheir yield-bearing assets

Minimumvalue of assets

` 10bn ` 5bn

Sponsors'unit-holding

obligations

Minimum 25% of total units prior to initial offer;25% to be held for a period of 3 years from dateof listing of such unitsUnits exceeding 25% were to be held at least for

a period of 1 year from date of listingHold at least 15% of the outstanding units ofREITs perpetually

Each of the 3 sponsors to hold a minimum of 5% ofunits of REITs

All 3 sponsors to collectively hold over 25% of theunits of the REIT for at least 3 years from the date

of listingBeyond 3 years, sponsors collectively required tohold 15% throughout the life of REITs

Restriction onproject ticketsize forinvestment

Investment up to 100% of the corpus of the REIT was permitted in a single project subject to thecondition that minimum size of such asset is notless than ` 10bn

REITs shall invest in at least 2 projectsMaximum 60% of value of assets can be invested ina single project

Eliminates the single-projectconcentration risk; evensmaller projects can becoupled together now

Investmentrestrictions

At least 90% of the value of the REIT assets shallbe in completed rent-generating properties

At least 80% of the value of the REIT assets needsto be in completed and revenue-generatingproperties

Investment conditions havebeen relaxed to some extent toallow REITs a little moreleeway on how to deploy funds

Other

permissibleinvestments

The remaining 10% of the value of the REIT assetscould be deployed towards multiple avenuesincluding developmental properties,

listed/unlisted debt of companies, equity sharesof listed companies that derive at least 75% oftheir revenues from real estate activity, and liquidsecurities

The remaining 20% of the value of the REIT assetscan be deployed towards multiple avenuesincluding developmental properties (capped at

10% of overall AUM); listed/unlisted debt ofcompanies; equity shares of listed companies thatderive at least 75% of their revenues from realestate activity; and liquid securities

Mode ofpropertyownership

Direct ownership of assets or through SPVsowning at least 90% of their assets directly insuch properties and restricted from investing inother SPVsThe REIT shall hold controlling interest and atleast 51% in the equity share capital of the SPV

Direct ownership of assets or through SPVs owningat least 80% of their assets directly in suchproperties and restricted from investing in otherSPVsThe REIT shall hold controlling interest and at least50% in the equity share capital of the SPV

If the REIT's ownership in theSPV is between 50% and 51%,the REIT may not havecontrolling interest

Distribution ofincome

At least 90% of the net distributable income aftertax of the REIT shall be distributed as dividend tounit holders

At least 90% of the net distributable cash flows ofthe REIT shall be distributed as dividend to unitholders at least on half-yearly basis

Minimum periodicity of incomedistribution (cash flows) hasbeen introduced in the finalregulations

Borrowingsand deferredpayments

Aggregate consolidated borrowings and deferredpayments of the REIT shall never exceed 50% ofthe value of the REIT assets

Aggregate consolidated borrowings and deferredpayments of the REIT shall never exceed 49% ofthe value of the REIT assets.

Source: SEBI, Industry sources, Ambit Capital research



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The missing secret sauce

Gaps in tax legislation and regulation

Whilst the current tax proposals (as proposed in the Budget) are welcome asthe first steps in the journey to kick-start the REIT regime in India, the taxstructure is still sub-optimal for sponsors and investors alike. In fact, as

highlighted in the earlier section, the current tax legislation is evidentlyskewed towards non-resident investors and favours debt over equity. In thissection, we highlight areas that need to be addressed (across tax legislationand regulations) for India to be fully REIT-ready.

Disincentive for sponsors

The proposed tax legislation only recommends deferral of capital gains tax on thesponsor’s contribution of SPV shares into the REIT (in exchange for units of the REIT).Instead, it proposes that the capital gains tax (LTCG @20%) should be imposed whenthe sponsor eventually sells the units of the REIT.

This is likely to be a serious dampener for sponsors since the LTCG treatment (@20%)is different for sponsors as compared to unit holders (where LTCG is tax-exempt).

Also, the LTCG is proposed to be imposed on the sponsor’s total gain (differencebetween the historical cost and the price at which the sponsor sells the units of theREIT).

Exhibit 13:

Illustrative balance sheet of SPV (when held by sponsor)

Liabilities Amount ( bn) Assets Amount ( bn)

Equity 1.50 Building 5.00

External Debt 3.50

TOTAL 5.00 TOTAL 5.00

Source: EY, Ambit Capital research

Exhibit 14:

Illustrative balance sheet - Contribution of SPV shares into REIT

Liabilities Amount (

bn) Assets Amount (

bn)

Units to sponsor (resident) 10.00 Investment in SPV 10.00

Units to investors (non-resident) 3.50 Loan to SPV @ 12% 3.50

TOTAL 13.50 TOTAL 13.50

Source: EY, Ambit Capital research

As illustrated in Exhibits 13 and 14 above, whilst the assets are originally valued at` 5bn (in Exhibit 13 when the SPV is held by the sponsor), the assets are revaluedupwards to ` 10bn (in Exhibit 14) when they are transferred to the REIT (Year 1). Inthis case, the capital gains tax on the difference ( ` 5bn) is deferred until the sponsorsells the units of the REIT (in Year 4, after a 3-year lock-in). Assuming that the units ofthe REIT are worth ` 15bn by Year 4, the sponsor will be charged long-term capitalgains tax on ` 10bn (difference between the sale value of ` 15bn and the original cost

of ` 5bn).

We expect developers and industry bodies to lobby for either: (a) complete exemptionof capital gains tax on the sponsor; or (b) restricting the tax on capital gains of ` 5bn(capital gains from original cost to value at which shares of the SPV are exchangedfor units of the REIT).

Need for parity in tax treatment across ownership structures

Although the SEBI regulations allow REITs to own real estate assets either directly orthrough an SPV, the tax benefit for a sponsor to set up a REIT has been extended onlyto cases where real estate assets are held by the REIT through an SPV (in the form ofa company). This is likely to be a substantial dampener for sponsors looking to set upREITs holding assets directly, as the transfer of real estate assets to a REIT may involvea significant tax leakage. Also, the budget proposals do not address an ownershipstructure where assets are held in a partnership or a limited liability partnership (LLP).

Mere deferral and no exemptionon long-term capital gains (LTCG)

tax on sponsors’ gains is likely toact as a dampener

We expect developers to lobby foreither complete exemption of CGTor restricting the CGT to the extentof gains at the time of setting upthe REIT



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Our discussions with experts suggest that the parity on capital gains tax (CGT)exemption can only be addressed in the next budget.

Mandatory dividend imposes compulsory dividend distribution tax

Another major issue in the proposed REIT tax legislation is that there is no exemptionfor dividend distribution tax when the SPV pays dividend to the REIT. Since REITs

necessarily have to distribute at least 90% of their distributable cash, the leakage onaccount of DDT is inescapable under any capital structure (as compared to the caseof listed companies where there is no compulsion to pay a dividend).

Overall, an Indian resident could face leakage of at least 32-33% in terms of taxesand hence, may not find it as a compelling proposition to invest in a REIT, given theopportunity cost of investing in alternative financial assets such as fixed deposits ordirectly acquiring physical assets such as real estate and gold.

Other necessary amendments - FEMA/Securities Contract Act

According to current legislation in India, foreign investment (in any form) is notpermitted in completed assets other than industrial parks, special economic zones,

hospitals and/or hotels. As Indian REITs are mandated to invest at least 80% of theirfunds in completed income-generating assets only, foreign investment in units of REITis not currently permitted. As a result, there is a need to change the exchange controlregulations in order to allow foreign investors to invest in the units of a REIT,especially given that tax legislation is especially favourable for non-resident investors.

Policymakers also need to amend the securities law, especially the Securities ContractRegulation Act, in order to include units of a REIT within the definition of securities,without which listing of the units of the REIT would be a challenge.

Lowering or waiving transaction costs for asset purchases by I-REITs

REITs often need to churn the portfolio of yield-bearing assets (we have explained this

in greater detail in the Valuation section). With stamp duties being a state subject andeach state charging a different level of stamp duties, REITs in India may find it difficultto trade in and out of inter-state assets; hence, some form of standardisation may benecessary. Also, prolonged registration processes and onerous stamp duties couldhinder the establishment of REITs in India, where the transaction cost for physicalassets typically is 5-12% as compared to about 4-6% in Singapore. This could act as asignificant barrier to the potential inorganic growth for REITs.

DDT incidence makes SPV (company) structure tax-inefficient

Although distribution by the REIT as dividend to its unit holders is exempt from tax inthe hands of the unit holders, the incidence of corporate tax and dividend distributiontax in the hands of the SPV makes this ownership structure inefficient. Since, unlikelisted developers, REITs are mandated to distribute at least 90% of net distributablecash to investors, the applicability of dividend distribution tax is a major dampener.Industry bodies are likely to lobby with the Government to completely dispense withthe dividend distribution tax from the REIT structure.

Incidence of maximum marginal tax rate on REITs could be a dampener

Whilst the proposed tax legislation offers a pass-through on interest income, this isonly a partial pass-through. In the case of a REIT’s sources of income, other thaninterest and dividend (such as rental income in the case of REITs that directly ownyield-bearing assets illustrated in Exhibit 6 or facility management fees from the SPV),the current tax legislation proposes that REITs be taxed at the maximum marginal rate@30%. In order to ensure a complete pass-through to the REIT, the industry is likely

to lobby for capital gains and other sources of income to be tax-exempt at the REITlevel and instead be eventually taxed in the hands of unit holders.

Dividend distribution tax onmandatory dividend could mean

potential tax leakage of 32-33%for Indian resident investors



Real Estate


Restricting the quality of initial REIT listings to core, stabilised assets

Developers under financial strain are often tempted to inject non-core assets into aREIT listing. However, should developers do this in the initial batch of REIT launches, itcould risk damaging investment appetite and could reduce investment flow into thenascent Indian REIT market.

The supply of high-quality, well-managed and en-bloc investible assets available for

injection into REITs are limited. Developers that prefer ownership and stable incomereturns could hold on to such high-quality assets rather than inject them into REITs,thereby preventing core and matured properties from entering the REIT market. Therecent entry of seasoned foreign investors into the Indian real estate market may,however, help shape and improve the future stock of institutional grade real estateassets available in the market.

Identifying the REIT-able universe

Our discussion with CRISIL Ratings suggests that five large Indian developers have aleasable portfolio of about 43msf (incremental 5-7msf of leasable area likely to beadded by these developers over the next couple of years), which is a near-termaddressable market for REITs. In Exhibit 17, we map the leasable portfolio of each of

the large listed developers.

Exhibit 17:

Completed commercial asset portfolio - Listed developers (msf)

Office Retail Total

DLF 27.74 1.61 29.35

Prestige 4.59 0.70 5.29

Phoenix 6.05 6.05

Oberoi 0.37 0.55 0.92

Brigade 0.77 0.82 1.59

Source: Companies, Ambit Capital research



Real Estate


Defining the opportunity cost

Cash flows to determine opportunity cost

As discussed in the earlier section on the supply side, most operational, commercialassets currently have a component of conventional lease rental discounting (LRD)loans within their capital structure. In cases where an operational, commercial assethas an LRD component, we believe that a sponsor has two choices to raise capital viz.

the CMBS route and the REIT listing. As illustrated in Exhibit 19, whilst REITs providehigher upfront cash flows, a CMBS structure provides higher annuity cash flows onaccount of no principal amortisation of debt.

Exhibit 19 also illustrates why unlisted developers may prefer a public issuanceinstead of a REIT structure, as a public issuance does not entail capital gains tax.

Exhibit 19:

Scenario analysis to derive opportunity cost

( mn, unless otherwise specified) LRD CMBS REIT Public issue

Book value of asset 6,000 6,000 6,000 6,000

Market value of asset (EV) 10,000 10,000

Equity valuation of property 7,000 7,000

Stake dilution of developer @75% 75% 5,250 5,250

Current outstanding debt on the SPV balance sheet 3,000 3,000 3,000 3,000

Re-financing of debt through CMBS 5,000

Cash flows to developer through debt route 2,000 5,250 5,250

Upfront cash flows to developer 0 2,000 5,250 5,250

SPV CASH FLOWS

Net lease rentals to SPV 1,000 1,000 1,000 1,000

Depreciation (standard deduction) 30% 300 300 300 300

Interest 345 525 345 345

LRD @11.5% 11.5% 345 345 345

CMBS @10.5% 10.5% 525

Profit before tax 355 175 355 355

Tax 30% 107 53 107 107

Profit after tax 249 123 249 249

Distributable income / net cash accruals 549 423 549 549

Principal repayment 302 0 0 302

Cash after repayment 247 423 549 247

Dividend distribution tax 20% 110 49

Dividend to holding entity 439 197

REIT CASH FLOWS

REIT cash flows 439

Expenses to trustee 10% 44

Cash available for dividend 395

Dividend distributed by REIT 90% 355

Developer cash flows 247 423 89 49

Source: CRISIL, Ambit Capital research

LRDs typically allow developers to raise 5-6x the net lease income (based on variablessuch as interest rate, LTV, and debt-service coverage ratio). Although developers canraise higher capital through LRD (12-15-year maturity) vs CMBS (5-9-year maturity),LRD involves amortisation of principal as well as interest, leaving little cash surplusafter servicing of debt. However, as CMBS involves a balloon repayment at the end ofthe maturity period, the cash surplus at the end of every year can be distributed as

dividend. Hence, REITs prefer the CMBS route on their debt component of the capitalstructure as against LRDs.



Real Estate


The case for cap rate compression in India

Capitalisation or ‘cap’ rates are a way of quoting observed property prices in terms ofthe expected first-year asset-level incomes (rental). In commercial real estateparlance, the cap rate is applied to the estimated first-year net operating income toderive the value of the income-generating asset. For instance, assuming anappropriate cap rate for an office space generating an annual rental of ` 100 at 10%,the estimated value of the property would be ` 1,000. Globally, cap rates have been

central to real estate investment, financing and valuation decisions.

In India, the sharp fall in office rentals during 2009 has meant that pan-India officerentals, as of March 2014, despite healthy absorption of office space across India, arestill below peak rentals that were observed during 3QCY08 (prior to the Lehmancollapse). As can be seen from the last column of the following exhibit, office rentalsare at least 15-20% below the peak rentals in most micro-markets (with the exceptionof Bangalore and Chennai). This is reflected in the fact that rental yields forcompleted properties currently range between 9.5% and 12%, depending on location,quality of office space and tenancy mix.

Exhibit 20:

YoY growth in office rentals across geographies

2008 2009 2010 2011 2012 2013 1Q141Q14 Rental

Index

Bangalore -0.9% -17.7% 3.3% 10.8% 5.3% -0.6% 0.3% 99.5

Mumbai City -3.6% -34.3% 0.8% 1.1% 0.8% 0.5% 0.1% 62.1

Delhi City -3.8% -41.6% 2.2% 3.2% 1.3% 0.0% 0.0% 59.2

Mumbai suburbs -7.0% -34.3% 0.0% 7.4% 1.1% 2.1% 0.6% 68.3

Gurgaon (Prime) 1.6% -31.1% 2.8% 11.8% 5.7% 5.0% 0.9% 80.9

Gurgaon (Off Prime) -15.0% -38.2% -2.4% 9.8% 4.4% 2.1% 0.0% 66.7

Noida -3.2% -16.6% -9.0% 3.3% 2.7% 3.6% 0.0% 77.7

Chennai -0.6% -22.4% 0.0% 6.4% 4.9% 4.4% 0.2% 93.2

Pune -5.1% -20.7% 0.0% 3.4% 7.3% 6.8% 2.3% 83.9

Hyderabad 3.1% -14.0% 0.0% 4.1% 5.1% 1.1% 0.0% 80.1

Kolkata 9.3% -27.4% 0.0% 5.7% 8.2% -0.3% 0.0% 82.6

Source: JLL REIS 1Q14, Ambit Capital research; Note: The rental index in the last column is based to 3QCY08 rentals = 100

Although the total return from the office space is equal to the total return fromresidential assets, developers have been favouring residential properties over officeassets over the past few years, as reflected in the fact that over 80% of ‘under-construction’ real estate comprises residential assets.

Exhibit 21: Total return matrix - Residential vs Office space

Total Return Matrix Residential Office

Rental yields 1-2% 9-10%

Capital appreciation 10-13% 2-5%

Total Return 11-15% 11-15%

Source: Ambit Capital research

As a result of the disproportionate skew of ‘under-construction’ properties towardsresidential assets, experts opine that the residential segment is gradually turning intoa condition of over-supply in a few micro-markets. On the other hand, with a paucityof ready-to-move Grade-A office space, especially in Central Business Districts (CBD)of key micro-markets, experts are guiding towards buoyancy in office rental yields inCBD and SBD (Secondary Business Districts) micro-markets.

This is especially because most office assets were rented out between 2009 and 2011when rentals were at rock-bottom levels. As a result, if any of these lease agreementswere to come up for renewal during the next 12-18 months, the potential hike inrentals could be significant without any meaningful increase in vacancy risk. More

importantly, experts opine that a recovery in capital values of office assets is likely tobe sharper than the expected increase in rental yields from such assets, thus drivingyield compression (cap rate compression) in office assets.

Pan-India office rentals, as of March 2014, are still below peakrentals that were observed during3QCY08; in most micro-markets,office rentals are still 15-20%below the peak rentals observedduring 2007/2008

Recovery in capital values isexpected to be sharper than theincrease in rentals, thereby drivingield (cap rate) compression in

office assets

Large proportion of office assetsrented out between 2009 and

2011 when rentals were at rock-

bottom levels, implying significantincrease in potential rentals at thetime of renewal of the leaseagreements



Real Estate


Case study 1: Ascendas (AREIT SP)

Sponsor background

Ascendas India Trust (Ascendas) was listed in August 2007 as the first Indian propertytrust in Asia. Ascendas owns five IT parks in India valued at S$869mn (as of March31, 2014) across a portfolio of 7.5msf spread across Bangalore, Chennai andHyderabad.

Exhibit 25:

Gradual accretion to leasable area (msf)

Source: Company filings, Ambit Capital research

Apart from the completed properties, the trust holds vacant land with potential built-up area of another 2.9msf.

Portfolio details

In Exhibit 26, we have captured the portfolio details including occupancy and theimplied cap rates for Indian assets across different locations within India.

Exhibit 26:

Portfolio detailsName ITPB ITPC CyberPearl The V

aVanceBusiness Hub

Portfolio

City Bangalore Chennai Hyderabad Hyderabad Hyderabad

Completed area (msf) 3.4 2.0 0.4 1.3 0.4 7.5

Park population 32,550 19,340 4,500 12,000 5,000

Land available for development (msf) 2.9 2.9

FINANCIAL METRICS - YEAR ENDED MARCH 2014

Committed occupancy (%) 94% 99% 100% 99% 96% 97%

Total property income ( ` mn) 3,232 1,222 267 820 233 5,774

Net property income ( ` mn) 1,532 907 182 636 193 3,450

Valuation ( ` mn) 20,318 10,740 2,024 6,450 2,051 41,583Implied yield (%) 7.5% 8.4% 9.0% 9.9% 9.4% 8.3%

Source: Company filings, Ambit Capital research; ITPB denotes International Tech Park Bangalore; ITPC denotes International Tech Park Chennai

Our discussion with experts suggests that the base ‘cap rate’ for Indian assets is likelyto remain close to 10%. However, we believe that the implied yields on ITPB and ITPCin Exhibit 26 would set the upper end of the valuation range for office assets basedout of Bangalore and Chennai respectively. As can be seen from Exhibit 26, officeassets in Hyderabad are already quoting at close to double-digits (despite higheroccupancy), largely on account of the muted outlook on rental growth. Our discussionwith experts in Hyderabad suggest that the office market buoyancy in Hyderabad(with less than 10% vacancy as compared to the all-India average of 12%) is largelyon the back of expansion by existing occupiers, as the Hyderabad market has not

seen new occupiers since 2010 on account of bad press around the political turmoilwithin the state.

3.6 3.64.7 4.8 4.8

6.06.9

7.50.01.1

1.2

0.5

0.6

0.0

0.1

0.4

0.0

1.0

2.0

3.0

4.0

5.0

6.0

7.0

8.0

IPO Mar-08 Mar-09 Mar-10 Mar-11 Mar-12 Mar-13 Mar-14

Portfolio Development Acquis ition

Implied yields on ITPB and ITPC will set the upper end of the valuationrange for office assets based out ofBangalore and Chennairespectively whilst office assets inHyderabad quote at near double-digits (despite higher occupancy),largely on account of the muted

outlook on rental growth.



Real Estate


Case study 2: CapitaMalls Asia (CMA SP)

Sponsor background

CapitaMalls Asia (CMA) is one of the largest listed shopping mall developers, ownersand managers in Asia by total property value of assets and by geographic reach. Asof December 2013, CMA owns 105 shopping malls across five key markets in Asia,with a total property value of S$34bn.

Exhibit 27:

CMA’s business structure by geography

Singapore China Malaysia Japan India

Entity CapitaMall TrustCapitaRetailChina Trust

CapitaMallsMalaysia Trust

CapitaMalls JapanFund

CapitaMalls IndiaDevelopment Fund

Mode of ownershipDirectly held

Joint venturesREIT

Directly heldJoint ventures

REIT

Directly heldJoint venture

REIT


REIT


REIT

Ownership stake in REIT 27.62% 21.33% 36.10% 26.29% 45.45%

Source: Company filings, Ambit Capital research

Portfolio details

In Exhibit 28, we capture the portfolio details and key mall metrics across

CapitaMalls’ portfolio by geography.Exhibit 28:

Portfolio details (as of December 2013)

Singapore China Malaysia Japan India Total

PART A: PORTFOLIO DETAILS

Gross floor area (msf) 14.6 69.4 5.5 2.4 6.6 98.5

Property value (S$bn) 15.4 16.2 1.5 0.7 0.4 34.2

No. of malls - operational 19 51 5 8 2 85

No. of malls - to be opened in 2014 0 2 0 0 2 4

No. of malls - to be opened beyond 2014 1 9 1 0 5 16

PART B: KEY METRICS

Same-Mall NPI growth (%) 4.5% 13.1% 8.7% 3.2% 10.1%Committed occupancy rate (%) 99.3 97.3 97.8 96.9 86.8

YoY chg in shopper traffic (%) 2.4% 2.2% -2.5% 3.4% 6.1%

YoY chg in consumption (per sft) 3.2% 10.1% 0.0% 6.0% 4.4%

Valuation methods CAP/DCF/DCM CAP/DCF/RLV CAP/DCM CAP/DCF CAP/DCF/DCM

Capitalisation rate (%)Retail: 5.0-6.5Office: 4.0-6.3

Gross: 9.0-10.5Net: 5.8-7.0

7.0-7.3 5.5-8.0 10.0-11.5

Source: Company filings, Ambit Capital research; Note: CAP denotes capitalisation method; DCF denotes discounted cash flow method; DCM denotes directcomparison method; RLV refers to residual land value method; NPI refers to net property income

Whilst India contributes to 7% of CapitaMalls’ leasable area (and less than 1% of itsvaluation) (as highlighted in PART A of Exhibit 28), India contributes significantly tothe overall growth metrics (as highlighted in PART B of Exhibit 28). More importantly,the implied capitalisation rate on the Indian shopping mall portfolio reflects the stageof maturity (early stage portfolio with only 2 malls currently operational) of the Indianmall landscape.

We believe that The Phoenix Mills (Phoenix), India’s largest mall developer (with over6msf of leasable retail space) will be comparable with CapitaMalls’ India-specificportfolio. Whilst Phoenix is comparable in size to CapitaMalls’ India portfolio (onceCapitaMalls’ under-construction malls are completed and operational), as outlined inPage 23, Phoenix is relatively more evolved in terms of maturity (malls have beenoperational for longer), occupancy levels and tenancy mix.



Real Estate


Case study 3: The Phoenix Mills (PHNX IN)

Company background

With a high-quality retail asset portfolio of over 6msf, The Phoenix Mills (Phoenix) is aclear outlier within the real estate sector in terms of its focus on the under-penetratedorganised retail market in India and hence, a proxy to the consumption theme. HighStreet Phoenix (HSP), the company’s flagship retail asset, is one of India’s most

successful malls (sustainable competitive advantages in terms of a prime location anda first-mover advantage for large-scale retail space in south Mumbai).

The company has pioneered the ‘Marketcity’ concept (large-scale retail space of closeto 1msf) to successfully expand its retail footprint to other Tier-1 micro-markets withinIndia. The Phoenix Marketcity (PMC) assets are at varying degrees of maturity in terms

of market (addressable market and competition) evolution and retail penetration.

Portfolio details

In Exhibit 29, we capture the company’s portfolio of completed retail assets.

Exhibit 29:

Retail assets - portfolio details

RetailGross

Leasable

Area (msf)

Stake

(%)

Occupancystatus

(%)

No. ofstores

(#)

Trading density

(

/sft/mth)

Rentals

(

/sft/mth)

Rentals /

TDHIGH STREET PHOENIX (HSP)

Courtyard 0.14 100.0% NA NA NA 80-200

Grand Galleria 0.07 100.0% NA NA NA 150-300

Palladium 0.3 100.0% NA NA NA 300-400

Skyzone 0.2 100.0% NA NA NA 250-300

PHOENIX MARKETCITY (PMC)

Phoenix Marketcity Pune 1.13 58.6% 83.0% 298 828 71 8.6%

Phoenix Marketcity Bangalore 0.98 68.1% 87.0% 256 998 73 7.3%

Phoenix Marketcity Mumbai 1.14 53.2% 84.0% 244 630 84 13.3%

Phoenix Marketcity Chennai 0.98 50.0% 80.0% 236 1,214 98 8.1%

Phoenix United Lucknow 0.36 71.4%

Phoenix United Bareilly 0.35 77.2%

Source: Company, Ambit Capital research

Whilst our next report will be dedicated to a detailed understanding of the companyand its retail assets, in page 24 we make a macro-fundamental case for structural

demand drivers for organised retail space in India.



Real Estate


Understanding retailer economics

High Street vs Malls - The trade-off

Low exit barriers often render retailers indifferent to where they are settingup their stores (whether in prominent high streets of a city or in the premiummalls). Whilst ‘high street’ format commands relatively higher fixed rentals

(nearly 1.7x) vis-à-vis comparable Grade-A malls, Grade-A malls offer a lotmore amenities and hence, greater convenience to consumers. Hence, giventhe proliferation of domestic and foreign brands in India, the demand forretail space far outstrips the existing supply. We will elaborate further on thistheme in our detailed note on The Phoenix Mills later this month.

Our discussions with various specialised consumer/retail management consultantssuch as Technopak, A.T.Kearney and BCG (the Boston Consulting Group) suggest thatlow exit barriers often render retailers indifferent to whether they set up their stores inhigh streets or in premium malls as long as the location is conducive to sales. Whilstthe high street format commands relatively higher fixed rentals vis-à-vis comparableGrade-A malls, Grade-A malls offer greater amenities and hence, more convenienceto consumers.

Evolution of malls in India

The retail real estate market in India has steadily matured over the past decade, asthe quality of stock improves and local developers realise the importance of modernshopping centre management such as zoning, branding, marketing and promotions,as well as the all-important strategy of following a pure-lease model instead of theearlier practice of selling units within the mall (strata sales) to individual investors.

Whilst the ‘high street’ format commands relatively higher fixed rentals (nearly 1.7x)vis-à-vis comparable Grade-A malls (Exhibits 30 and 31), Grade-A malls offer a lotmore amenities and hence, greater convenience to consumers. Hence, given theproliferation of domestic and foreign brands in India, the demand for retail space faroutstrips the existing supply.

Exhibit 30:

Average ‘High Street’ rentals (

/sft/month)

Source: CBRE Research, Ambit Capital research; Note: ‘High Street’ refers toJubilee Hills (Hyderabad), T Nagar (Chennai), Park Street (Kolkata), BrigadeRoad (Bangalore), Linking Road (Mumbai) and Khan Market (Delhi)

Exhibit 31:

Average Grade-A mall rentals (

/sft/month)

Source: CBRE Research, Ambit Capital research; Note: ‘Grade-A mall’ refers toan average of the top 3 or 5 malls across each city

There is about 54msf of retail stock in India, of which about 70% is concentrated in 7Tier-1 cities. However, of the over 300 malls in India, only a handful (amounting to4-5msf) can be called as successful retail projects. These include Select CityWalk, DLFEmporio and DLF Promenade in South Delhi; Ambience Mall in Gurgaon; Inorbit andHigh Street Phoenix in Mumbai; and Forum in Bangalore. We will elaborate furtheron this theme in our detailed note on The Phoenix Mills.

135

150

330

315

800

1,150

0 500 1,000 1,500

Hyderabad

Chennai

Kolkata

Bangalore

Mumbai

Delhi

65

160

180

287

350

510

0 100 200 300 400 500 600

Hyderabad

Chennai

Kolkata

Bangalore

Mumbai

Delhi



Real Estate


Institutional Equities TeamSaurabh Mukherjea, CFA CEO, Institutional Equities (022) 30433174 [email protected]

Research

Analysts Industry Sectors Desk-Phone E-mail

Nitin Bhasin - Head of Research E&C / Infra / Cement / Industrials (022) 30433241 [email protected]

Aadesh Mehta Banking / Financial Services (022) 30433239 [email protected] Achint Bhagat Cement / Infrastructure (022) 30433178 [email protected]

Aditya Khemka Healthcare (022) 30433272 [email protected]

Ashvin Shetty, CFA Automobile (022) 30433285 [email protected]

Bhargav Buddhadev Power Utilities / Capital Goods (022) 30433252 [email protected]

Dayanand Mittal, CFA Oil & Gas / Metals & Mining (022) 30433202 [email protected]

Deepesh Agarwal Power Utilities / Capital Goods (022) 30433275 [email protected]

Gaurav Mehta, CFA Strategy / Derivatives Research (022) 30433255 [email protected]

Karan Khanna Strategy (022) 30433251 [email protected]

Krishnan ASV Real Estate (022) 30433205 [email protected]

Pankaj Agarwal, CFA Banking / Financial Services (022) 30433206 [email protected]

Paresh Dave Healthcare (022) 30433212 [email protected]

Parita Ashar Metals & Mining / Oil & Gas (022) 30433223 [email protected]

Rakshit Ranjan, CFA Consumer / Retail (022) 30433201 [email protected]

Ravi Singh Banking / Financial Services (022) 30433181 [email protected]

Ritesh Gupta, CFA Midcaps – Chemical / Retail (022) 30433242 [email protected]

Ritesh Vaidya Consumer (022) 30433246 [email protected]

Ritika Mankar Mukherjee, CFA Economy / Strategy (022) 30433175 [email protected]

Ritu Modi Automobile (022) 30433292 [email protected]

Sagar Rastogi Technology (022) 30433291 [email protected]

Sumit Shekhar Economy / Strategy (022) 30433229 [email protected]

Tanuj Mukhija, CFA E&C / Infra / Industrials (022) 30433203 [email protected]

Utsav Mehta Technology (022) 30433209 [email protected]

Sales

Name Regions Desk-Phone E-mail

Sarojini Ramachandran - Head of Sales UK +44 (0) 20 7614 8374 [email protected]

Deepak Sawhney India / Asia (022) 30433295 [email protected]

Dharmen Shah India / Asia (022) 30433289 [email protected]

Dipti Mehta India / USA (022) 30433053 [email protected]

Hitakshi Mehra India (022) 30433204 [email protected]

Nityam Shah, CFA USA / Europe (022) 30433259 [email protected]

Parees Purohit, CFA UK / USA (022) 30433169 [email protected]

Praveena Pattabiraman India / Asia (022) 30433268 [email protected]

Production

Sajid Merchant Production (022) 30433247 [email protected]

Sharoz G Hussain Production (022) 30433183 [email protected]

Joel Pereira Editor (022) 30433284 [email protected]

Nikhil Pillai Database (022) 30433265 [email protected]

E&C = Engineering & Construction



Real Estate

Explanation of Investment Rating

nvestment Rating Expected return(over 12-month period from date of initial rating)

Buy >5%

Sell <5%

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14. Neither AMBIT Capital nor its affiliates or their respective directors, employees, agents or representatives, shall be responsible or liable in any manner, directly or indirectly, for views or opinionsexpressed in this Report or the contents or any errors or discrepancies herein or for any decisions or actions taken in reliance on the Report or inability to use or access our service or this ResearchReport or for any loss or damages whether direct or indirect, incidental, special or consequential including without limitation loss of revenue or profits that may arise from or in connection with the useof or reliance on this Research Report or inability to use or access our service or this Research Report.

Conflict of Interests

15. In the normal course of AMBIT Capital’s business circumstances may arise that could result in the interests of AMBIT Capital conflict ing with the interests of clients or one client’s interests conflict ing withthe interest of another client. AMBIT Capital makes best efforts to ensure that conflicts are identified and managed and that clients’ interests are protected. AMBIT Capital has policies and procedures inplace to control the flow and use of non-public, price sensitive information and employees’ personal account trading. Where appropriate and reasonably achievable, AMBIT Capital segregates theactivities of staff working in areas where conflicts of interest may arise. However, clients/potential clients of AMBIT Capital should be aware of these possible conflicts of interests and should makeinformed decisions in relation to AMBIT Capital’s services.

16. AMBIT Capital and/or its affiliates may from time to time have investment banking, investment advisory and other business relationships with companies covered in this Research Report and mayreceive compensation for the same. Research analysts provide important inputs into AMBIT Capital’s investment banking and other business selection processes.

17. AMBIT Capital and/or its affiliates may seek investment banking or other businesses from the companies covered in this Research Report and research analysts involved in preparing this ResearchReport may participate in the solicitation of such business.

18. In addition to the foregoing, the companies covered in this Research Report may be clients of AMBIT Capital where AMBIT Capital may be required, inter alia, to prepare and publish research reports

covering such companies and AMBIT Capital may receive compensation from such companies in relation to such services. However, the views reflected in this Research Report are objective views,independent of AMBIT Capital’s relationship with such company.

19. In addition, AMBIT Capital may also act as a market maker or risk arbitrator or liquidity provider or may have assumed an underwriting commitment in the securities of companies covered in thisResearch Report (or in related investments) and may also be represented in the supervisory board or on any other committee of those companies.

Additional Disclaimer for U.S. Persons

20. The research report is solely a product of AMBIT Capital

21. AMBIT Capital is the employer of the research analyst(s ) who has prepared the research report

22. Any subsequent transactions in securities discussed in the research reports should be effected through J.P.P. Euro-Securities, Inc. (“JPP”).

23. JPP does not accept or receive any compensation of any kind for the dissemination of the AMBIT Capital research reports.

24. The research analyst(s) preparing the research report is resident outside the United States and is/are not associated persons of any U.S. regulated broker-dealer and that therefore the analyst(s) is/arenot subject to supervision by a U.S. broker-dealer, and is/are not required to satisfy the regulatory licensing requirements of FINRA or required to otherwise comply with U.S. rules or regulationsregarding, among other things, communications with a subject company, public appearances and trading securities held by a research analyst account.

Additional Disclaimer for Canadian Persons

25. AMBIT Capital is not registered in the Province of Ontario and /or Province of Québec to trade in securities nor is it registered in the Province of Ontario and /or Province of Québec to provide advice with respect to securities.

26. AMBIT Capital's head office or principal place of business is located in India.

27. All or substantially all of AMBIT Capital's assets may be situated outside of Canada.

28. It may be difficult for enforcing legal rights against AMBIT Capital because of the above.

29. Name and address of AMBIT Capital's agent for service of process in the Province of Ontario is: Torys LLP, 79 Wellington St. W., 30th Floor, Box 270, TD South Tower, Toronto, Ontario M5K 1N2Canada.

30. Name and address of AMBIT Capital's agent for service of process in the Province of Montréal is Torys Law Firm LLP, 1 Place Ville Marie, Suite 1919 Montréal, Québec H3B 2C3 Canada.

© Copyright 2014 AMBIT Capital Private Limited. All rights reserved. Ambit Capital Pvt. Ltd.Ambit House 3rd Floor

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