A Real Estate Investment Trust is a company which modelled after mutual fund that owns or finances income-producing real estate. It provides investors regular income streams, long-term capital appreciation and diversification. REITs typically distribute all of their taxable income as dividends to shareholders. On those dividends shareholders pay the income taxes. REITs are strong income vehicles because REITs must pay out at least 90 percent of their taxable income in the form of dividends to shareholders .Office buildings, hotels, shopping malls, apartments, resorts, warehouses, self-storage facilities and mortgages or loans are the income producing real estate assets of REITS. India has also tried to establish REIT. Mainly due to global slowdown and resultant impact on the property markets in India the earlier attempts to introduce REITs in India did not succeed. The other aspect is mortgage backed securities which is not permitted to invest, resulted real estate market opportunities shrinkage. However, SEBI announced the draft consultation paper on Real Estate Investment Trust (REIT) Regulations on October 10, 2013. Earlier in 2008, SEBI had issued certain draft regulations for introducing REITs. I-REITs (REITs in India) will invest in completed rent generating properties in India (to comprise minimum 90% of net asset value) and mortgage backed securities, would issue securities, which would be listed on stock exchanges and. In earlier phase I-REITs are planned to be available only to high net worth individuals and institutions to develop the market but now there are some relaxations introduced.

1. G U I D E A J I N K Y A A J A G T A P
A . R . C H A V A N
T R I N I T Y A C A D E M Y O F E N G I N E E R I N G , P U N E
Paper code- 89ST02PA
Need of REIT And its prospective
Implication in India

2. Content
 Introduction
 REIT’s IN India
 Methodology
 Illustrative case study of phoenix malls
 Conclusion
 References

3. INTRODUCTION
A Real Estate
Investment Trust or
REIT is a company
that owns and
operates income-
producing real estate
REITs are also known
as Real Estate Stocks
Some REITs not only
finance real estate but
also, operates
REITs provide an
alternative way of
holding Real Estate
properties without
physically possessing
them.

4. COMMERCIAL REAL ESTATE
• The commercial real estate market comprises of office, retail and industrial
segments . It is primary dependent on growth in services ( IT/ ITeS and BFSI )
and industrial ( logistics , warehouse and manufacturing sectors of the
economy .
• Commercial and retail sectors are fragmented and have fewer national
players.
• The commercial sector had a demand
of 38.2 million sq.ft in 2011.
• The retail industry has a demand of
around 15million sq.ft in major cities
to boost the demand.
• Unlike residential properties, commercial
office and retail spaces need big-ticket
investments due to the size of the units.

5. Types of commercial real estate

6. CHARACTERISTICS OF REITs
 REITs are closed-ended or open-ended companies or trusts that hold, manage, lease,
develop and/or maintain real estate for investment purposes.
 REITs receive special tax consideration and are characterized by low transaction costs.
 REITs can only be used to invest in completed properties and not under-construction
projects.
 The income source for REITS mainly comprises regular lease rentals and asset sale
proceeds.
 REITs has a time horizon of five to seven years
 REITs are mandatorily required to distribute 90% of their net income to investors
every year.

7. EVOLUTION OF REITs
Source: Analysis of REIT regulations By, KPMG, NAREDCO, Knight Frank, March 2015

8. TYPES OF REITs

9. Equity REITs: (96.1%) – Invest & own properties.
Revenues are generated from their properties
rents
Mortgage REITs: (1.6%) – Deal in investment &
ownership of property mortgages. They loan
REITs money for mortgages to owners of real
estate, or invest in existing mortgages of
mortgage backed securities. Revenues are
generated primarily by the interest that they earn
on the mortgage loans.
Hybrid REITs: (2.3%) – Combine the investment
strategies of Equity REITs & Mortgage REITs by
investing in both properties and mortgages.

10. SECTORS WISE DISTRIBUTION OF
REITs
Mortgage 7%
Hybrid 1%
Speciality 7%
Health Care 13%
Self storage 8%
Lodging/Resorts 4%
Diversified 7%
Manufactured Homes 1%
Apartments 13%
Free standing retail 2%
Regional malls 8%
Shopping centers 11%
Mixed 3%
Office buildings 11%

11. REITs in Asian countries
 REIT was introduced in the early 2000s in Asia and has now grown into a
market net worth of US$140 billion.
 The most developed markets in terms of market capitalization are Japan,
Singapore and Hong Kong
 REITs are also listed on the stock exchanges of South Korea, Malaysia,
Thailand and Taiwan

12. Singapore REITs
REITs were introduced in Singapore in the early 2000s and the first REIT listed on
Singapore stock exchange was in 2002.There are currently 34 REITs listed on SXE
out of which 5 are giving positive.
Japan REITs
Japan was the first market in Asia to introduce REITs. Japan was the first market
in Asia to introduce REITs.
South Korea
REITs were introduced in July 2001 and first REIT was established in January
2002.There are currently 4 listed REITs on KRX.

13. REITs in India
 The Real Estate Investment Trust (REIT) is an investment instrument that
will allow investments in rent-yielding completed real estate properties
who has the potential to transform the Indian real estate sector
 A REIT has two unique features. The primary function is to manage
income-producing properties and to distribute most of the profits as
dividends
 REITs and its positive effects have made it a very popular instrument
worldwide for both investors and for the industry as well. It is considered
beneficial for its transparency, liquidity and smooth operations

14. Advantages of REITs to stakeholders
(Source referred: “Are we ready for REITs?” Report by KPMG, September, 2014)

15. UNDERSTANDING THE FINANCIAL
STRUCTURE OF POTENTIAL REIT
Following things shall be must for any company:-
i. VALUATION –Real estate at fair market value price, assessed by International Valuation
Standards
ii. TIMING – Portfolio valued by external valuer at least once a year and noting its reporting
date.
iii. REPORTING- Full-fledged portfolio value should be reported and all situations like
assumptions etc. also reported
iv. DISCLOSURE- Real Estate companies should disclose the valuation method applied, and
specify quantitative elements and assumptions applied in valuing the investment property.
v. BALANCE SHEET- Valuation of assets for the entire Portfolio, everything mentioned directly,
transparently.
vi. Presentation of ACCOUNTS- Profit & Loss Accounts , Balance Sheet , Cash Flow statements
etc. – which would help one to understand how the company is , and help in decision
making.

16.  Observations and analysis
The performance and operation of REITs were studied in Asian countries of
Singapore, South Korea and Japan. Along with these countries REITs were also
studied in the Indian context.
 Literature Review
A detailed literature analysis was done to review the REITs and their performance
in existing countries. Various research papers and reports on REITs were also
studied.
METHODOLOGY

17.  REITs in the Indian context
REITs were also assessed in the Indian context. SEBI issued regulations for REITs in
India. These regulations were studied to create the REIT model along with the
entire framework of REITs
 Illustrative case analysis
An analysis of investments is performed through a case study and carries it into
REIT framework

18. REIT: ILLUSTRATIVE CASE STUDY OF
PHOENIX MALLS
PHOENIX MILLS LTD –
Phoenix group is one of the pioneers of the Real Estate industry in Retail sector, through
there malls. This group is present in retail units, entertainment complexes. Commercial
real estate, hotels, residential complexes. This group has presence in 8 major cities –
Mumbai, Bangalore, Pune, Chennai, Raipur, Agra, and Indore.
For our study, we have assumed that Phoenix forms an SPV for REIT and includes
1) Phoenix Market City- Bangalore
2) Phoenix Market City-Pune
3) Phoenix Market City – Mumbai
4) Phoenix Market city – Chennai

19. (Source: - Phoenix Mills Investors Guide)
STRUCTURE OF PHOENIX MILLS
LTD

20. Mall Opening
Total
Land
Total built
up
Gross
Leasable
area units
avg
unit
size
(sqft)
Current
occupancy
rate
Average
daily
footfalls
Mumbai Nov-11
21
acres 20,30,000
1,150,000
244 3194 84% 65,789
Pune 2011
18
acres 20,10,000
8,00,000
298 2667 83% 13,518
Bangalore Nov-11
16
acres 10,40,000
7,00,000
256 2545 87% 65,789
Chennai Nov-11
17
acres 20,80,000
9,80,000
236 2432 80% 67,782
PHOENIX MALLS

21. Financials in Rs.Mn.
Equity Debt
Total project
cost
Phoenix market city
Bangalore 1,950 3,567 6,111
Phoenix market city
Mumbai 3,091 6,006 11,150
Phoenix market city
Pune 1,568 4,334 8,053
Phoenix Market city
Chennai 1,498 3,455 6,650
Source: Phoenix investor guide
Financials of Phoenix malls

22. Data Sources and Assumptions
REIT –Amount Rs1750 crores (4 Phoenix Malls together)
Ticket size to be around Rs 2 Lakh
We have not assumed any limitation on number of subscribers.
Not all debt of the Phoenix Mills is converted for REITs; only Debt of the 4 Malls is
taken into considerations.
All data, is data from Phoenix Mills Ltd annual reports and further from Institutional
Research by HDFC Securities.
ASSUMPTIONS

23. We have made estimates for 2016 and 2017, by assuming the occupancy rate to be the
same, have increased the rental rate for each mall by 7%, and have assumed the income
from other sources than rental (all recoveries, parking, etc.) as 40% of rental income,
which is less than the actual.
Taking a single tax, as dividend distribution tax and no other tax into consideration.
The entire money they will get through the REITs trust and all the rental yield shall be
distributed to all the investors of REITs. We shall assume the ticket size is of Rs.2 Lakh each
as we cannot determine how many tickets will be sold, nor can we assume number of
people buying the shares in REITs

24. Steps
1. Using various reports check there estimated balance sheet,
estimated rental income etc.
2. Use this data for reference only.
3. Find out what is the current rental income achieved by all
the malls, and divide by their leasable area. By this we can
determine the rental value per sq ft.
4. Then we found out other incomes with a particular mall,
like income from Parking, advertisements, events etc.
5. For all that, we found out Return on Investment for the
Phoenix Mills.
6. Now, assuming the REITs is started in 2016. We first calculate
the Rental yield per sq ft by assuming an increment in the
rental yield of 7 % ( keeping it conservative )

25. 6. Through this rental yield and estimated other recoveries and income (used
from their financial reports, HDFC bank Ltd) , we calculated the Income for
the REITs .
7. Then we calculated the expenses for the REITs – Malls. This we did by first
finding the previous year’s expenditures, and incremented it.

26. EXPENSES
OPERATING, MAINTENANCE & SECURITY 5%
UTILITY EXPENSES &
OTHER 3%
Total 8%
DEPRECIATION 6%
INTREST 0
TAX 33%
OTHER EXPENSES CONSIDERED

27. Interpreting the balance sheet
of Phoenix Mills Ltd.
( in crores )
2013 2014 2015
share capital 29 29 29
Reserves 1739.7 1694.8 1973.4
Total Shareholders fund 1768.7 1723.8 2002.4
long term Debt 2138 3363.2 3313.2
Short Term Debt 57.6 42.9 42.9
Total Debt 2195.6 3406.1 3356.1
Total sources of Funds (
incl other sources ) 4341.8 5764.1 6131.6
Total current Liabilities 621.2 908.7 972.6
Net current Assets 835.8 1006.5 1307.4
Source: Consolidated balance sheet of Phoenix mall

28. 2013 2014 2015
Net sales 469.9 1448.5 1882.5
Expenses 214.4 757.8 812.3
EBIDT 255.5 1124.7 1070.2
EBIDTA 263.2 690.8 1070.2
OTHER INCOME 52.1 39.1 41
DEPRECIATION 47.4 105.5 117.7
EBIT 267.8 624.4 993.5
INTREST 143 345.1 365.2
OTHER ITEMS 0.7
PBT 124.1 279.3 628.4
TAX 42.8 90.9 207.4
PAT 81.3 188.4 421
APAT ( adjusted pat) 84.2 132.4 278.6
Interpreting the balance sheet of
Phoenix Mills Ltd.
Source: Income statement of Phoenix Mall

29. PHOENIX MALL INCOME DETAIL

30. TOTAL
RENTAL
RECOVERIES(
CAM & OTHER ) TOTAL
ACTUA
L
YEAR
ASSUMING 40%
OF RENTAL
RECOV
ER/YR
48.5
2014 412.28 164.9 577.20 62.7
2015 441.01 176.4 617.42 25.3
2016 472.52 189.0 661.53 57.1
2017 505.74 202.3 708.03 193.6
PHOENIX MALLS RENTAL
DATA : 2014-2017

31. 2015 2016 2017
EXPECTED
DEBT 3313.2 3213.2 3063.2
REITS 1750 1750 1750
DEBT AFTER
REITS 1563.2 1463.2 1313.2
ESTIMATED FINANCIAL ANALYSIS
This much debt would directly be converted into REIT and shall reduce the
burden on Phoenix Mills and also get the Liquidity, thus reducing several risks
for them

32. Estimated balance
sheet
( after
REITS)
2015 2016 2017
share capital 29 29 29
Reserves 1973.4 2342.2 2771.9
Total Shareholders
fund 2002.4 2371.2 2800.9
long term Debt 1563.2 1463.2 1313.2
Short Term Debt 42.9 42.9 42.9
Total Debt 1606.1 1506.1 1356.1
Deferred Taxes -85.8 -85.8 -85.8
Total sources of Funds
(
Incl. other sources ) 3522.7 3791.5 4071.2
ESTIMATED BALANCE SHEET: 2015-2017

33. 2016 2017
INVESTMENT 1750 1750
RENTAL INCOME 472.5 505.74
OTHER INCOME 189.0 202.30
TOTAL INCOME 661.53 708.03
EXPENSES 52.9 56.64267132
PBITDA 608.61 651.39
PBT 572.09 612.3072769
TAX 188.79 202.0614014
PAT 383.30 410.2458755
ROI 0.219028786 0.234426215
ESTIMATED BALANCE SHEET OF
REITs

34. OPERATING,
MAINTENANCE
& SECURITY 5%
UTILITY
EXPENSES &
OTHER 3%
Tot
al 8%
DEPRECIATION 6%
INTREST 0
TAX 33%
Other expenses considered for REIT
balance sheet

35.  The above model which was worked out proves that if conditions are
favorable as assumed in this scenario, REIT would yield much better and
would be one successful source of investment for the common people and
also a good option for the Developers, as their financial conditions would
not just improve, but they would get good liquidity as fast as possible
 The Return on Investment we achieved in first 2 years of REITs, (2016,
2017) is around 21.9%, 23.4% respectively, which is less than the Return to
Shareholders by their estimates which was 26%. The REIT is thus able to
give almost 22.75% yield, which is far more than the secure yield of 8-10%
in general securities market and 12-15% in equity mutual fund markets.
Conclusion

36. REITs in the above case are a better option for following reasons:-
i. Fast liquidity to the Phoenix Mills Ltd.
ii. No Debt, i.e. no loans from Banks, Financial Institutes etc.
iii. Professionalism and transparency in the investments.
iv. More no. of small investors, (smaller ticket size, more the investors).
v. As REITs would be less risky for investors, as compared to Stock Market ,
and also better returns can be achieve

37. 1.
2. SEBI introduces REIT in India- issues draft SEBI (Real Estate Investment Trusts) Regulations,
CS Vinita Nair ,October 16, 2013
3. Singapore Real Estate Investment Trusts (S-REITs) , Nidhi Bothra, 28th November, 2013
4.
5. Real Estate Sector – The India Story Submitted by Miss Sonia Sahni , Asst Manager Corporate
and Investment Banking, ABN AMRO Bank , Team Lead - IBM global services
6.
7. The impact of REITs on Asian economies , Ken Atchinson and victor Yeung, April 2014
8.
9. The Growth of J-REITs in the Japanese Real Estate Market and Real Estate Investment
Structures: An Overview, PriceWaterhouseCoopers
References

38. 10. REIT Foreign and Indian scenario, anonymous writer
11. The REIT Structure article by Linklaters
12. An Overview of Asian REITs Development: Performance and Existing Problems
Analysis, Guannan YU, 2009
13. Phoenix mills ltd annual report 2014-2015
14. HDFC Institutional Research report, July 2014
15. Phoenix mills report, exapanding our asset class, Investor presentation ,FY 2014
16. Think India, Think retail, Report by Knight Frank, 2015
17. A beginning for REITs in India – SEBI finalizes REITs regulations, Nidhi Bothra and
Vinita Nair, 12th August,2014
18. Analysis of REIT regulation KPMG, Knight Frank, NAREDCO, March 2015

39. THANK YOU