Structured Finance

Commercial Mortgage

Intime Properties Limited

Presale
Capital Structure

Inside This Report

Capital Structure
Transaction Summary
Key Rating Drivers
Additional Rating Factors
Transaction and Legal Structure
Disclaimer
Property Overview
Tenancy
Economic Environment and Asset
Outlook
Market Overview
Ind-Ras Cash Flow Analysis
Rating Sensitivity Analysis
Counterparty Risk
Performance Analytics
Appendix1: Sponsor Overview

1
1
1
2
3
6
6
7
8
8
10
11
12
12
13

Class
Proposed NonConvertible
Debentures

Issuance Legal
Amount (INRm) Maturity Long-Term Rating
3,400.0 Aug 2023 IND AAA(SO)(exp)

Complexity
b
CEa (%) Outlook Indicator
12.0 Stable
High

Expected ratings assigned on 7 July 2014 do not reflect final ratings and are based on information provided by the issuer
as of 6 July 2014. These expected ratings are contingent on final documents conforming to information already received.
Ratings are not a recommendation to buy, sell or hold any security. The offering circular and other material should be
reviewed prior to any purchase
a
Credit enhancement as a percentage of proposed issuance amount
b
Ind-Ras complexity indicators are an opinion on the relative complexity of a broad category of instruments expressed
on an ordinal scale of Low Complexity, Moderate Complexity and High Complexity. High Complexity refers to an
instrument where the relationship between the numerous interdependent risk factors and intrinsic return characteristics is
highly involved, requiring forward-looking analysis and projections

Transaction Summary
India Ratings & Research (Ind-Ra) assigned an expected rating to Intime Properties Limiteds
proposed single class of fixed-rate non-convertible debentures (NCDs) in July 2014. The
proposed issuance of NCDs would be secured by a mortgage over the issuers underlying
commercial office properties and an exclusive charge on commercial lease rental income from
licensees at the properties in Raheja Mindspace in Hyderabad. The funds will be used to
refinance the existing debt, fund reserve accounts and pay closing costs. Any balance would
be used for general corporate purposes of the issuer including loans and advances to any
group companies.
The expected rating of NCDs addresses the timely payment of interest and principal by the
legal maturity in accordance with the transaction documentation.

Key Rating Drivers

Strong Asset Quality: The quality of underlying assets is strong. The assets are part of a
large IT park spanning 110 acres of land in Hyderabads HITEC city, an established IT/ITES
and residential hub. Owing to the superior quality of office spaces and the competitive nature of
rentals, the property owned by Intime is 99% occupied. The current average rental is 8%-12%
lower than that charged in the same micro-market for grade A office spaces.
Marquee Licensees: As of 30 June 2014, the property was 99% occupied by over 35
licensees with the top three tenants namely Novartis Healthcare Pvt Ltd, B A Continuum India
Pvt Ltd (a nonbank subsidiary of Bank of America) and HSBC Electronic Data Processing India
Pvt Ltd accounting for 48.4% of the leasable area and around 53% of the total license fees.
The concentration risk is mitigated by the competitive rentals charged, quality maintenance
offered, newly constructed buildings and strong financial strength of the licensees.
Key Tenant Exit Risk Covered: The lease for Novartis was up for renewal in January 2014 for
five years but has been renewed only for next three years. Novartis has plans of expansion and
is looking for leasing a larger space outside the Mindspace campus. Ind-Ra in its concentration
test found that the transaction is adequately covered to withstand the exit of such key tenants
(see Concentration Test section).
Analyst
Jatin Nanaware
+91 22 4000 1761
jatin.nanaware@indiaratings.co.in

www.indiaratings.co.in

4 August 2014

Structured Finance
Adequate DSCR, LTV: In the agencys stabilised cash flow scenario, adjusted net cash flow
(Ind-Ra NCF) and the debt service reserve account (DSRA) balance are found to have an
adequate debt service coverage ratio (DSCR) cover in the range of 2.15x-2.35x over the
annual debt to be serviced. Also, Ind-Ras estimated property value results in an initial loan-tovalue (LTV) of 47.7% of the debt amount, which is higher than the LTV computed using third
party valuation. Both DSCR and LTV ratios are in line with the benchmark levels expected for
the assigned rating.

Key Information
Issuer: Intime Properties Ltd
Put Option Provider: Content
Properties Pvt Ltd
Debenture
Trustee:
Trusteeship Co Ltd

IDBI

Partial Amortisation Reduces Refinance Risk: Ind-Ra views NCDs amortising structure as
being less risky than the one that pays interest only, as amortisation reduces the size of balloon
payment and potential refinancing risk. Balloon LTV is close to 35% based on Ind-Ra estimated
initial property value, with 25.7% of scheduled amortisation in six years.
Rating Sensitivity: A 10% decline in Ind-Ra NCF for the entire tenor of the transaction could
result in a one-notch rating downgrade. Similarly, over 30% decline in Ind-Ra NCF for the entire
tenor could result in the rating migrating below investment grade.

Approved Bank: Axis Bank Ltd

(IND AAA/Stable)

Additional Rating Factors

Issuer Call Options: 2 call

Options at the end of 4 and 6
years from issuance

SPV Nature of Issuer: The issuer is similar to a structured finance SPV, with no other
business operations than to manage the property and no financial obligation other than NCDs.
The rating on the NCD issuance has thus been analysed like a typical CMBS issuance, given
predictable cash flows, long-term leases and absence of significant financial or business risks.

Third Party Put Option: At the

th
end of 6 year from issuance
Total Initial
3,400m
Scheduled
Transaction:
issuance

Principal:

INR

Maturity
Years from

Legal
Maturity
of
Transaction: 9 Years
issuance

the
from

DSRA: Debt holders benefit from the presence of a pre-funded DSRA equivalent to 10 months
of average debt service or 12% of the initial principal outstanding at transaction closing.
Extreme Situation Analysis: In Ind-Ras break-even analysis, investors would still receive
timely payments if net operating income (NOI) was to drop by 45% from the FY14 reported NOI
for the entire period of the transaction.
Sponsorship and Management: The property sponsor, K Raheja Group, has significant
expertise and a proven track record in the leasing and maintenance of such assets.
Cash Trap Trigger Mechanism: The presence of performance-based and security cover
triggers in transaction structure provides cushion in times of stress. If any of these triggers are
breached, any surplus lying in the credit of the escrow account would be trapped in the escrow
account or in permissible investments and not transferred to the current account of the issuer
till the time the trigger is cured.

The three-month average of weighted average (WA) base rent drops below
INR30/sqft/month as evidenced by a quarterly chartered accountant report.

The three-month average occupancy level in the subject property falls below 85%, as
evidenced by a quarterly chartered accountant report.

The ratio of the aggregate valuations of the mortgaged property as furnished by a reputed
third party valuer, to the value of the amounts outstanding falls below 2x.

After four years from issuance, all residual cash flows will be trapped in the escrow account
/permissible investments charged in favour of the debenture trustee, for payment to NCD
holders.

Lock Box Mechanism: All receivables including rent and reimbursement expenses will be
deposited directly in an escrow account which is charged in the favour of the debenture trustee
on a monthly basis. Any payments made from the escrow account would be subject to the
terms of debenture trust deed.
Applicable Criteria
Structured Finance Rating Criteria (September
2012)

Intime Properties Limited

August 2014

Structured Finance
Transaction and Legal Structure
In the proposed transaction, future lease receivables from the commercial office property would
be charged to the debenture trustee for the benefit of NCD investors. The obligations would
also be secured by first ranking equitable mortgage over the property. The obligations of put
option seller would be secured by similar equitable mortgage rights over the same property.
The transaction has a scheduled tenor of six years with a legal tail period of three years. The
fixed-rate NCDs have an additional step-up coupon feature, if the first call option at the end of
fourth year since issuance is not exercised.
Investor payouts will be serviced by the lease rentals paid by the tenants and any other income
generated from the property.
Figure 1

Simplifies Transaction Structure

Structure Diagram
Purchase Consideration

Property Owner/
Issuer

Investors
NCD Issuance

Lease

Assignment of Security Package =

Lease Receivables + First & paripassu Mortgage to the Property +
Charge Over all Transaction
Accounts
Debenture/

Put Option on
Debentures

Trustee (DT)

Put Option
Provider

Operational
Rights to DT

Corporate Tenants

Lease
Rentals

Escrow
Accounts

NCD
Payments

To fund any
shortfalls

DSRA
Account
Note: This diagram represents Ind-Ras interpretation of the transaction structure as represented in the
transaction documents
Source: Transaction documents

Figure 2

Repayment Schedule
Months
since
issuance
1-12
13-24
25-36
37-48
49-60
61-72

Principal
schedule
per month
(INRm)
11.90
11.90
11.90
11.90
11.90
13.60

Source: Ind-Ra

Principal
schedule
per year
(INRm)
142.80
142.80
142.80
142.80
142.80
163.20

Repayment Structure
The transaction is of partially amortising nature. Of the initial Issuance amount of INR3,400m,
25.8% is scheduled to be repaid in the initial six years after the issuance. Additionally, all
excess cash flows trapped from the beginning of the fifth year would be used to repay the
balloon amount. If the balloon amount is not repaid by the issuer by the end of the sixth year,
the debenture trustee would have the right to put the outstanding NCDs to the put option
provider for a price equivalent to the outstanding obligations of NCD holders. A failure by the
put option provider to honour the put option would make it a defaulter, resulting in the
debenture trustee enforcing the security. These sale proceeds would be first used to repay the
outstanding NCD holders.

Call and Put Option

The transaction provides for two call options to the issuer, at the end of the fourth and sixth
years. If the call option at the end of the fourth year is not exercised, all excess cash flows

Intime Properties Limited

August 2014

Structured Finance
(starting of the fifth year) after servicing the scheduled debt amortisation would be trapped in an
escrow account or permissible investments till the transaction matures.
If the second call option is also not exercised, the debenture trustee would have the right to
redeem the balloon amount by exercising legal rights under the put option agreement. A failure
by the put option provider to purchase the outstanding NCDs entitles the trustee to initiate the
sale process of the property, which would be used to redeem the outstanding NCDs prior to
their legal maturity.

Priority of Payments
Moneys in the escrow account shall first be applied in the following order of priority:
Figure 3

Summary of Payments Waterfall

1
2
3
4
5
6
7
8

Statutory or regulatory dues payable by the assignee

Towards any fees and expenses
Towards payment of insurance premium
Overdue payments of the NCDs
Scheduled interest and principal payments of the NCD
Replenishment of the credit enhancement facility to the extent of utilisation
To the extent, the issuer has failed to deposit amounts in the security deposit reserve account
(SDRA)
Any surplus lying to the credit of the escrow account will be used under the following conditions:
o
Up to 48th month from the date of issuance of debentures: If there is no event of default
outstanding and no performance based or security triggers breached under the debentures,
the entire surplus will be transferred to the current account of the issuer. However, if at the
end of any month either a Default is outstanding or security or performance based triggers
are breached, the entire surplus would flow into the permitted investments account till both
the above conditions are cured.
o
From the 49th month up to maturity: The surplus will be transferred only to the permitted
investments account for the repayment of the principal amount outstanding according to the
repayment schedule.

Source: Transaction documents

If the surplus funds are retained in the escrow account and not flown back to the issuer
corporate account, the issuer would be entitled to request the debenture trustee for a
withdrawal of amounts corresponding to the actual maintenance expenses, reimbursements
credited by the tenants corresponding to utility bills, etc.

Security Package
The obligations of the issuer under the debenture documents is secured by

The first and pari-passu charge on all three building aggregating to the leasable area of
1.71 million sq ft of IT space by way of a deposit of title deed. The put option sellers
obligations to the debenture trustee are also secured by the first and pari-passu charge on
the property.

A power of attorney to register the mortgage security in favour of the debenture trustee at
the end of six years, if the second call option is not exercised

The first and exclusive charge on lease receivables arising from lease agreements

Charge by way of hypothecation over DSRA, escrow account, permitted investments

account, tax reserve account (TRA) and security deposit account

Assignment of all insurance policies relating to the property in favour of the security trustee

Cash Management Provisions

All amounts to be received from lessee and licensees under the lease agreements (including
but not limited to premium, rent, fit-out rent, maintenance, business centre charges,
reimbursements of utility bills and other expenses, security deposits, etc.) and all proceeds
from each insurance policy would be deposited into the escrow account controlled by the
debenture trustee. Additionally, the issuer undertakes that any receivables received in its
corporate account from any of the tenants post the issuance would be swept into the escrow
account, in accordance with the transaction documents. The issuer is likely to intimate all
Intime Properties Limited
August 2014

Structured Finance
licensees of the debenture account into which all license fees and other dues are to be remitted
by licensees for the tenor of the transaction.
Any surplus lying in the escrow account could be invested into permissible investments
provided an exclusive charge is created on these accounts in favour of the debenture trustee.

Reserve Accounts
DSRA: It is proposed to be maintained as a fixed deposit in a bank rated at least IND
AAA/Stable or with liquid mutual funds with rating of at least IND AAA or equivalent.
The DSRA account would be funded upfront to the extent of INR408m and would be available
till the life of the transaction. Funds in the account would act as a reserve for the issuer to meet
debt repayments in case of any shortfall on due date. DSRA can be replenished according to
the cash flow waterfall mechanism.
The transaction documents provide for an option to substitute DSRA with an unconditional
irrevocable guarantee from an IND AAA rated financial institute at a later date.
SDRA: If a termination notice is served or any lease is not renewed, the issuer is likely to fund
SDRA with an amount equivalent to the security deposit from its own sources and not from the
escrow account. Till the time the issuer arranges for such funds, any surplus lying to the credit
of the escrow account would be transferred to SDRA and not to the current account of the
issuer. On successful funding of the escrow account, the security deposit received from a new
lessee will not be required to be deposited in the escrow account.
TRA: The account would be funded to the extent of INR90m. Funds in the account would be
used by the issuer to cover service tax obligations pertaining to the show cause notice received
by the company under contest. Any service tax related liability over and above those covered
here would be on account of the issuer. The facility could be reduced or withdrawn after the
approval of the debenture trustee.

Future Indebtedness
The issuer besides any unsecured trade payables shall not incur any financial indebtedness. It
shall also not provide any guarantee on behalf of any person, except any subordinated debt
from its promoter and/or promoters subsidiaries. Such promoter debt shall be payable only
after NCDs are paid in full. Any other indebtedness would need the prior approval of debenture
trustee.

Legal Analysis
Ind-Ra reviewed draft transaction documentation to understand whether the terms and
structure of the transaction conformed to information previously received.
The key documents related to the transaction include the following:

Debenture trust deed

Accounts agreement

Deep of Hypothecation

Put option agreement

Power of attorney

Term sheet

Information memorandum

The drafts of closing and supplemental legal opinions and an opinion on the title provided by
the transaction counsel covers the following key issues:

Intime Properties Limited

August 2014

Clear Title of the Building and the Land: On the basis of the title report, the issuer has the

Structured Finance
valid right, title, interest in and possession of the mortgaged property.

Enforceability of Transaction Documents: The transaction documents constitute the legal,

valid and binding obligations of the issuer and the option provider, and are enforceable
with their respective terms.

Validity and Enforceability of Security: The security documents constitute the legal, valid
and binding obligations of the issuer and are enforceable in accordance with their
respective terms.

Bankruptcy Remoteness of the Issuer with any of Promoters: In the event of the liquidation
or insolvency of the promoters, the assets of the issuer shall not be deemed to be the
assets of the promoters and shall not be available to the creditors of such promoters.

The power of attorney may be exercised by the debenture trustee without any further
issuer intervention

Validity of Lease Agreements on Issuers Liquidation: The lease agreements will remain
operative upon liquidation of the issuer subject to the terms of the lease agreement.

Disclaimer
Figure 4

Building Area
Building
Building 5B
Building 6
Building 9

Area (m Square
Feet)
0.25
0.39
1.07

Source: Ind-Ra

Figure 5
Building 5B

For the avoidance of doubt, Ind-Ra relies, in its credit analysis, on legal and/or tax opinions
provided by transaction counsel. As Ind-Ra has always made clear, Ind-Ra does not provide
legal and/or tax advice or confirm that the legal and/or tax opinions or any other transaction
documents or any transaction structures are sufficient for any purpose. The agency draws your
attention to the disclaimer at the foot of this report, which makes it clear that this report does
not constitute legal, tax and/or structuring advice from Ind-Ra, and should not be used or
interpreted as legal, tax and/or structuring advice from Ind-Ra. Should readers of this report
need legal, tax and/or structuring advice, they are urged to contact relevant advisers in the
relevant jurisdictions.

Property Overview

Building 6

Intime Properties is a JV arrangement between K Raheja Corp group (89%) and Andhra
Pradesh Industrial Infrastructure Corporation Limited (APIIC, 11%). It has three commercial
buildings with a saleable area of 1.71 million sq ft, spanning across 8.52 acres. These buildings
were developed by the issuer, who also maintains them. They are part of a larger development
called Raheja Mindspace located in Madhapur, Hyderabad, an established IT/ITES and
residential hub. There are over 35 corporate tenants occupying these three buildings.
Raheja Mindspace Park is spanning across 110 acres. It has 9.3 million sq ft of office space
along with a hotel, a residential project and a state-of-the-art retail mall within its campus. The
park has vast open spaces, greenery and tree-lined avenues along the roads.

Building 9

The park provides both multitenant and built-to-suit facilities to companies namely IBM,
Accenture, CSC, Bank of America, Facebook and Novartis. Other companies in multitenant
facilities include Qualcomm, Zensar Technologies Ltd, Oracle, Accenture, Amazon, GE,
Verizon, Thomson Reuters and Wells Fargo. As of 31 March 2014, over 50,000 professionals
worked in the park.
Figure 6

Source: Issuer

Source: Issuer

Intime Properties Limited

August 2014

Structured Finance
All three commercial properties were developed during 2008 and 2009. The property has
historically maintained a high level of occupancy. The current occupancy level of the property is
99%.
Building 5B was constructed in 2008; the property has six floors of office space, around 600
vehicle parking spaces and five elevators. Building 6, constructed in 2009, is a LEED Certified
Platinum Rated by Indian Green Building Council. It has nine floors of office space, around 350
vehicle parking spaces and six elevators. Building 9, which covers nearly 63% of the saleable
area for the SPV, was constructed in 2009. This building is occupied by multiple tenants. The
property has 11 floors of office space, around 900 vehicle parking spaces and 22 elevators.

Tenancy
As of 30 June 2014, the property was 99% occupied by over 35 tenants, most notably:
Novartis, BA Continuum, HSBC, Deloitte, Qualcomm India, Amazon, Verizon, Broadcom and
Kidde India.
The top three tenants at the property comprise 0.83 million sq ft, representing 48.3% of the net
rentable area (NRA) and 52.9% of gross rentals charged. Weighted average gross rent for the
top three tenants is INR 40.16/sf/month compared with overall average of INR36.95/sf/month.
Novartis is the largest tenant at the property (22.6% of NRA), occupying the entire building 6, a
Platinum Rated Green Building. Owing to its platinum rating and location within the campus, it
enjoys higher per sq ft rentals than other tenants. On visual inspection, the amenities and
infrastructure created by Novartis in the building is of superior quality and the fit out costs
incurred would also be on a higher side. However, the lease for Novartis, up for renewal in
January 2014, was renewed for only three years instead of five years according to the earlier
agreement. This was because the current space is inadequate to accommodate Novartis
expansion plans and it may relocate to an alternate premise in West Hyderabad. Ind-Ra in its
cash flow model scenario has tested the cash flow adequacy for such an event.
BA Continuum is the second-largest tenant at the property (14.3% of NRA). It is a non-bank
subsidiary of Bank of America. BA Continuum supports business process, information
technology and knowledge process for all major lines of business at Bank of America. Besides
Building 5B, it also occupies Building 5A and spaces in buildings 2A and 2B. It occupies close
to 0.54 million sq ft in the campus and employs close to 8,500 employees in the campus. Also,
BA Continuums current rentals are at an attractive discount of 10%-15% as against the current
charges in the micromarket. In H113, it renewed the lease for another five years.
HSBC (EDP), Qualcomm and Deloitte occupies two office floors each in the multitenant
Building 9, contributing about one-thirds of the total NRA. The key advantage for Building 9 is
its diversification in tenancy. The building has over 30 distinct tenants and the flexibility to find
an alternate tenant if any of them vacates is much higher than for a singly occupied custommade office building.
Figure 7

Top Five Tenants

Tenant
Novartis (Building 6)
BA Continuum (Building 5B)
Deloitte (Building 9)
HSBC EDP (Building 9)
Qualcomm (Building 9)
Total

Current lease expiry

datea
December 2016
April 2018
January 2016
April 2022
March 2015

NRA m square foot

0.39
0.25
0.19
0.19
0.18
1.20

% of total NRA
22.7
14.4
11.3
11.2
10.4
70.0

BA Continuum, Deloitte and Qualcomm have another five-year lease renewal option
Source: Ind-Ra

Intime Properties Limited

August 2014

Structured Finance
Tenant Rollover Schedule
There has been an agreement on commercial terms between the tenants and the lessor for the
period of lease term. While the lessee can decide to terminate the agreement by giving the
notice period, the lessor cannot terminate the agreement for any commercial reasons. Many of
the lease agreements have an option to renew the leases for an additional term at pre-agreed
commercial terms. The average residual lease period for the property is close to 69 months.
Figure 8

Tenant Rollover Schedule

Year
2014
2015
2016
2017
2018 (first call option)
2019
2020 (schedule
maturity)
2021
2022 (legal maturity)

% of NRA % of rent % of rent (cumulative)

0.00
0.00
0.00
0.00
0.00
0.00
0.02
0.02
0.02
23.62
29.23
29.25
7.69
7.09
36.34
9.92
9.40
45.73
18.37
16.34
62.07
6.26
12.98

5.64
10.82

Key tenant lease expiry

(including renewal option)

Novartis (January 2017)

Amazon Development Centre
Broadcom, UTC, Kidde
Qualcomm, Deloitte(December
2020)
67.71 Deloitte (January 2021)
78.53 HSBC (EDP)

Source: Ind-Ra Analysis

Economic Environment and Asset Outlook

The real estate sector in India struggled through much of 2012 and 2013. Ind-Ra has
maintained a negative to stable outlook on the Indian real estate sector for 2014 in view of the
emerging stability amid persistent weak demand drivers and weak credit metrics of the
dominant players.
Commercial real estate demand continued to be subdued in 2013, due to the on-going
economic slowdown and the consequent fall in headcount additions. In the IT-ITeS sector, this
contributes significantly to commercial real estate demand. Headcount addition in 2013 fell
about 30% yoy. Ind-Ra expects the subdued commercial property demand to continue in 2014,
due to the continued slow economic growth which has impacted fresh hiring in most sectors.
Both capital values and lease rentals for commercial properties in India have substantially
corrected post the 2008-2009 economic crisis due to a slowdown in both the domestic and
global economies, and also due to real estate becoming unaffordable. The capital values and
rentals of a commercial space have stabilised at the lower end and present limited downside.
The long-term view on the Indian real estate industry is positive as fundamental demand
drivers such as increasing urbanisation, favourable demographics, growth of services sector
and rising incomes remain intact.

Market Overview
The commercial market in Hyderabad is divided in to three broad areas as follows:

Central Business District

West Zone (IT/extended IT corridor)

Peripheral Business District

Central Business District is the existing commercial hub of the city, which broadly caters to nonIT focused businesses. One of the constraints in this area is high density, limited space and
infrastructure provisions.
The West Zone has developed into an alternate commercial hub, which predominantly caters to

Intime Properties Limited

August 2014

Structured Finance
IT/ITES activities and are characterised by Grade A commercial spaces with superior
infrastructure provisions. It has proximity to the Nehru Outer Ring Road. Also, the connectivity
would improve once the Hyderabad Metro Rail Project is completed.
Peripheral Business District is the emerging hub for commercial activity in Hyderabad with the
development of organised SEZ and non-SEZ space options.
According to CBRE, Hyderabad had a total commercial stock of about 38.8 million sq ft as of
end-1Q14, of which West Zone constitutes around 75% of the total completed stock. Also, of
the total office stock in Hyderabad, IT/ITES component constitutes nearly 77%.
Since 2009, Hyderabad witnessed an average annual organised commercial office supply of
about 3.02 million sq ft, of which West Zone constitutes 89%. In the same period, the
Hyderabad witnessed an average annual absorption of about 3.4 million sq ft, of which 2.7
million sq ft comes from West Zone.
CBRE estimates West Zone to witness an influx of over 1112 million sq ft of commercial
space over the next two to three years. CBRE expects the absorption level in the West Zone to
match the new supply and their assumption of sustainable vacancy rate for the subject property
is 2%-3%. Ind-Ra believes that the new supply will lead to higher-than-current vacancy levels in
the microeconomic market or lead to stabilisation in rental values.
Figure 9

West Hyderabad Supply, Absorption, Vacancy

Supply (LHS)

Net absorption (LHS)

Vacancy (RHS)

(Area m sft)
5

(%)
30

25

20

15

10

5
2008

2009

2010

2011

2012

2013

1Q14

Source: CBRE Research

Figure 10

Hyderabad IT Corridor Supply, Absorption, Vacancy

Supply (LHS)
(Area m sft)
3.5
3.0
2.5
2.0
1.5
1.0
0.5
0.0
2009

Net absorption (LHS)

Vacancy (RHS)
(%)
20
15
10
5
0

2010

2011

2012

2013

1Q14

Source: CBRE Research

Intime Properties Limited

August 2014

Structured Finance
Figure 11

Hyderabad Micro Market Rental Trends

CBD

(INR Per sqft - per month)

60
55
50
45
40
35
30
25
20
2007
2008

2009

2010

West Zone

2011

2012

2013

1Q14

Source: CBRE Research

Ind-Ras Cash Flow Analysis

Ind-Ra arrives at Ind-Ra NCF by making adjustments to the reported property-level revenue,
expenses and capital expenditures in order to reflect its view of sustainable performance
through a commercial real estate cycle. Ind-Ra NCF is used to determine Ind-Ra DSCR and
LTV.
Property Rent Recognition: The weighted average warm shell rent of the property is
INR36.95/sq ft/month. This is comparable to rental rates in the same microeconomic market in
2011. The current average rentals in that location are INR39-45/sq ft/month. The rental rates in
the area where the property is located is nearly 20% lower than Hyderabad Central business
district and significantly lower than other major IT parks in India. Since the current rentals are
8%-12% below the existing market rates, the agency has not made any adjustment to the
rental rates in NCF calculation.
Property Rent Escalations: The executed lease agreements have an escalation clause for
base warm shell rent by 10%-15% after every three years. In a stable economic scenario, most
cities in India have in the past observed these levels of rent escalations. However, Ind-Ra has
not given any benefit to any rent escalations while arriving at NCF.
Vacancy Assumptions: The current vacancy rate of the property is 1.0%. The average
vacancy rate for the Hyderabad IT corridor for the last six years was around 7.0%, with a
declining trend. For the stabilised scenario, Ind-Ra has assumed that one of the 11 office floors
(9.1%) for the multitenant Building 9 would always be vacant for the next nine years. The
stabilised vacancy assumed by the agency is higher than the current and historic vacancies
observed in the Mindspace campus, but similar to the observed vacancies in the
microeconomic market.
Property Insurance: The issuer has arranged for property insurance. The actual insurance
premium cost is around INR2.0m. A higher amount at INR4.0m has been assumed by Ind-Ra
as stabilised insurance cost. The insurance cover of INR3,731.9m is higher than the target debt
amount of INR3,400m.
Common Area Maintenance: Every lease agreement has a contractual obligation for the
lessee to pay common area maintenance (CAM) and campus maintenance charges on a
monthly basis along with a monthly rent. On the basis of the history and future estimations of
the issuer, CAM income would be sufficient to cover all maintenance charges, property
expenses and insurance premiums, leaving a positive CAM margin. However, Ind-Ra has
provided for property taxes and insurance premium separately.
Additionally, Ind-Ra has relied on third-party engineers report to estimate future repair and
maintenance charges towards plant and machinery/HVAC, electrical work, firefighting, lifts and

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PHE Systems and civil structures for all the three buildings. Ind-Ra has conservatively
assumed a negative CAM margin against the issuers reported positive CAM margin for the
past few years.
Also, the engineers report opines that based on design norms for a sound R.C.C. frame
structure, the total life of all the three buildings is 60 years. Similarly, the total life for plant and
machinery and equipment is estimated to be in the range of 15-20 years, which is well beyond
the life of transaction leading to minimal capex requirements till the NCD maturity.
After all adjustments, Ind-Ras final stabilised NCF represents a haircut of nearly 10% over the
issuers last reported NCF.

Cash Flow Model - Stabilised Scenario

Using the stabilised Ind-Ra NCF, a cash flow model has been developed to arrive at cash flow
DSCRs. Ind-Ra NCF and DSRA balance have an adequate DSCR cover in the range of 2.15x2.35x over the annual debt to be serviced till the second early redemption date.
At the second early redemption date, 74.2% of the initial NCD principal remains outstanding
according to the scheduled amortisation. Using Ind-Ras rating level, refinance rate and target
DSCR assumptions, the propertys cash flows are sufficient to refinance the balloon amount.
Failure to refinance by the second early redemption date would permit the debenture trustee to
enforce the security. Using Ind-Ra NCF and cap rate assumptions, Ind-Ra arrives at a property
value which is lower than third party valuations. Ind-Ra estimates initial LTV and refinance LTV
at 47.7% and 35.4%, respectively. The LTV parameters are within Ind-Ras benchmark levels
for the rating assigned.

Concentration Test
Exit of Largest Tenant (Novartis)
Ind-Ra in this scenario has assumed that Novartis leaves in the third year post the NCD
issuance and the time coincides with a cyclical downturn for the asset class leasing market for
Hyderabad. In this scenario, Ind-Ra has conservatively tested for the Novartis tower to be
vacant for two years post its exit and a gradual re-let of the tower in the next four years. Even in
such an extreme scenario, DSCR coverage levels are found sufficient.

Simultaneous Exit of Top Three Tenants (Novartis, BA Continuum and Deloitte)

Ind-Ra in this scenario has assumed that all the top three tenants would vacate simultaneously
in the second year post the NCD issuance. The issuer would take another three years to bring
occupancy back to stable levels. Even in such an extreme scenario, DSCR coverage levels are
found sufficient. Ind-Ra believes that such a scenario is extremely remote.

Extreme Situation Analysis

In Ind-Ras break-even analysis, if the actual NOI drops by 45% from the FY14 reported NOI
for the entire period of the transaction, investors would still receive timely payments.
The section on rating sensitivities
provides information about the
sensitivity of the rating to model
assumptions. It should not be used
as an indicator of possible future
performance.

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Rating Sensitivity Analysis

The following rating sensitivities describe how the ratings would react to a further decline in
NCF below Ind-Ras NCF. The implied rating sensitivities indicates only some of the potential
outcomes and do not consider other risk factors to which the transaction is exposed. Stressing
additional risk factors could result in different outcomes. Furthermore, the implied ratings, after
the further NCF stresses are applied, are more akin to what the ratings would be at deal
issuance had those further-stressed NCFs been in place at that time.

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Figure 12

Defined Stresses
Original rating
NCF decline by 10%
NCF decline by 20%
NCF decline by 30%

Rating
IND AAA (SO)(exp)
IND AA+(SO)(exp)
IND A(SO)(exp)
IND BBB-(SO)(exp)

Source: Ind-Ra

Counterparty Risk
Account Bank
The account bank (Axis Bank Ltd, IND AAA/Stable) would hold all key transaction accounts
such as escrow account, DSRA Account, SDRA and TRA. Given the vital role of the account
bank, the NCD ratings would be partially linked to the rating of the account bank, if on a rating
downgrade of the account bank, the issuer fails to replace it with another account bank whose
rating is equivalent to the ratings of the NCDs.

Performance Analytics
The transaction has received expected ratings. Expected ratings indicate that the transaction
can be assigned a final rating, subject to the receipt of executed documentation (transaction
documentation and legal opinions), conforming to information already received.
Ind-Ra will initiate surveillance only once final ratings have been assigned to the transaction.
The agency has a dedicated team of analysts who monitor and review Indian SF transactions
rated by Ind-Ra. Clear and timely reporting is essential to assess the performance of a
transaction and form an accurate credit view.

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Appendix1: Sponsor Overview
K. Raheja Corp was formed in 1956 and has over the years transitioned into a well-diversified
corporate house that has made its mark in retailing, hospitality and real estate. The group has
made its presence felt in all the major cities in India mainly Mumbai, Pune, Bangalore,
Coimbatore, etc. with developments of over 20 million sq ft of commercial property and over
2,000 residential projects.
One of the major real estate development projects launched by the group is Mindspace. It
comprises the development of commercial and residential buildings and is located at Mumbai,
Hyderabad, Navi Mumbai and Gandhinagar.
Geographically, the group has focused its activities in the western and southern regions of the
India. Currently, the active projects are based in Mumbai and Pune in the west, Bangalore and
Hyderabad in the south. The group has also planned new projects at Goa and Navi Mumbai.
The groups completed residential and commercial real estate projects as well as IT parks are
as follows:

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Retail Properties: Inorbit Malls (India) Pvt Ltd, Shoppers Stop Ltd, Crossword, Hypercity

Commercial Properties: Mindspace (Mumbai & Hyderabad), Commerzone (Pune),

Business Park, Raheja Towers (Bangalore), Raheja Towers (Chennai)

IT Parks: K Raheja IT Park (Hyderabad), Navi Mumbai, Pune, Gandhinagar.

Residential Properties: Vivarea (Worli-Mumbai and Koramangla-Bengaluru), Raheja Vihar

(Mumbai), Mindspace (Mumbai), Raheja Woods (Pune), Raheja Vistas at NIBM (Pune),
Viva at Kadamba (Goa)

Hospitality: Renaissance Mumbai Hotel & Convention Centre, Lakeside Chalet Marriott
Executive Apartment Hotel, The Resort, J W Marriot, Westin at Hyderabad Four Points at
Vashi and Marriot at Whitefield Bangalore.

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