India Realty Excellence Fund II...

India Realty Excellence Fund II LLP

Quarterly News Update October - December 2014

1Strictly Private & Confidential

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Table Of Contents

¡ From the Desk of Investment Manager 03

¡ Investment Snapshot 05

¡Deal Pipeline

¡ Portfolio Update 06

¡Ahuja Constructions – Mumbai

¡Mahaveer Group – Bangalore

¡ Shriram Properties - Bangalore

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2 Strictly Private & Confidential


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PFrom The Desk Of Investment Manager

Dear Investor,

Wish you a prosperous New Year 2015!

2014 has been an eventful year for the Indian economy. The year started with huge amount of skepticism with regards to economy, politics and investment scenario. But the nation witnessed a historic election mandate that changed the course of events and we ended the year with early signs of economic recovery including improving growth and declining inflation. India’s GDP grew at 5.3% in Q2 FY2015. Inflation, which ran substantially high for years, is finally showing signs of easing on account of declining commodity prices and oil prices along with tight monetary policy adopted by RBI. November Consumer Price Inflation dipped to new low 4.38%. Declining inflation has led to rate cut by RBI by 25 basis points.

The year has also been fruitful in terms of real estate sentiments. Starting from Union Budget FY2015, where host of incentives were announced for the sector, to relaxation of rigidities in the Land Acquisition and Real Estate Regulatory Bill, Modi Government has been offering the real estate sector consistent doses of energy. As some of these incentives and reforms take shape, the year 2015 may well be the turnaround year for the real estate sector. The pace of new launches have started gathering momentum with many large projects being launched or getting ready to be launched. The sloppy trend of absorption is expected to revive over next 2-3 quarters on the back of new launches, positive sentiments and policy measures by the new government.

The inflow in foreign direct investment (FDI) in the real estate after the government relaxed regulations in October 2014 could as well change the overall scenario and help real estate companies reduce debt. The easing of interest rates expected this year is likely to spur demand and help reduce the mounting inventories. The new rules for Real Estate Investment Trusts (REITs) are expected to improve liquidity for developers.

Market Overview

Mumbai Metropolitan Region (MMR)

New launch activity in MMR exhibited substantial decline by approx. 68% on Y-o-Y basis in Q3 CY 2014 quarter. Absorptions were comparatively stable with a drop of 15% in Q3 CY 2014 as compared to Q3 CY 2013. Both the launch prices and absorption prices have increased in the MMR region over the last one year, owing to reduction in new launches and steady absorption trends. Inventory overhang levels of MMR stood at 37 months.

While the city of Mumbai constitutes the larger share of MMR’s supply in luxury budget segment, the satellite cities such as Navi Mumbai & Thane continue to drive the growth in the mid-end segment category.

In Q3 2014, affordable segment has witnessed declining launch activity and on the absorptions front mid segment continues to dominate across the region.

National Capital Region (NCR)

Q3 CY 2014 witnessed sluggish real estate activity, both in terms of launches & absorption. On Y-o-Y basis, supply additions in Q3 CY 2014 declined by 32% and absorptions shrunk by 47% as compared to the corresponding time period of 2013.

Inventory overhang stood at 54 months as on end of Q3 CY 2014 - Greater Noida, Ghaziabad and Gurgaon together accounted for approx. 82% of NCR’s inventory.

Source for city-wise market overview: PropEquity

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Increased share of affordable housing is visible in NCR primarily due to increased share of launches in Ghaziabad and Greater Noida.

Bangalore

As opposed to Mumbai and NCR, the supply and absorption in Bangalore improved in Q3 CY 2014. On Y-o-Y basis, supply additions in Q3 CY 2014 declined by 28% and absorptions improved by 8% over the corresponding time period of 2013.

Inventory overhang reduced marginally to 21 months in Q3 CY 2014 compared to 23 months as on end of Q2 CY 2014.

Mid-End Budget segment accounts for a ~70% share of supply, while share of affordable segment has witnessed a steady decline in supply and absorptions.

Chennai

The new supply has substantially come down in the last 2 quarters in Chennai. Supply additions and absorption levels in Q3 CY 2014 declined by 35% and 25%, respectively, on a Y-o-Y basis. While the, affordable segment absorption remains stable, the absorptions for mid and above segments have stagnated resulting in waning new launches.

Pune

New launches declined after a stable period of 2 quarters, even though the absorptions have remained stable. Supply additions in Q3 CY2014 declined by 51% and absorptions waned by 10% over the corresponding time period of 2013. Inventories stood at 22 months as on end of Q3 CY 2014. The mid budget segment volume pie remains stable, while luxury segments is showing signs of improvement, at the cost of affordable segment losing its share.

Portfolio Update

We are pleased to inform that the Fund is currently in the last leg of closing and has raised over INR 440 crore till date. The Fund is targeting to raise INR 500 crore.

Further, the Fund has recently closed its third investment with Shriram Properties, a group company of the INR 60,000 crore Shriram Group. The developer has successfully executed over 8 million sq. ft. of real estate space till date across projects in Bangalore, Chennai, Kolkata, Vizag and Coimbatore and has a current development pipeline of over 12 million sq. ft. The Fund has invested INR 67 crore in the project which is located in an upcoming mid-income housing segment of Bangalore. The project has a total saleable area of ~ 2 million sq. ft. It was launched in October 2014 and has witnessed positive interest.

We look forward to your continued support and co-operation. We are committed to strive to achieve superior risk adjusted returns for our investors.

With best wishes,

Sharad Mittal,Director & Head Real Estate Fund,Motilal Oswal Real Estate Investment Advisors II Pvt. Ltd.


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Investment Snapshot

Investment Snapshot as on 31st December 2014

Developer Location Project Type Month & Year of Investment

Investment Committment

(INR Crore)

Amt. Disbursed (INR Crore)

Ahuja Developers Mumbai Residential January 2014 86.0* 86.0*

Mahaveer Group Bangalore Residential March 2014 40.0 40.0

Shriram Properties Bangalore Residential December 2014 67.0 67.0

Total 193.0 193.0

*Additional disbursement of INR 26 Crore in January 2015

City Location Asset ClassAmount

(INR Crore)Developer

Mumbai Thane Residential 80Established developer; has developed more than 4 mn sq. ft.

Pune Western Pune Residential 40 Local Developer will long track record of over 25 years

Mumbai Central Mumbai Residential 40Reputed developer in Mumbai having track record of 40 years

NCR Noida Residential 70 Reputed developer in NCR

Total 230

Deal Pipeline

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Portfolio Update

Investment 1: Ahuja Constructions – Ambernath (E), Mumbai

A. Investment Highlights

Developer Ahuja Developers

Project SPV Sai Ashray Developers Pvt. Ltd.

Development Type Mid Income Residential

Total Land Area/Saleable Area 28 acres/ 2.6 million sq. ft.

Month & Year of Investment January 2014/ January 2015

Initial Amount Committed INR 60 crore

Additional Amount Committed INR 26 crore

Amount Disbursed INR 86 crore

Investment StructureMezzanine structure with regular coupon payments and share in project area

Target IRR 25%+

B. Project Overview:

¡ The project is spread across 28 acres with the total saleable area of approx. 2.6 mn sq. ft

¡ The site is located in Ambernath - Badlapur belt which is amongst the most affordable extended suburbs in MMR with good road & rail connectivity

¡ The development will be G+7 floor structure with all modern amenities

¡ The project will be spread across 4 Phases with phase 1 of 11 buildings

¡ Targets mid income buyers with unit values starting from INR ~ 25-30 lakhs

C. Project Update:

¡ The project was launched in October 2013

¡ Has witnessed good sales response; ~85% of Phase I has already been sold

¡ Construction is on in full swing on Phase I with buildings at various stages of construction

¡ Phase IIhas been launched and has got a good response

¡ The project is progressing well with Phase I nearing completion and Phase II being launched. We did an additional disbursement of INR 26 crore for expansion of project


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D. Way Forward:

¡ Phase II has been launched in December 2014

¡ Phase I is expected to be completed by June 2015

Construction in progress

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Investment 2: Mahaveer Group – Bommanahalli and Yelahanka, Bangalore


Developer Mahaveer Group

Project SPV Reddy Housing Pvt. Ltd.

Development Type Mid Income Residential Projects

Total Land Area/Saleable Area Bommanahalli: ~4 acres/ ~380,000 sq ft

Yelahanka: ~5 acres/ ~700,000 sq ft March 2014

Month & Year of Investment March 2014

Amount Committed INR 40 crore


Investment StructureMezzanine structure with regular coupon payments and share in project area

Target IRR 25%+

B. Project Overview

¡ Bommanahalli Project

o The project is spread across approx. 4 acres with the total saleable area of approx. 0.38 mn sq. ft

o The site is located in an established residential location with social infrastructure such as Schools, Malls, Hospitals, etc., in close vicinity

o The development will be S+4 floor structure with all modern amenities

o Targets mid income buyers with unit value starting from INR 40 lacs onwards

¡ Yelahanka Project

o The project is spread across approx. 5 acres with the total saleable area of approx. 0.7 mn sq. ft.

o The site is located in an rapidly emerging growth corridor between Hebbal and Bangalore International Airport

o The site has a excellent visibility as it has a frontage on NH-7

o Targets mid income buyers with expected base price of INR 3,500 – 4,000 per sq. ft.


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C. Project Update


o The project has been launched as “Mahaveer Zephyr”

o Has witnessed good sales traction; ~ 110,000 sq. ft. has been sold till 31st December , 2014

o Leading banks have approved the project for housing loan

o Major construction approvals are in place; construction in progress on 3 out of 5 blocks

• Block A: First slab in progress

• Block B: First slab in progress

• Block C: Three slabs complete; Fourth slab in progress


o The company is in the process of obtaining approvals and necessary NOCs from local authorities

o The site has been fully fenced

Bommanahalli Project - Construction in progress

Frontage on NH-7 Entrance to the Site

Yelahanka Project

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D. Way Forward:


o Continued focus on sales and marketing of the project

o Construction of Block A and B to reach third slab; Block C reach fifth slab by end of March 2015

o Construction for Block D and E to commence


o Obtaining project approvals and necessary NOCs from local authorities

o The project is expected to be launched in H2 CY 2015


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Investment 3: Shriram Properties - Budigere Cross, Off Old Madras Road, Bangalore


Developer Shriram Properties

Project SPV Shrivision Towers Private Limited

Development Type Mid Income Residential Projects

Total Land Area/Saleable Area 19.5 acres/ appox. 2 mn sq. ft.

Month & Year of Investment December 2014

Amount Committed INR 67 crore


Investment Structure Structured Equity Investment

Target IRR 25%+

B. Project Overview:

¡ The Project is spread on a land measuring ~ 19.5 acres with a total saleable area of approx. 2 mn sq. ft.

¡ Shriram Group is one of the leading developers with extensive presence in South India having executed more than 8 mn sq. ft. till date and current pipeline of more than 12 mn sq. ft.

¡ The project is located at Budigere Cross, off Old Madras Road in Bangalore which is an upcoming residential area located close to Whitefield

¡ All approvals in place for Phase I and construction has already commenced

¡ Sales for the Project was launched recently and has witnessed good response

C. Project Update:

¡ Total Saleable area of approx. 2 mn sq. ft. comprising of 9 towers of G +18 floors

¡ All approvals in place for phase 1 of 1.2 mn sq. ft.

¡ Project was launched recently and has received good response. Approx. 0.3 mn sq. ft. has been sold

¡ Construction has commenced on phase 1

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Construction in progress

D. Way Forward:

¡ Appointment of civil contractor

¡ Completion of excavation work for phase I


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Disclaimer

Investments referred above should not be constructed as an endorsement or advice of any kind by investment Advisor, vide Motilal Oswal Real Estate Investment Advisors II Pvt Ltd. (MORE II).

Securities investments are subject to market risks and there can be no assurance or guarantee that the objectives will be achieved. As with any investment in securities, the value of the portfolio under MORE II may go up or down depending on the various factors and forces affecting the capital market. Past performance of the Investment Manager is not an indication of the future performance of the Investment Manager.

Most of the investments made under the real estate investment portfolio are in unlisted companies and hence may have illiquidity and valuation risk. Moreover, these unlisted companies are not regulated by the disclosure guidelines and investor protections norms that apply to listed companies. For more information and details refer to the risk factors in the Private Placement Memorandum(“PPM”).

All data/ information used in the preparation of this quarterly news letter (“Letter”) is solely for the information of the investors of IREF and is correct as of the date of this Letter. Some of the data provided herein is based on the information provided by the developers/ the investee company to MORE II. The recipient of this Letter will be solely responsible for any decisions/ actions taken based on this Letter. All the recipients of this Letter should before dealing and or transacting in any of the products referred herein make their own investigation, seek appropriate professional advise and carefully read the PPM.

We have included statements/opinions/recommendations in this document, which contain words, or phrases such as “will”, “expect”, “should” and similar expressions or variations of such expressions, that are “forward looking statements”. Actual results may differ materially from those suggested by the forward looking statements due to risks or uncertainties associate with our expectations with respect to, but not limited to, exposure to market risks, general economic and political conditions in India and other countries globally, which have impact on our services and/or investments, the monetary and business policies of India, inflation, deflation, unanticipated turbulence in interest rates, foreign exchange rates, equity prices or other rates or prices, the performance of the financial markets in India and globally, changes in domestic and foreign laws, regulations and taxes and changes in competition in the industry.

MORE II and any of its directors, officers, employees and other personnel shall not be liable for any loss, damage of any nature, including but not limited to direct, indirect, punitive, special, exemplary, consequential, as also any loss of profit in any way arising from the use of this material in any manner whatsoever and shall not be liable for updating the same.

The Letter per se and the information contained herein are strictly confidential and are meant solely for the benefit of the addressee and shall not be altered in any way, transmitted to, copied or distributed, in part or in whole, to any other person or to the media or reproduced in any form, without prior written consent of MORE II.

Motilal Oswal Real Estate Investment Advisors II Pvt Ltd.10th Floor, Motilal Oswal Towers, Junction of Gokhale Road and Sayani Road, Prabhadevi, Mumbai - 400 025.

Board: +91 22 3980 4200 Fax: +91 22 3089 6812

Disclaimer: This report is for the personal information of the authorized recipient and does not constitute an offer to sell or a solicitation to buy. Further this information also does not construe any legal or taxation advice to you.

This report is strictly meant for private circulation and not for public distribution. The report has been furnished solely for your information and should not be reproduced or redistributed to any other person in any form. Information and statistical data herein have been obtained from sources we believe to be reliable but in no way are warranted by us as to accuracy or completeness. MOPE directors and officers accept no responsibility for any losses resulting from the use or transmission of the data or views represented in this newsletter/report. Past performance is not an indicator of future performance.

For further information or any clarification, please contact us and we will be glad to provide you the same. You may mail us at [email protected]. You may also contact us over phone at +91-22-39825551. Web Address: www.motilaloswal.com/re

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