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SIRE Development Fund
Preliminary Fund Presentation
September 2008
A South India Real Estate Opportunity
This is a proposed fund and details are subject to alteration
2
IMPORTANT INFORMATION
• The information contained in this document is an outline proposal and seeks merely to confirm the extent to which potential investors may be interested in making an investment in a fund to be established on the basis set in this document. This document does not constitute a prospectus, or its equivalent, for the purposes of the laws of the United Kingdom or the Channel Islands or any other jurisdiction and does not contain any offer, or invitation to purchase, sell or subscribe for, or any solicitation of any offer to purchase, any securities of SIRE Development Fund or any fund established to implement the principles set out in this document (the “Fund”) or to enter into any contract or commitment in relation to any securities of the Fund. Any indication of interest in an investment by any person will be taken into account by SIRE Capital Limited in determining whether or not any fund should be established and securities in that fund marketed to any individual or group of individuals. Any investment in any fund established to implement the proposals set out in this document should only be made after careful consideration of the document offering securities in any fund to the public or any class of the public and after the taking of appropriate professional advice.
• The information in this document, which is for background purposes only and has not been verified, is preliminary in nature, subject to change without notice and may be updated, reissued and amended. Any person outside the United Kingdom should inform themselves about and observe any restrictions and legal requirements in relation to the distribution of this document
• The contents of this document have not been approved by an authorised person for the purposes of section 21 of the Financial Services and Markets Act 2000 ("FSMA"). This document is directed only at and may only be communicated to the following types of persons: (i) persons outside the United Kingdom (who should inform themselves about and observe any restrictions and legal requirements in relation to the distribution of the document), (ii) persons who have professional experience in matters relating to investments who fall within the definition of investment professionals in Article 19(5) Financial Services and Markets Act (Financial Promotion) Order 2005 (as amended) (“FPO”), (iii) persons who fall within Article 49(2)(a) to (d) FPO (high net worth companies, unincorporated associations etc.) and (iv) any other persons to whom it may otherwise lawfully be communicated (together, “Relevant Persons”). This document must not be acted on or relied upon by any persons who are not Relevant Persons. Any investment or investment activity to which this document refers will be available only to Relevant Persons, and will be engaged in only with Relevant Persons.
• The proposals set out in this document, on implementation, may constitute a collective investment scheme as defined in section 235 of the FSMA, and such a collective investment scheme may be an unregulated collective investment scheme. Accordingly, any such scheme will be subject to the scheme promotion restriction set out in section 238 of FSMA, meaning that any person authorised under FSMA may not market the scheme within the United Kingdom except to persons who fall within COBS 4.12 of the Financial Service Authority's Conduct of Business Sourcebook or persons who fall within exemptions set out in the Financial Services and Markets Act 2000 (Promotion of Collective Investment Schemes) (Exemption) Order 2001 ("CIS Relevant Persons"). In the event that the Fund is structured as an unregulated collective investment scheme, any investment or investment activity in relation to any such scheme will be available only to CIS Relevant Persons, and will be engaged in only with CIS Relevant Persons.
• SIRE Capital Limited has not verified any of the information or opinions set out in this document and does not represent or warrant their accuracy or completeness. Nothing in this document is, or should be relied upon as a promise or a forecast, and no representation or warranty is given as to the accuracy, achievement or reasonableness of any future projection, forecast or other statement. No liability is accepted for any errors, omissions or inaccuracies in such information or opinions or for any loss howsoever directly or indirectly arising from any use of this document or its contents. No reliance should be placed on any information contained in this document for the purposes of investment activity and any such reliance may expose the investor to a significant risk of losing all of the property or assets invested. Any investment in securities of the Fund or any fund established on the principles set out in this document will be subject to a number of risk and other factors, which will be contained within the document offering such securities. An investment should only be made after careful consideration of the risk and other factors associated with such securities.
• The value of investments and the income therefrom can go down as well as up. Past performance is not necessarily a guide to future returns. SIRE Capital Limited disclaims any and all liability (except to the extent that liability cannot lawfully be excluded) for representations, either express or implied, whether contained in or omitted from this document in any other written or oral communication made in connection with this document.
• Various of the persons involved in the preparation of this document are not authorised persons under FSMA. To the extent necessary any such persons will seek authorisation prior to undertaking any regulated activity in connection with the proposals set out in this document.
• This document is confidential and neither it nor any of its contents may be reproduced in whole or in part or passed on to any person without the consent of SIRE Capital Limited. All requests for information and inquiries should be made to SIRE Capital Limited. This document is communicated by SIRE Capital Limited but is not intended to be an inducement to a contract, nor is it intended to form the basis of an investment decision. Receipt of this document does not constitute the giving of advice by SIRE Capital Limited and recipients are recommended to consult their own independent advisers.
Contents
Introduction 4
Profile of India & South India 7
Investment Strategy & Process 13
Pipeline Portfolio 19
Fund Structure 25
Appendices 30
Cover illustration: “Vistara” apartment block in Coimbatore, built by team members of the Fund Adviser in 2008
Left illustration: Graphic of a typical 4 floor multifamily residential block
3
Introduction
4
Key Investment Highlights
• SIRE Development Fund (SIRE) is a Real Estate Development Fund raising £100m for direct investment into the rapidly growing South India real estate development market
• SIRE specialises in South India (Karnataka, Kerala & Tamil Nadu), primarily in Tier II & III cities. North India, where very large funds already dominate, will be avoided
• SIRE will invest in 2 asset classes:– Hospitality: 3 & 4 Star hotels, pre-leased to selected operators prior to sale– Residential: small integrated townships, with substantial pre-sales
• Existing South India based advisory team with: :– Extensive knowledge of local land market ensures the best sites are purchased and at local prices, rather than
the inflated prices usually paid by foreigners. – Many years’ experience, having successfully developed over 5 million sq ft of residential, commercial, hotel
and retail property worth £150 million, employing new and trendsetting architectural designs– Grants and fiscal incentives: provided both by State and by central Government
• Fund financially viable using traditional building methods but, for hotel construction, hope to use progressive strategy of steel frame modular buildings (fully fitted out) to dramatically reduce development risks (e.g. budget & time overruns) and thereby improve returns
• Pipeline projects with initial due diligence and supporting contractors already identified, at a total projected ‘Gross Development Value’ of £545 million* with a maximum gearing ratio of 50%
• Targeted Net IRR in excess of 25% per annum**, conservatively calculated on traditional building costs
* Total final sales value** IRR exclusive of carried interest. Returns cannot be guaranteed
5
Competitive Advantages • The Fund seeks to benefit from the supply-demand imbalance of real estate in the South
Indian geographic region; few other funds have offered this focus
• The Fund permits access to the lucrative residential property market otherwise denied to most non-Indian investors by the high minimum investment requirements of India’s Foreign Direct Investment (FDI) rules
• Day One deployment of substantial capital due to existing detailed project preparation
• Proposed modular hotel construction method would lead to substantial time and cost savings, but projected returns are conservatively based on traditional building methods
• Already established advisory team with:– Impressive individual development records of members in delivering excellent returns on properties
in South India and other emerging markets– Access to off-market land deals and best-of-class project management, professional & marketing
firms, mortgage providers and banks in India– Key members each having around 20 years of specialist in-depth local knowledge, experience and
contacts up to government level
6
Profile ofIndia & South India
7
Why India and South India?
India• The world’s largest democracy and the second largest country by population (1.1
billion) with, unlike China, an exceptionally high youth population. • India has emerged as one of the biggest and is projected to remain the second fastest
growing economy in the world. The average growth rate over the last 4 years (2003-2007) is 8.8%. Even under the current climate, India expects average growth rates of 9%1 over the next 5 years (2008-2012).
• Rising exports to the Middle East, China and Singapore and a huge internal market provide significant insulation from the current US slow-down2.
• The strong IT/ITES sector, growing at over 30% p.a., is being fuelled by the non-discretionary IT spending of US, European and Asian corporates.
• Highly-educated English speaking work force.• Home to a fast-growing number of world class corporations, such as Tata and Reliance.• Assured long-term prospects driven mainly by strong internal demand and significant
supply shortages.
South India3
• Huge development potential of Tier II & Tier III cities in South India. • Absence of the over-development seen in North India.• Established principal region for India’s world-beating IT, ITES & manufacturing sectors.• Preferred destination for many multi-national companies, owing to:
– Higher educational standards of work force than in the North, e.g. 100% literacy in Kerala– Relative political stability– Greater degree of social stability through more peaceful history
Notes: 1) PWC India Budget 2008 Report2) Kotak Mahindra Fund research3) Fund manager research & opinions 8
South India Map
9
RELEVANT CITIES OF
SOUTH INDIA
Factors Driving the Indian Housing Sector
• Annual GDP Growth rate of 7.5% to 9%
– Average salaries up by around 200% over the last decade
• Middle class expansion of 30% per annum and rapidly changing lifestyles
– More than half of households will be middle class by 2016
– Growing wealth (Household savings rate of 34%)
– Increasing numbers of double income households with sharp rise in disposable incomes
• A shortage of attainable housing (20m homes now required of the type targeted by the Fund)
• Cultural aspiration towards home ownership:
– Strong social trend towards establishment of separate households away from traditional joint family units
– Availability of sub-20 lakhs (around £27,000) housing loans on attractive terms
– Mortgage tax relief on both interest and capital
• Central and local government focus on Infrastructure is stimulating development of both individual properties and business park
• 50 cities of over 1 million population, ideal for real estate investment and development
Sources: Merrill Lynch, HDFC, DB & FCH Research, CNK India (chartered accountants)
10
Factors Driving the Indian Hospitality Market
• 300m domestic Indian travellers per year
– Indian growth largely insulated from current world economic situation
– Expected growth 10 to 15% p.a. over next few years
• Long term secular uptrends in both business and leisure domestic demand
– In business, owing to rapid indigenous corporate growth
– In leisure, owing to favourable demographics and changing consumer preferences, supported by emerging budget air travel industry
– Also centuries-old pilgrimage-based travel demand
• International inbound travel demand is strongly positive
– In business, expected to grow rapidly with increasing investment and trade activity
– In leisure, now that India’s rich heritage and natural beauty are just beginning to be widely marketed, tourism is growing steadily at 11 to 15% p.a. and is expected to grow further with increased investment in this sector
• Estimated shortage of 100,000 rooms across all categories in the country
– Only 75% of that demand will be met by current projects (i.e. there will remain a shortage of 25,000 rooms)
– Predominant lack of 2 to 4 star hotels, in both the business and tourism sectors
• There are only an estimated 110,000 hotel rooms in total across all categories in India
– China has 10 times more rooms and the United States has 40 times more
– The New York metropolitan region has as many rooms as there are in all of India
Source: Knight Frank India Hotel Review 2007
11
City Case Study(Chennai)
• Chennai, capital of Tamil Nadu:– With 7.5 million inhabitants, one of the world’s most densely populated cities– India’s 2nd largest exporter of IT and IT Enabled Services– Centre for 45% of India’s healthcare tourism from abroad and 35% from India itself– Home to 30% of India’s automobile industry
• SIRE Fund will develop both a Hospitality and a Residential project on Old
Mahabalipuram Road, now Chennai’s “IT corridor”, lined with State and privately
promoted IT Parks, which are estimated to bring in 400,000 IT professionals
• Chennai Hospitality Demand: Estimated hotel demand is 4,000 rooms by end of 2010
(1,000 in 4-Star segment alone). Already acute room shortage within City limits, requiring
at least 15 days prior reservation
• Chennai Residential Demand: The Fund’s township will provide 1,745 of the estimated
demand of 163,000 units
• All proposed development cities are summarised in Appendix 5
Source: Adviser’s research
Note: 1) All proposed sites are well served by public transport
2) Generous car parking facilities will be provided within each residential site
12
InvestmentStrategy & Process
13
Investment Strategy – Hospitality (I)
• To build a cluster of 5 middle market branded hotels:– 4 in the greater metropolitan areas of mainly Tier II cities– A budget hotel at the heritage site of the Tier III city, Madurai1
• To benefit from a strategic partnership with DTZ’s Hospitality Division who will carry out its
established Operator Selection Process for the Fund, prior to the start of construction
• Each hotel to be built to the specification of the preselected operator, to whom it is then leased,
to enhance its value before ultimate sale
• To sell the hotels, preferably in the 5th year and as a cluster with a 2 year trading record, to
optimise the return to the Fund
• The Fund’s Indian Adviser has recruited the experienced and successful Chief Executive of a top
middle market hotel group to head up its hotel development and management operations
• To use progressive modular building techniques subject to these becoming available
Note 1: The Government of India provides a substantial subsidy for 3, or fewer, Star hotels at Heritage sites
Seeking value from the best hospitality opportunities in the region
14
Investment Strategy – Hospitality (II)
15
LocationStar
RatingNumber Rooms
Total Project
CostEquity
InvestmentArea (in acres)
Developed Area (in
ft2) Build & Transfer
Build, Operate &
Transfer1
Build, Operate & Transfer
Build, Operate & Transfer
Exit Y3.5 Exit Y5 Exit Y6 Exit Y7
Chennai 4 290 28,444 14,222 2.22 241,758 20% 33% 34% 35%Cochin 4 240 21,169 10,585 1.84 200,376 19% 34% 35% 36%
Bangalore 4 294 28,044 14,022 2.25 245,025 20% 34% 35% 36%Coimbatore 4 148 13,315 6,658 1.13 123,057 19% 32% 34% 36%
Madurai 3 153 13,445 6,722 1.17 127,413 19% 32% 33% 36%
Note: 1) Year 5 expected to be Fund Manager's preferred exit option
Hospitality Strategy SummaryGross Project IRR OptionsProperty profiles
GBP 000s
Source: South India Hotels & Restaurants Asscn 2008; Fund Adviser’s research and estimates
CityType of
Hotel Population
No. of Rooms
AvailableRooms Under Construction
Est. Demand
for Rooms
Est. Shortage of
Rooms
No. of Rooms Built by
Fund
Est. Migrating Population per
Day
Chennai 4 Star 4,343,645 550 150 4,000 3,300 290 700,000 Cochin 4 Star 3,105,798 250 150 1,200 800 240 300,000 Bangalore 4 Star 6,537,124 500 250 4,200 3,450 294 800,000 Coimbatore 4 Star 3,671,856 150 120 1,000 730 148 200,000 Madurai 3 Star 2,578,201 100 150 900 650 153 200,000
Demand Estimate
Investment Strategy – Residential (I)
• To meet the growing demand by aspiring and middle class Indians for attainable housing in South
India’s Tier II and III cities
• To build integrated townships which are affordable for targeted buyer segments:– Affordability: multi-family residential units (apartments) costing from INR 1800 to 2000 (£24 to £27)
per sq ft, being the optimal pricing for both first time and step-up middle income buyer segments – Property mix: around 5% of the total will be allocated to school, medical, retail etc
• The townships to be located on greenfield sites in the respective city outskirts:– With proper access to good roads, transport links and public amenities– Within commuting distance of techno parks, IT/ITES corridors and major employers
• As pre-sales are common practice in India, to pre-sell at least 80% of the properties to generate
cash flow from the start of the project. Note: Prices quoted are exclusive of all fees and taxes
16Seeking value from the best residential opportunities in the region
Investment Strategy – Residential (II)
17
Area in sq ft
Average Selling
Price / sq ft
Cost Per Unit
Final Sale
Value1Customer Deposit
MortgageTerm of
Loan (in Years)
Bank Interest
%
Equal Monthly
Instalment2
Monthly Salary of
Target Segment
Typical Job
Profiles3
Multifamily650 2,000 1,300,000 1,429,560 214,434 1,215,126 15 12.00% 14,003 23,338 Trainee CCO825 2,000 1,650,000 1,800,980 270,147 1,530,833 15 12.00% 17,641 29,402 Team Leader CCO
1,050 2,000 2,100,000 2,278,520 341,778 1,936,742 15 12.00% 22,318 37,197 Manager CCO1,430 2,000 2,860,000 3,085,032 462,755 2,622,277 15 12.00% 30,218 50,363 System Analyst
Row Houses1,200 2,325 2,790,000 3,010,748 451,612 2,559,136 15 12.00% 28,555 47,592 System Analyst
Single Detached1,500 2,550 3,825,000 4,109,090 616,364 3,492,727 15 12.00% 40,249 67,082 Executive
Note: 1) Inclusive of all fees and taxes2) Lenders grant mortgages where EMI is up to approximately 60% of gross monthly salary3) CCO = Call Centre Operator
Affordability of Proposed Residential Units by Target Buyers (in INR)
City Population Working Population Estimated Demand No of Units Targeted by Fund
Chennai 4,343,645 1,488,364 162,887 1,745 Coimbatore 3,671,856 1,377,612 137,695 2,306 Salem 3,016,346 1,254,645 113,113 1,791 Mysore 2,641,027 1,110,264 99,039 1,919 Cochin 3,105,798 1,117,091 116,467 2,446 Trivandrum 3,234,356 1,047,935 121,288 565
Note: The estimated demand has been calculated as ((Population/National Avg. Household Size)x5%)Source: 2001 Government of India Census
Demand Estimate
Backgrounds of Promoters
The Manager, SIRE Capital Limited, is a joint venture between experiencedindustry professionals:
• Red Ribbon Property Investments Plc (www.redribbonproperty.co.uk):• A UK and Indian property developer • Established in 2005, privately owned by Alpheus Group Limited, Gibraltar • Directors and shareholders active in real estate for 20 years. Punnose family has 15 years’ real
estate development experience in Kerala, South West India• 45% Shareholding in the Manager (Board representatives: Paul Rodker & Suchit Punnose)
• TaylorCheng Property Advisers (Asia Pacific) Ltd:• Its subsidiary, Elysium Real Properties Ltd (www.elysium.in), is a private Indian real estate
residential and commercial developer based in Tamil Nadu, South India • Elysium established in 2004, but Principals active in real estate for over 20 years• 45% Shareholding in the Manager (Board representative: Oliver Ontiveros)
• Tim Darvall• Senior industry figure and former Managing Director, Merrill Lynch Investment Managers• Until recently, was founding Managing Partner and COO of Baker Steel Capital Managers, London
(a specialist hedge and traditional fund asset manager) • 10% Shareholding in the Manager
The Manager owns 90% of the Adviser in India. Further details of Manager andAdviser personnel are given in Appendices 1 & 2
18
Pipeline Portfolio
19
Initial deal pipeline
20
Sl. No.Project Location
Total Project
CostEquity
Investment Debt Pre-Sales
Debt : Equity : Pre-Sales
Ratio Gross IRRArea (in
acres)Developed
Area (in ft2)
1 Chennai 38,983 6,389 3,440 29,154 9 : 16 : 75 27% 27.23 1,921,545
2 Cochin 57,479 9,422 5,073 42,984 9 : 16 : 75 27% 35.98 2,821,120
3 Coimbatore 47,511 7,984 4,299 35,228 9 : 17 : 75 25% 32.88 2,320,250
4 Mysore 42,481 6,625 3,567 32,289 8 : 16 : 76 27% 26.94 2,112,312
5 Salem 38,471 5,676 3,056 29,738 8 : 15 : 77 28% 27.94 1,971,648
6 Trivandrum 25,134 6,226 3,352 15,556 13 : 25 : 62 29% 30.97 925,438
7 Chennai 27,759 13,880 13,880 - 50 : 50 : 0 32% 2.12 230,868
8 Cochin 20,486 10,243 10,243 - 50 : 50 : 0 33% 1.74 189,486
9 Bangalore 27,779 13,890 13,890 - 50 : 50 : 0 33% 2.18 237,402
10 Coimbatore 12,807 6,404 6,404 - 50 : 50 : 0 31% 1.06 115,434
11 Madurai 12,970 6,485 6,485 - 50 : 50 : 0 30% 1.10 119,790
351,861 93,223 73,689 184,949 30% 190.14 12,965,291
Note: Returns are projected and cannot be guaranteed
Residential
Residential
Hospitality
Hospitality
Hospitality
Hospitality
Pipeline Portfolio (by City)(All figures in GBP 000s)
Total
Project Type
Residential
Residential
Residential
Residential
Hospitality
Detailed pipeline project due diligence and projections have been prepared
Initial deal pipeline
21
Hospitality Residential TotalTotal Development Size 101,802 250,060 351,861
Property Values 22,638 30,058 52,696 Construction Costs 16,727 178,888 195,616 Hotel Interiors & Fittings 48,475 - 48,475 Operating Expenses 12,244 41,114 53,358 Working Capital 1,718 - 1,718
Investment 50,901 42,322 93,223 Financial Leverage 50,901 22,789 73,689 Debt : Equity Ratio 50 : 50 35 : 65 44 : 56Portfolio Allocation 55% 45% 100%Sales Revenues/Gross Development Value 202,767 341,786 544,552 EBITDA 151,866 83,577 235,443
Net Income 151,866 55,237 207,102 ROI (Pre Tax) 298% 197% 253%ROI (Post Tax) 298% 131% 222%Consolidated Projects IRR (Post Tax) 32% 27% 30%Net IRR (Post Tax) 25%Total Developed Area in Ft2 892,980 12,072,311 12,965,291 No. of Rooms 1,072 - 1,072 No. of Residential Units - 10,643 10,643
Note: Returns are projected and cannot be guaranteed
Key Financials (Pipeline Portfolio)(All Figures in GBP 000's, Over 5 Years)
22
Year 2 Year 3 Year 4 Year 50%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
1,927,7782,693,954
2,310,866
778,515
744,774 410,368
466,102
243,165
484,861
484,861
484,861
484,861
231,359
342,828
342,828
565,766
223,245669,735
0 0
Construction Allocation (in sq ft)
Multifamily Row Houses Single Detached Retail Hospitality
23Note: 87% of investment for the Hospitality allocation is made within the first 12 months
Development Timeline
Residential
Approval
Investment
Sale
Construction
Distributions
Sale
Investment
Interiors
Operation
Approval
Year 5
Distributions
Year 1 Year 2 Year 3 Year 4
Hospitality
Construction
24
Year 1 Year 2 Year 3 Year 4 Year 5 -
50
100
150
200
250
- -
£37 million £ 17 million
£ 199 million
Projected Investor Return Timeline
Fig
ures
in G
BP m
illio
n
Note: Returns are projected and cannot be guaranteed
Fund Structure
25
Fund & Management Structure
Model structure: further tax advice is being taken and
the structure may be modified 26
SIRE Development Fund LtdJersey
Mauritian Holding Company
Mauritius
SPV 1IndianProject
Company1
Mauritius
SPV 2IndianProject
Company2
Mauritius
SPV 2India
ProjectCompan
y3
SIRE Capital LtdMauritius
SIRE CapitalAdvisers Pvt Ltd
India100%
100%
90%
Provisional Fund Structure (I)
• Legal Structure:• Jersey incorporated Company, listed on CISX• Closed ended, with 5 - 7 year life• The Fund’s Mauritian holding company will own several Mauritian Special Purpose
Vehicles (SPVs), each ring-fencing a particular project and having its own subsidiary Indian limited company
• Financial structure and targets:• Fund-Raising Target – £100m• Gearing Ratio Maximum of 50% of GAV • Target Net IRR – in excess of 25% per annum1
• Shares & Liquidity Profile:• Denomination – GBP and possibly other currencies• Distributions – annual (first distribution expected Y3 subject to sale of assets2)
Note: 1) IRR exclusive of Carried Interest 2) Distributions and returns cannot be guaranteed
27
Provisional Fund Structure (II)
• Fee & Expense profile:• Management Fee – 2% per annum of NAV• Performance Fee – 20% of net gains over a hurdle rate of 10%• Development Fee – 5% of construction costs• Initial Sales Charge – 3%
• Valuation & Reporting:• Fund administrator will produce an annual NAV• Manager will produce quarterly investment reports• Unaudited semi-annual and audited annual accounts will be produced
• Fund Directors:• [To be appointed]
• Professional Advisers:It is provisionally intended to appoint the following:• Auditors: KPMG, Jersey and Mauritius• Administrator & Custodian: Deutsche Bank, Jersey and Mauritius• Legal Advisers: Ozannes, Jersey • Independent Valuation Agents: DTZ, Chennai and Knight Frank, Chennai
28
Summary
29
• Opportunity to participate in the development profit of real estate in a niche area of one of the strongest emerging markets in the world
• Huge demand for housing from rapidly expanding middle class and for hospitality from growing economy.
• The Fund Advisers in India have proven development track records
• Innovative progressive thinking – proposed use of modular construction technology for Hotel construction
• Target Net IRR – in excess of 25% per annum1
Note: Target IRR excludes Carried Interest
CONTACT:
SIRE Capital Ltd, Mauritius (in formation)
E: [email protected] W: www.sirecap.com T: Paul Rodker +44 7831 615000 Important: This document is a proposed investment fund intended for professional and experienced investors only. Details of the fund are
subject to change without notice. Returns may fluctuate and are not guaranteed and investors may get back less than the amount they invested. This document is not an invitation, solicitation or recommendation to invest in securities. Investment may only be solicited or made on the basis of a prospectus, as and when issued, and the distribution or promotion of which may be restricted or prohibited in certain jurisdictions. Reference sources are available from the Manager.
Appendices
30
Appendix 1:Fund ManagerSIRE Capital Limited (Mauritius)
Tim Darvall, Chairman, is an investment funds specialist, with 24 years spent in the investment management industry, and a former solicitor. He was a founder Managing Partner and COO of Baker Steel Capital Managers (a specialist hedge and traditional fund asset manager) from its inception in 2001. He previously spent 16 years in a variety of roles with Mercury Asset Management/Merrill Lynch Investment Managers, where he was a Managing Director. He started his professional career as a commercial solicitor in and partner of a well-known London law firm. He has served on a committee of the Alternative Investment Managers Association (AIMA) and is a Fellow of the Securities Institute (FSI)
Oliver Ontiveros, Managing Director, has over 15 years of experience in emerging markets investment banking and private equity & portfolio fund management, with extensive real estate investment exposure. He is a founder of Elysium Real Properties [P] Ltd. His experience includes senior level front-office positions at Walton Asset Management as Fund Manager in Hong Kong & Alberta, Canada; Regent Pacific Group & Regent Fund Management (of Hong Kong & Moscow, Russia) as private equity & portfolio Fund Manager & Country Manager for Romania & Bulgaria; Global Securities of Turkey as CEER/MENA/FSU Institutional Sales; and Merrill Lynch, New York as a Latin America Analyst & Associate International Economist for Emerging Markets. An alumnus of Kellogg School of Management at Northwestern University & University of Texas at Austin
Paul Rodker, Managing Director, had a 40 year career as a successful Independent Financial Adviser. His particular expertise in the fields of Investment and Inheritance Tax have enabled him to understand the needs of the investing public and to lead Red Ribbon in producing a unique range of financial products to suit today's discerning investor. As MD of Red Ribbon, he has spent the last two years developing the company’s investment activities in India
Suchit Punnose, Director, has the vital influential contacts to establish a successful property development business in India, where such extraordinary opportunities exist. His involvement in his family’s property business for a number of years includes a recent hotel project in Cochin in addition to various UK property ventures. As an management consultant, his dedication and infectious enthusiasm were behind the birth of start-up companies as diverse as advertising agencies and vehicle accident management centres. He was responsible for packaging two onshore funds launched by Red Ribbon in 2007
31
Appendix 2:Fund AdviserSIRE Capital Advisers Private Limited (India)
Ramesh Shiva, Managing Director, Hospitality, has 20 years of experience in the hospitality sector, most recently as CEO of a middle market internationally branded hotel chain in South India. He has overseen the construction and operations of two hotels in Chennai and is currently involved in the construction of hotels in Coimbatore, Pune, Kodaikanal, Madurai and Hyderabad
Subash Balasubramanium, Managing Director, Residential, and his family have two decades of experience in Indian real estate and have developed and successfully marketed more than 150 acres of residential developments in and around Coimbatore. He is a founding partner of Elysium Real Properties [P] Ltd. Further experience includes market analysis work for StorEnzo, Sweden and as a Financial Analyst at Merrill Lynch Investment Managers, India. He holds a Master of Arts in International Marketing from Vaxjo University
P Punnose, MIE, Projects Director, is a chartered engineer with over 25 years experience in engineering fabrication and construction projects at various sites in India and six years of the same in Saudi Arabia. As an active investor in private residential building projects since the early 1990s, he has been involved directly and indirectly in the development of more than 750,000 ft2 of property, and is currently building a 70 room 20,000sqft budget hotel in the prime commercial district of Kochi. This project flow has enabled him to build up a long serving and loyal team of architects, structural engineers and contractors
Chetan Bagaria, Operations Director, is an MBA graduate in Marketing from the University of Wales. He hails from a business family with diversified business and industrial interests that has built over 2 million ft2 of retail, residential and commercial properties. He has over 5 years of experience in residential and commercial construction and has been with Elysium for three years
MSR Krishnan, Investment Director, has over five years experience in financial analysis, personal administration and ISO standardisation. He led a team of financial analysts with Hewlett Packard prior to joining Elysium two years ago. A graduate of Bangalore University, he is a Chartered Accountant (ICFAI) and a level 3 CFA candidate
Note: The Fund Adviser will be a 90% owned subsidiary of the Fund Manager
32
Appendix 3:Development Record of Advisory Team
Ramesh ShivaLocation Name Asset Type Gross Size Gross Project size Year
Chennai Quality Inn Sabari Hospitality - Middle Market - 75 rooms 90,000 sq.ft. USD 9,259,000 2002
Chennai Quality Inn Sabari Classic Hospitality - Middle Market - 100 rooms 140,000 sq.ft. USD 13,889,000 2007
Kodaikanal Quality Inn Sabari Resort Hospitality- Middle Market - 80 rooms 75,000 sq.ft. USD 4,630,000 2008
Pune Sabari Hotels Hospitality- Middle Market - 160 rooms 150,000 sq.ft. USD 13,889,000 2010
Coimbatore Sabari Retreat Hospitality- Middle Market - 150 rooms 125,000 sq.ft. USD 11,574,000 2009
Bangalore Sabari Hotels Hospitality- Middle Market - 150 rooms 150,000 sq.ft. USD 13,889,000 2010
Madurai Sabari Hotels Hospitality- Middle Market - 120 rooms 120,000 sq.ft. USD 6,944,000 2009
USD 74,074,074
Oliver OntiverosLocation Name Asset Type Gross Size Gross Project size Year
Sofia, Bulgaria TzUM Retail and Class A Office 250,000 sq.ft. USD 27,200,000 1999
Sofia, Bulgaria Single Family Detached 100 Acres USD 25,000,000 2000
Alberta, Canada Detached SF, Multifamily and Commercial 36 Acres USD 10,000,000 2002
Alberta, Canada Single Family Detached 329 Acres USD 100,000,000 2002
Alberta, Canada Single Family Detached 160 Acres USD 60,000,000 2003
Coimbatore, India Vistara Multifamily Residential 20,000 sq.ft. USD 1,500,000 2008
Coimbatore, India Class C Retail and Office 65,000 sq.ft. USD 7,800,000 2010
USD 231,500,000
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Appendix 3 (cont’d):
Development Record of Advisory Team
Subash B & FamilyLocation Name Asset Type Gross Size Gross Project size Year
Coimbatore, India Nalvar Nagar Single Family Detached 50 Acres USD 1,750,000 1990
Coimbatore, India Vayapuri Nagar Single Family Detached 100 Acres USD 5,000,000 1999
Coimbatore, India Vistara Multifamily Residential 20,000 sq.ft. USD 1,500,000 2008
Coimbatore, India Class C Retail and Office 65,000 sq.ft. USD 7,800,000 2010
USD 16,050,000
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Chetan Bagaria & FamilyLocation Name Asset Type Gross Size Gross Project size Year
Assam, India K.B.Centre Retail 100,000 sq.ft. USD 2,700,000 1998
Kolkata, India Lords Class A Office 200,000 sq.ft. USD 6,450,000 2001
Assam, India Kedarmal Ayurvedic Hospital Hospital 50,000 sq.ft. USD 486,666 2004
Hyderabad, India HiTec City Multifamily Residential 570,000 sq.ft. EUR 11,400,000 2006
Hyderabad, India Multifamily Residential 1,100,000 sq.ft. EUR 18,182’000 2006
Coimbatore, India Vistara Multifamily Residential 20,000 sq.ft. USD 1,500,000 2008
Coimbatore, India Class C Retail and Office 65,000 sq.ft. USD 7,800,000 2010
USD 65,374,000
P Punnose & FamilyLocation Name Asset Type Gross Size Gross Project size Year
Cochin, India Ecolodge Hotel 20,000 sq.ft. USD 4,200,000 2010
Kerala Various Residential 750,000 sq.ft. USD 17,711,000 1992-2002
USD 21,911,000
Appendix 4: Investment Process
A rigorous process and experienced team ensures optimal results
Evaluation• Research• Assessment
of property• Growth
potential• Market
position• Peer group
analysis and positioning
• Initial meeting
• In principle proposition
Due Diligence• On site
visit• Due
diligence: team, strategy, market deal, value creation, costings, etc
• Financial valuations
Acquisition• Legal due
diligence• Commerc
ial due diligence
• Tax due diligence
• Negotiations on terms and conditions
Asset Management• Project
management • Project
enhancement
• Risk management
• Quarterly & Annual reporting
• Hotel operation
• Evaluate exit strategy
Disposal• Financial
/market analysis
• Disposition plan
• Evaluate offers
• Negotiate closing
Approval Oversight and continuous monitoring
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Appendix 5: City Location Profiles (I)
Chennai, capital of Tamil Nadu, with 7.5 million inhabitants, is one of the world’s most densely populated cities,
India’s 2nd largest exporter of IT/IT Enabled Services and major healthcare and health tourism centre. • Hospitality: SIRE’s hotel will be on Old Mahabalipuram Road. Estimated demand is 4,000 rooms by end of 2010 (1,000 in
4-Star segment alone). Already acute room shortage within City limits, requiring at least 15 days prior reservation. • Residential: SIRE’s township also on Old Mahabalipuram Road, now Chennai’s IT corridor, lined with State and privately
promoted IT Parks, which are estimated to bring in 400,000 IT professionals who will need appropriate housing.
Cochin (Kochi), Kerala’s commercial, industrial and tourism capital, blends historical buildings, beaches and backwaters with a large modern city and port, the second most important on India’s West coast.
• Hospitality: The proposed hotel is by Vemband Lake, close to bus and train stations, only 12 km from the large almost completed IT park which will greatly increase the room shortage, already severe from the growing numbers of tourists.
• Residential: The Edapally project is 4 km from the emerging Smart City IT park, 8 km from Cochin central railway station
and bus terminus and equidistant from National Highway 47 and Pipeline Road, the main development area, along with
Seaport – Airport road and Kakkanad. These are expected to create 200,000 new IT/ITES, BPO and call centre jobs soon.
Coimbatore is a Tier III city and Tamil Nadu’s second most industrialised, specialising in textiles, IT/IT Enabled
Services and Business Process Outsourcing (BPO), its growth stimulated by nearby Bangalore and Chennai.• Hospitality: The current dire room shortage will be exacerbated by the planned IT park 4 km from the hotel site, itself 3
km from the airport, 5 km from major colleges and corporate and industrial houses in the city’s fastest growing sector.• Residential: The township will be on Perur Road, 7 km from the central railway station and 9 km from the central bus
station, close to Karunya Institute of Technology, one of the city’s biggest engineering colleges. A 1,500 acre Special
Economic Zone (SEZ) is now under construction nearby.
Source: Adviser’s research
Note: All proposed sites are well served by public transport and generous car parking facilities will be provided at each residential site
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Appendix 5 (cont’d):City Location Profiles (II)
Bangalore, India’s top software destination, fifth largest and fastest growing city, is capital of Karnataka State. Pre-eminent in IT/ITES & BPO, it is home to the Indian Institute of Science, aerospace and high-tech giants.
• Hospitality: The proposed hotel site at Hebbal is near Devanahalli Airport Expressway with its over 1 million square feet of planned commercial spaces, 28 km from the new Airport and 9 km from the central railway station and bus stand.
Madurai, one of India’s most ancient Heritage Cities, has the famous Meenakshi Amman temple, which attracts close to 10,000 pilgrims per day. Situated on the River Vaigai, it is the second largest city in Tamil Nadu.
• Hospitality: The well educated local labour force has attracted regional offices of major corporations, worstening the current room shortage for pilgrims. SIRE site is 2 km from central railway and bus terminals and 3 km from the Temple.
Mysore, Karnataka’s tourism centre and second largest city, with 2.5 million tourists per year, traditional home of weaving, sandalwood carving, bronzework and lime and salt production, now has 4 new industrial areas.
• Residential: Siddalingapura project site is 7 km from the railway and near the new Bangalore Expressway, where major IT/ITES companies are re-locating as the next preferred IT destination, creating countless jobs for IT professionals.
Salem, Tamil Nadu, major producer of traditional silver anklets, has large textile, automotive, poultry and sago industries and huge magnesite deposits. 160 acre IT park and 250 acre Steel SEZ will be complete in 3 years. Residential: The Karuppur township project, 8 km from the central railway and bus terminals, is close to the SEZ and the 100% export oriented park, which, together, are expected to employ more than 260,000 people in 3 years time.
Trivandrum, Kerala’s Capital, housing central and State Government offices, is a major academic, science and technology hub with India’s largest IT park and only animation park, with associated television studios and infrastructure. Also a centre for medical and traditional tourism, and gateway to Sri Lanka and the Maldives.
• Residential: The proposed Kariyavattom township is 7 km from the 300 acre Techno Park with 140 IT/ITES companies, 13 km from the central railway and bus terminals and 3 km from National Highway 47 and the Quilon Road Junction.
Source: Adviser’s research
Note: All proposed sites are well served by public transport and generous car parking facilities will be provided at each residential site
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Appendix 6:Residential Marketing Approach
Target Buyers:
• Target monthly income of INR 20,000 to 45,000 (£270 to £600) • First time and step-up buyers aged 25 to 65 • Those unable to afford inner city properties• Employees of IT/ITES & call centres• Executives of banks, financial institutions, corporations & manufacturers• Civil servants• Corporates seeking housing for key employees
Advertising Strategy:
• Local and international estate agents, such as DTZ and Jones Lang LaSalle• National and local daily newspapers• Property magazines and supplements• Hoardings• Radio & television• Housing trade fairs
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Appendix 7:Limits & Risk Management
• Risk limits:– Country: South India– Sectors: Hospitality and Residential– Individual project limit: Maximum 15% of total investible amount – Leverage: Limited to 50% gearing ratio of GAV
• Risk management processes:
Operational Risk:– Use of pre-screening tools to help determine title risk and legal due diligence– Standardised valuation techniques– Staged draw downs to Indian project entities– Quarterly risk reporting to Boards
Portfolio Risk:– Risk measures: overall cash flow volatility and individual projects cash flow volatility– Possible syndication of projects with developers and other funds– Position and prudential exposure and risk limits (see above)
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Appendix 8:Risks related to the Fund (I)
• The Real Estate Market: The business is heavily dependent on the performance of the real estate market and the availability of real estate financing in India, particularly in the regions where the Fund operates, and could be adversely affected if market conditions deteriorate. Real estate projects take a substantial amount of time to develop, and losses could be incurred losses if land is bought at high prices and the developed projects have to be sold during weaker economic periods. Further, the real estate market, both for land and developed properties, is relatively illiquid, which may limit any ability to respond promptly to market events. The real estate market can be significantly affected by changes in government policies, economic conditions, demographic trends, employment and income levels and interest rates, among other factors. These factors can reduce the demand for and valuation of projects, both planned and under development.
• Credit Availability: Lower financing interest rates from India’s retail banks and housing finance companies, particularly for residential real estate, and favourable tax treatment of loans, have helped fuel the recent growth of the Indian real estate market. However, interest rates in India show a rising trend, which could discourage real estate purchases from borrowing to finance and depress the real estate market. Additionally, stricter provisioning and risk weightage norms imposed by the Reserve Bank of India (“RBI”) in relation to real estate loans by banks and housing finance companies could reduce the attractiveness of property or developer financing, and the RBI or the GoI (Government of India) may take further measures to reduce or having the effect of reducing credit to the real estate sector. The business could be adversely affected if demand for or supply of real estate financing at attractive rates were to diminish or cease to exist.
• Business Model: Revenues and profits are difficult to predict and can vary significantly from period to period. A business model is being followed under which revenues and profits will be derived primarily from sales of properties. Sales revenues are dependent on various factors, such as the size of the developments and the extent to which they qualify for percentage of completion treatment, rights of lessors or third parties that could impair the ability to sell properties, and general market conditions. In addition, the anticipated completion dates for the projects, including those set forth in this Presentation, are estimates based on current expectations and could change significantly, thereby affecting the timing of sales. The plans to sell, rather than lease, the hospitality and retail developments may increase the volatility of revenues and profits by replacing relatively stable rental income with less predictable sales income. The combination of these factors may result in significant variations in revenues and profits. Therefore, it is considered that period-to-period comparisons of the results of operations are not necessarily meaningful and should not be relied upon as indicative of future performance.
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Appendix 8 (cont’d):Risks related to the Fund (II)
• Changes in Consumers’ Tastes: The success of our residential property business is dependent on our ability to anticipate and respond to consumer requirements. The growing disposable income of India’s middle and upper income classes, together with changes in lifestyle, have resulted in a substantial change in the nature of their demands. Increasingly, consumers are seeking better housing and better amenities in new residential developments. Our focus on the development of medium quality residential accommodation requires us to satisfy these demanding consumer expectations. The sorts of amenities now demanded by consumers include those that have historically been uncommon in India’s residential real estate market, for example, 24-hour electricity and running water and amenities such as parking, gardens, playgrounds, swimming pools, fitness centres and tennis courts. If we fail to anticipate and respond to consumer requirements, we could lose potential clients to competitors, which, in turn, could adversely affect our business and prospects.
• Third Parties: Most of our projects require the services of third parties, which entails certain risks, and, as we expand geographically, we will be using contractors with whom we are not familiar. These third parties include architects, engineers, contractors and suppliers of labour and materials. The timing and quality of construction of the projects we develop depends on the availability and skill of those third parties, as well as contingencies affecting them, including labour and raw material shortages and industrial action, such as strikes and lockouts. We cannot give assurances that skilled third parties will continue to be available at reasonable rates and in the areas in which we conduct our projects. As a result, we may be required to make additional investments or to provide additional services to ensure adequate performance and delivery of contracted services: any delay in project execution could adversely affect our profitability. Additionally, we rely on manufacturers and other suppliers and do not have direct control over the products they supply, which may adversely affect the construction quality of our developments. As we expand geographically, we will have to use contractors with whom we are not familiar, which will increase the risk of cost overruns, construction defects and failures to meet scheduled completion dates.
• Economic, Political and Currency Risks Exposure: Macroeconomic volatility is, of course, a concern in markets such as India and should be a consideration prior to investment. Changes of Government and any resultant change to foreign investment policies and/or local rules and regulations may not be favourable to investments in the real estate sector and may therefore present a risk to the Fund. Currency fluctuations must also be considered, as they are inevitable and could have an adverse effect.
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