Hi, we’ve rated the property share Bangalore ORR, opportunity at Prestige Tech Platina as 7.75 on 10.
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Coming to our tenant. What do you think of the tenant? So tenant here is a US based company. It’s into customer services & customer software services client tenant. It’s a US based company having 18 global offices, having 15,000 plus employees currently employed with them.
They have a revenue of more than US 300 plus billion dollars. The good part is you have a Sequoia Capital being one of the early investors, way back in 2003. We know that the tenant is a two decade old company in the operations right now. All in all the industry that the tenant is it’s a software industry.
We know that it’s growing by leaps and bounds and every day. For example, we know the Chat GPT right now, which is currently making the waves and getting the fastest million subscribers across all the platforms and all the companies that have been able to do that. So we know that tenant is in that kind of industry and there is lots to unlock.
And that’s the reason I think looking at all parameters right now, we would want to give tenant as 0.5 on 0.5 with the kind of background that they’re having right now. What’s your take on the Fortune 500 or the Global Fortune 100 and the profitability of this company? So currently they are not part of fortune 500 or India Fortune 100, and therefore we given zero and 0.25.
In terms of profitability. Yes. While they’ve raised, a little bit of amount from Sequoia, they’ve largely been profitable and therefore we give it 0.25 on 0.25. Rishi you mentioned about Chat GPT but overall, what does the tenant industry outlook look like? Yeah looking, doing a little more research on the Industry that the tenant is currently in we see a massive rise in terms of all these technologies being deployed for the lot of companies across industries for gaining consumer insights, for gaining more consumers on their platforms, using their services and products.
Even if we look at this company, this the revenue has risen really well. I would like to share a small screenshot about this and that will give us a idea as to way back 2000, I early, early 2001, where the revenues were slowly rising and now we see that the revenues have gone up to close to 300, 300 plus million revenues way back in 2018 and 20.
And it’s growing. And this speaks about. The trend in the industry as well. And we have seen software wave after the 2000, 2001, all these software companies are doing a lot of stuff. So we know that the industry is not going anywhere. Rather the industry is being one of the best in terms of the growth rate chart.
It’s looks promising and we know that there is a lot of things coming in this, and that’s the reason we go ahead with 0.25 on 0.25 so that takes a total to one on 1.25 to know your tenant. And now we get to know the asset grade. What do you think of the asset?
Here we know , Prestige Tech Platina is one of the buildings that’s located on the ORR that is Outer Road in Bangalore, which is one of the most upcoming micro markets. Asset we know Prestige is known for building Grade A assets their quality of building speaks for themselves. Also it speaks broadly the tenants that are there in and around of the asset as well. We have not physically visited this particular asset from, but yes, this asset is I think they have received OC way back in somewhere around 2017.
This is a little older asset constructed a little earlier maybe somewhere around 2013, 2014. It took some time for finishing and all. But yes, the asset grade is grade A. It completes and takes care of all the standards of the current requirement of any building. And that’s the reason we would want to go ahead with giving 0.5 on 0.5 for this particular asset grade.
What about IGBC rating and the OC received? So IGBC rating is Indian Green Building Council rating, and this is a platinum certified building, which is excellent. Now, why this is important is because they’re as little resources as possible in terms of water, they’re recycling it.
Power is being generated, part power is being generated through solar, et cetera. Waste water is being managed well. Now, all this is important because one, from a perspective that overall it reduces the maintenance cost for the owners, which is going to be our investors and let’s say five years down the line, if there were two equal assets, one, which is IGBC rated and one, which it is not, I’m sure that the one which is rated will get picked up.
Or sold off fast and therefore we give it 0.25 on 0.25 in terms of occupation certificate received? Yes, it’s received OC around 2017 2018, and therefore it gets 0.25 on 0.25. I’ll also go ahead and talk about whether it can be subdivided with independent access. So currently we’ve got four floors and each floor is close to about 42,000.
And there is a possibility of dividing this and giving it independent access. Again, why this is important is if let’s say for example, having a 40,000 floor plate and you look at potential customers for that, let’s assume that there are 10. If you were to divide it right and make it 20,000, you are likely to have more than 20, 25.
People who would be interested this is just to give you a rough indication as the smaller the floor plate the more the number of potential lesses that you are going to be able to target, and therefore it’s important. Rishi you mentioned that you’ve been to ORR so tell us more about the location and if you could probably share one or two slides, it’ll be great.
Of course. Yes, I have been to ORR earlier and I would be more than happy to share that ORR is one of the most upcoming Micromarket locations of Bengaluru, where you have seen a lot of absorption in terms of the current availability and current requirement, current demand that is there being arising for a lot of companies.
As on my screen right now, you see where this is Bengaluru and where the asset is located. That is the Outer Ring Road this, the yellow is basically the Outer Ring Road that gets demand. Here we see Outer Ring Road and I can show you like what kind of tenants that are currently there in this. So you have Dell, Ericsson, Amazon that are sitting there.
We have at number two, which is showing on the Outer Ring Road. That’s the, our asset, that is Prestige Tech Platina . We have Embassy Tech Square, which is housing LGIMD gardner, you have Embassy Tech Village, like this is one of the most upcoming assets also there where you have a lot of amazing tenants like Wells Fargo, Flipkart, Sony MI.
So all in all, if you look at this particular slide, we know that what kind of tenants we have in the vicinity and what kind of demand that is there in this location. Moving on to, if I want to just put across prestige tech park’s footprint this is what the Prestige Tech Park has a footprint in terms of Adobe has, is actually owning and occupying the asset.
Oracle is owning and occupying its own asset. Here. This is the asset that is Platinum Tech Park that we are talking about Propshare’s Asset and you have JP Morgan, you have Amadeus, you have Juniper, you have Schneider. All these amazing tenants are part of this particular campus. And that’s the kind of setup that we are going to be a part of.
Again, if you look at the growth of the Outer Ring Road in terms of the rental market. So if you look at 2010, the rentals were roughly around 46. And if you look at right now, 2021, 2022 2019 was somewhere that they touched 93. And again, there was a small dip during covid, which was a very negligible impact compared to the impact that had happened across.
So it’s a very small impact. So the rentals have been prevailing the absorption has been really good. If you look at the metro connectivity in terms of the location now, this is the metro chart that we see, and this is our Platinum Tech park. Sorry yeah. Prestige Platina Tech Park. And we are the metro station that is
Sanhalli is basically a hundred meters from where we are, right. Moving on to the location, if I want to put it across that we would want to give 0.75 on 0.75 for this particular point as well. And before we come to the final about, know your asset I’m betting that Rishi has pronounced the metro station wrong.
Please comment and let us know if that’s the right pronunciation. So know your asset goes to 2 out of 2 and with that we go to know your deal.
We now come to knowing the deal. So in terms of the duration, what we want is at least a five year contract, and this is going to be a nine year contract, so 0.25 on 0.25 there. In terms of the lock-in, we would like at least a three year lock-in. This is a seven year lock-in. We are very excited. This is great.
So 0.3 on 0.3 there in terms of the penalty or corporate guarantee. So yes, there is a penalty. Here that is in built in the term sheet. But the reason why we are not giving it marks here is because we are still at the term sheet stage, and we would award it marks only if the agreement was registered.
Now, the reason why we’ve done this is because we’ve seen that from the time the LOI, the term sheet is signed to the time that the lease is registered, sometimes there could be some negotiations. In terms of penalty or corporate guarantee, zero on 0.2. And combined with that, whether it’s a registered agreement to lease or letter of intent, currently it’s still on the letter of intent stage, so therefore zero on 0.5 there.
In terms of the increment , Yeah. Again, we award probably, or we always want that either it has to be a 5% year on year or 15% three year increment. That should be in place that, that’s what we call standard in terms of the market. So here, in this case, we have 15% increment every three years.
And that is why we are awarding 0.5 on 0.5 rent start date this is a sale and leaseback asset where tenant is already occupying the movement the commitment is fulfilled, the documentation is in process. The rent will start. Yes so could you explain sale and lease back?
Yeah, sure. So basically this asset is basically owned by the tech Jan, US based tech, Jan, which is occupying this particular asset. They had bought it from the developer prestige, and now they are actually liquidating the asset and they’re leasing it back for their own consumption. That’s the sale and leaseback transaction description.
Is that a more advantage, or do you see as a positive that it’s a sale and leaseback versus just a simple. No, it is definitely advantages one since Tech, like this has already bought something, so they definitely have done their due diligence back. So that gives us a confirmation that there is no legal hassle to this particular title of the property.
Second when when sale and leaseback. That the tenant has in put in infrastructure as per their own taste and requirement and that basically brings us to a point where they will stay longer. And that’s the reason if we have, if you look at the lockin and the duration, that also in reinforces the decision that it’s a good mechanism to have on board.
So that’s the reason I think we would want to give that 0.25 on 0.25 with the rent start date also and also mention special mention for the sale and lease back going into the deposit here technically since again, it’s a lease sale and lease. The deal structuring doesn’t mention any particular amount in terms of deposit being accounted for.
They do have a contingency fund which is earmarked separately. Again, since the term sheet stage we are not really adding lot of value to it. We have reached out to prop share and they’ll be definitely coming back to us with regards to how they would want to look at this.
But since the deposit has zero, we will be going ahead withzero on 0.25.
In terms of the notice period, it has a six month notice period. And this is ideal because floor plate like. Will need that. You take anything from three to six months in case the current tenant vacates and therefore 0.25 on 0.25 there, that takes our total of knowing your deal to 1.55 on 2.5.
So we now come to know your ROI. Everybody’s obsessed as Indians “Kitna Degi”. So the yield and we take the net average ROI for the first three years. What is net basically currently property share is saying 10% yield, and that’s the gross we have to minus all the outgoings and their management fee. That gets us net.
So this is 8.04% average for the first three years. The reason again, why we are taking the first three year average, because there’s a top up in most cases. So the first year average, first year yield looks very attractive. The second year it drops. So the right way to look at it would be the first three year average, and it is above 8%, which is what we think it should be, and therefore one on one there.
What about the tenant stickiness and capital expenditure? Yes. Tenant stickiness is basically boiling onto the market rent at which the tenant has acquired this premise on, since this was a sale and leases back the rental that has been arrived up to is 96 Rupees which is a very fair market rental.
When we look at the average rental around in this location is somewhere around 90 and hundred rupees. We have seen a lot of leases happening in last two years. Which are at this benchmark pricing. We are a little lesser than the market benchmarking of 98 100. And that’s the reason I think we will go ahead with 0.5 on 0.5 for this particular point.
Now capital expenditure by tenant. Now this is something interesting because when we look at the financial structuring of this particular asset we see that apart from the acquisition cost the asset managing platform is also buying. So as an investor, you’ll be buying all, you’ll be spending a little more for the costing that is involved for doing up the premise.
So basically the capital expenditure, earlier it was done by the tenant, but since we are paying for that that means the expenditure incurred by tenant is being reimbursed. And that’s the reason we are giving zero on 0.5 for this particular. If it’s a sale and lease back, do you think that at some point in time we should add that as a metric, because that means stickiness increase.
Yeah, I think that will be a good thing to look at because we have seen in past a lot of other assets also being done in this manner. And that actually gives us a very strong potential that the tenant will be there for a very longer time . So that’s something that we could include.
Please comment and let us know if you think we should include this. And that takes a tally to know your ROI as 1.5 on 2.
So we now get to know our asset manager better. What about the asset manager’s background and team? Yes. So again Propshare is not a new name into fractional real estate. Rather, we will consider them as one of the pioneers because they started way back in 2015 and they’re responsible for a lot of trendsetting in this particular industry.
Kunal and his team are doing fantastically well in terms of way the, they are laying out the assets and all. , they have a strong background. Kunal himself comes from a amazing background in terms of his, in his own career. He’s been, he was a part of the Blackstone group and also somewhere responsible for the Blackstone REIT being conceptualized back then.
All in all, when we look at the Propshare team and the way they’re managing the show, the kind of background and team that they have, I think we’ll want to go ahead and give them 0.5 on 0.5. They know their stuff, what they’re doing with regards to Raj, I think is the asset manager profitable? Can you throw some light on that?
And also the client dashboard in terms of the tracking of investments and how well they. So currently we’ve asked property share but they’ve not given us a confirmation either way. So we are going to assume that they’re not profitable. So it’s gonna be zero on 0.25 there in terms of the client dashboard to track all the investments.
This is something that we want to draw parallel with the mutual fund industry or the stock market because we hope and believe that the fractional ownership in real estate will also get there. You can see today you pick any site, you’ll be able to go track your investments in one place and we expect the asset managers also to provide that.
And property share has invested in technology to be able to get that. So we give it 0.25 and 0.25 there. In terms of profitable exit given for any asset. Yes, they have exited one particular property profitably and if you need more details, please drop us a line our numbers are on the screen or you could also comment and we are happy to share that report with you.
So 0.25 on 0.25 there. What about total assets under management? Yeah, so there is a very tricky point. When we look at, we always stress and mention about this, that and that’s the reason we are showing the grading also as to what is the AUM that the asset managing company has under end.
There’s always a learning curve. So for example, in this case, Propshare is already managing assets were 980 crores so when we know that is going from zero to 980 crores is been a journey in itself. And they have done we have had done on learning curve in terms of how the assets are to be managed, what kind of assets need to be procured.
So as a asset management company, this is one of the very critical areas and going up to 980 crores is fantastic stuff. So here as we have rated anything about 500 crores plus, we would want to go and give 0.25 on 0.25. So we are giving 0.25 here. What about hurdle rate? So currently the hurdle rate is at 8% and beyond 8% if property share when property share.
Gives you an exit. They’re going to look at the IRR and subtract the hurdle rate and take 20% off the profits. Now what does that mean? Let’s take an example. Let’s assume that you get an IR R of 12%, right? After five years and this is annual that what we are talking about. So because the hurdle rate is eight, let’s say you’ve invested a hundred rupees, you get 12 rupees as your overall.
Returns from the investment. So they’ll take 20% on four rupees. That’s 80 paise. This is a performance fee or a carry, as they call it and we feel this is very critical because. The asset managers will make their profits from this rather than the management fee. And because they will have skin in the game, they will not only ensure that they pick the right product, they will also ensure that they pick the right product at the right price.
And finally, that takes a tally to 1.45 on 2 for know your asset manager. And what is your 25 paise. See, looking at overall in terms of the location overall ORR is fantastic. We know the tenant is doing amazingly well. Looking at the tenant industry overview. We know that we will not go wrong in terms of the growth and the way the industry is shaping up.
Looking at the ROI, looking at the asset manager all in all, it’s a good proposal to be looked locked in for we know the asset managing team, they’re doing fantastically well, and this asset definitely speaks for itself. So I think I would recommend that we should give 0.25 on 0.25 for this as well.
And let’s go ahead with the proposal. Super. So that’s 0.25 on 0.25. And since it’s a sale and leaseback and all the points that Rishi mentioned, we believe that this is something that you should invest in and you can get in touch with us to invest in this property and
The reason why we are doing this in-depth analysis is to help investors take an informed decision. And the reason why you should go through us is because number one we have we are doing an unbiased review like you can see. Second, we’ve got experience of two decades between Rishi and me in commercial real estate space.
We also do a lot of pre-lease fully own deals and we have experience in the pre-lease domain. And finally, for fractional ownership, we don’t charge you any fees. So if you’re looking at investing in this proposal and we have many other proposals as well, then we would request that you get in touch with us.
With that, that takes a total to 7.75 on 10 and just a reminder, please like our video, subscribe to our channel, and if you help us improve our videos by making a comment we are going to be giving out a 500 Rupees voucher to that one comment, which helps us improve our videos. Thank you.
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