ViewCube

November 2022

© 2022 CRISIL Ltd. All rights reserved.

CRISIL Ratings webinar on InvITs and REITs

Twin cylinders of infra

monetisation

1
CRISIL Ratings ViewCube on InvITs and REITs
ViewCube is a compilation of sector views expressed during CRISIL Ratings’ webinars. These include CRISIL
Ratings’ own views, those of stakeholders, and those emanating from a poll conducted during the webinar.

© 2022 CRISIL Ltd. All rights reserved.

Analytical contacts

Manish Gupta Naveen Vaidyanathan Nitin Bansal Akanksha Aggarwal

Senior Director, CRISIL Ratings Director, CRISIL Ratings Associate Director, CRISIL Ratings Manager, CRISIL Ratings

2
Contents

Section 1: Our view 4

Section 2: Their view 24

© 2022 CRISIL Ltd. All rights reserved.

Section 3: Poll view 29

3
 Our view
Section 1
4

© 2022 CRISIL Ltd. All rights reserved.

Key messages
 Asset under management (AUM) of InvITs-REITs* in India could reach ~Rs 5 lakh crore by fiscal 2023

‒ Posted a compound annual growth rate (CAGR) of ~90% over fiscals 2019-2022

 Evolving regulations along with favourable tax structure aiding wider acceptance

 InvITs-REITs provide strong potential to fund infrastructure growth in India

© 2022 CRISIL Ltd. All rights reserved.

‒ The National Monetization Plan has an estimated potential of Rs 6 lakh crore – Rs 18,000 crore achieved through InvIT route so far in the
transmission and road sectors

 InvITs-REITs have witnessed addition of asset classes beyond roads and transmission over the last four years

‒ Roads still account for 50% of the outstanding InvITs-REITs by volume; telecom infrastructure contributes to more than 50% of the total
AUM

‒ Moving from passive to active infrastructure asset classes, which are higher in the risk spectrum

‒ Data centres, hospitals, railways/metros, airports can be potential asset classes for future monetisation

 InvITs maintaining low leverage despite regulatory relaxations

‒ Only 2 of the outstanding 11 InvITs have leverage (debt to AUM) more than 50%

‒ Regulatory requirement of maintaining ‘AAA’ rating may leave limited headroom to increase leverage
*InvITs: Infrastructure investment trusts; REITs: Real estate investment trusts

5
 © 2022 CRISIL Ltd. All rights reserved.
Global presence and evolution in India

6
InvITs and REITs, a win-win for all stakeholders and the macro-economy
Developers Facilitation of easy entry and exit Macro economy
for investors

Unlock capital for future growth Investment in assets without

Free up banking capital, thus promoting
ownership – retail investors
a virtuous cycle of funding
infrastructure development

© 2022 CRISIL Ltd. All rights reserved.

Deleverage balance sheet Low risk investment/ lending
opportunity

Access to low-cost and Pooling of assets leading to risk Development of primary and secondary
long-term capital diversification capital markets

Diversify source of funding Steady long-term return

Enhance liquidity in the market by
mobilising high-quality, long-term debt
Regular source of capital (for instance, ‘AAA’-rated)
Investors/Lenders

Enhanced governance and transparency

along with a tax-friendly structure

7
Globally accepted investment vehicle with a long track record
InvIT/ REIT structure varies across countries because of differences in governance, legislation and demographics

United
US Singapore Japan Hong Kong India
Kingdom

© 2022 CRISIL Ltd. All rights reserved.

Year of introduction 1960 2001 2001 2003 2007 2014
Number of active InvITs/REITs 234* 50 65 12 65 16
Commercial
Commercial offices, retail realty, industrial realty, healthcare, hotels, renewable
realty, road,
energy, telecommunication, transmission assets, natural gas, energy distribution and
Sectoral presence power
network, passive fibre network, power utility, residential broadband, telecom service
transmission,
and infrastructure, railways
telecom tower

Market capitalisation
1293 72 112 21 56 17
($ billion)
Market cap/GDP (%) 5.6% 18.1% 2.3% 5.7% 1.8% 0.5%
Source: S&P CapIQ as of October 2022
*only publicly traded REITs

8
Evolution of InvITs and REITs in India
AUM has seen a CAGR of 90% over fiscals 2019-2022
AUMs (Rs ‘000 crore) InvITs REITs 92
81

© 2022 CRISIL Ltd. All rights reserved.

351
305
33
32 77
0 13 31
FY15 FY18 FY19 FY20 FY21
FY22
Most trusts going for the private listed route
• InvITs and REITs have slowly and surely emerged as key partners in
16% India’s infrastructure growth story
Private listed
• Most of the InvITs are being floated as private listed trusts, which
53% Public listed provides them all the benefits of a public InvIT with lower compliance
31% requirements and regulatory overview
Private unlisted
• The growing popularity can be attributed to supportive regulations
and
investor interest
9
Regulatory changes have aided growth
• SEBI notified InvITs and REITs
Regulation
• Leverage limit for publicly listed InvITs increased • Trading lot size reduced to 1 unit to encourage retail
from 49% to 70%^ participation
• Inclusion of privately placed, unlisted InvITs • FPIs and insurance companies allowed to invest in
• Reduction in minimum subscription requirement debt securities

FY 2015 2017 & 2018 2020 2021 2022 2023 YTD

© 2022 CRISIL Ltd. All rights reserved.

• Induction of new sponsor
• Minimum sponsor holding reduced to 15%
• Declassification of sponsor • InvITs allowed to issue commercial papers
• Listed REITs and InvITs allowed to raise debt securities
• Unit holding by investors can be • Investment limit for insurance
• Compulsory revenue contribution from rent reduced to
increased over 25%, with approval from companies relaxed
51% for REITs
75% of remaining unitholders**

Regulations in line with developing countries

Max leverage (% of asset value) Min distribution (% of NDCF)
India 49-70% 90%
^Provided ‘AAA’ rating is
US No limit 90%
maintained and the InvIT
Japan No limit 90%
has a track record of at least
Singapore 50% 90%
six continuous distributions,
UK No limit 90%
post listing
Finland 80% 90%
Belgium 65% 80% **if the required approval is
Malaysia 50% 90% not received, the person
South Africa 60% 75% acquiring the units shall
Thailand 50% 90% provide an exit option to the
Australia No Limit NA dissenting unitholders
SEBI: Securities and Exchange Board of India
FPI: Foreign Portfolio Investor

10
New asset classes have joined the InvIT-REIT bandwagon
Renewables, telecom infrastructure are new asset classes
Inner circle represents number of trusts
Outer circle represents share of AUM

13% 16% Roads

1 2
Transmission
39% 1 7%

© 2022 CRISIL Ltd. All rights reserved.

1 46% 7 Renewable
1 FY18 1 FY20 FY22
4 52% 3
30% Real estate
61%
1 21%
1 Pipeline
2
3% Telecom
11%

• Initially, more passive asset classes with stable cash flows such as power transmission and toll roads were deemed amenable to the InvIT platform
• Gradually, more classes such as pipelines, telecom infrastructure and renewables have come into the fray
• Roads have emerged as the most popular asset class driven by:
‒ Long operational track record of assets
‒ Ready availability of assets with healthy pace of infrastructure creation
‒ Predictability of cash flows with costs linked to inflation
‒ Strong counterparty for HAM projects– National Highways Authority of India

11
 © 2022 CRISIL Ltd. All rights reserved.
Growth potential over the medium term

12
InvITs and REITs can be partners in India’s infrastructure growth
Expected infrastructure funding requirement Attractive routes for infrastructure financing

FY20 - FY25P Existing asset

Rs 111 lakh crore
Roads New asset classes
classes

Energy
Toll/ annuity roads HAM* roads

© 2022 CRISIL Ltd. All rights reserved.

19.0 20.0
2.0 Railways
7.0 10.0
Power transmission Data centres
3.0
Irrigation
9.0 FY13 – FY19 Commercial real estate Hospitals
Rs 57 lakh
19.0 crore Urban infrastructure
18.0 27.0
5.0 Gas pipeline Hotels
6.0 Digital
communication Telecom infrastructure –
9.0 Railways/ metros
14.0 optic fibre and towers
Other infrastructure

P: Projection Renewable Airports

Source: NIP, Union Budget 2020
*HAM: Hybrid annuity model

13
Strong monetisable base available across infrastructure asset classes
Analysis of current asset valuations Opportunities present across asset classes

Valuation 13% 10%

Annual
Operational methodology Toll/HAM roads
revenue
capacities and other
and profits

© 2022 CRISIL Ltd. All rights reserved.

variables Transmission
15%
15% Telecom towers

Optic fiber

8% Renewable
 Discounted cash flow (DCF) method and current market multiple
used to arrive at the potential of each asset class Pipeline

 Current valuation of existing asset classes estimated at 9% Commercial RE

Rs 18-22 lakh crore 30%

 Monetisation of part of these assets could happen through the

InvIT-REIT mode over the medium term

EV: Enterprise Value (=AUM)

14
InvITs and REITs, partners in the National Monetisation Plan
Sector-wise monetisation plan Phasing of the planned monetisation
1.8
1.7
Roads 1.6 1.6

Railways 1.52
0.88

© 2022 CRISIL Ltd. All rights reserved.

Power transmission 0.45

Power generation 0.4

Total 2022 2023 2024 2025

Gas Telecom
pipeline
0.25
monetisation
(in Rs lakh crore)
plan of Rs 6
0.35
lakh crore for
govt assets
Warehousing

0.29 • As per reports, the government has sold assets worth Rs

96,000 crore in fiscal 2022, surpassing its target
Mining 0.29
• Of this, Rs 18,000 crore was routed through the InvIT mode
Aviation (in Rs lakh crore)

0.2

Ports 0.13 15

Stadiums
0.11

Urban real estate

0.15

Others 0.26
But pace of adoption by developers depends on multiple factors
Why developers may choose this route Why developers may not choose this route

• Will allow them to deleverage • Promoters could lose managerial control

© 2022 CRISIL Ltd. All rights reserved.

of assets
• Will give access to long-term institutional
investors, who may not want to take exposure • Valuations may be more favourable under the
to project risk PE/public listing route

• Will lead to a more efficient tax structure • Regulatory restrictions on leverage/rating and
high surveillance
• Helps accelerate growth and allows focus on
infrastructure creation rather than • Risk profile of underlying asset classes may
maintenance be
high

16
Strong pipeline of assets moving into InvITs/REITs
Healthy growth expected to continue

AUM (Rs ’000 crore)

© 2022 CRISIL Ltd. All rights reserved.

483
443
386

111
62
0 13
FY15 FY18 FY19 FY20 FY21 FY22 FY23 Est

• ~Rs 40,000 crore of InvITs have already been announced and expected to operationalise over the coming months

• Growth momentum is expected to continue over the medium term, supported by monetisation of existing asset classes and new
asset classes moving into InvIT-REITs

17
 Credit profile of InvITs and REITs
18

© 2022 CRISIL Ltd. All rights reserved.

Most InvITs and REITs in India are rated AAA today
Name Industry Sponsor Rating**
IRB InvIT Fund Roads IRB -
India Grid Trust Transmission KKR, Sterlite CRISIL AAA
Embassy Office Parks REIT Real estate Embassy CRISIL AAA
Indinfravit Trust Roads L&T Infra CRISIL AAA
India Infrastructure Trust Pipeline Brookefield CRISIL AAA
Data Infrastructure Trust Telecom towers Jio/Reliance -^
Digital Fibre Infrastructure Trust Fiber Jio/Reliance -^

© 2022 CRISIL Ltd. All rights reserved.

Oriental Infratrust Roads Oriental CRISIL AAA
IRB Infrastructure Trust Roads IRB -
Mindspace Business Parks REIT Real estate K Raheja group, Blackstone CRISIL AAA
Indian Highway Concessions Trust Roads Maple Highways, CDPQ -
Brookefield India Real Estate Trust Real estate Brookefield CCR AAA
National Highways Infra Trust Roads NHAI -
Powergrid Infrastructure Investment Trust Transmission PGCIL CRISIL AAA
Shrem InvIT Roads Shrem Infra -
Virescent Renewable Energy Trust Renewable KKR CRISIL AAA
Highways Infrastructure Trust Roads Galaxy (KKR) CRISIL AAA
Anzen India Energy Yield Plus Trust Transmission Sekura Provisional CRISIL AAA
Cube Highways Trust Roads Cube Provisional CCR AAA
Bharat Highways InvIT Roads GR Infra -
Roadstar Infra Investment Trust Roads IL&FS -
SchoolHouse InvIT Schools Cerestra -
^Underlying assets are rated ‘CRISIL AAA’
**CRISIL Ratings has rated bank loans or debt instruments of InvITs/REITs. The rating does not comment on the potential returns to
unitholders.

19
Long tenure of debt with increasing bank loans in the debt
mix
While the average maturity has been constant at ~9 years… …The share of bank loans has increased
FY20 FY22
Trust A 5
7

10 49% NCDs
Trust B 58%
10

© 2022 CRISIL Ltd. All rights reserved.

10
Trust C Bank Loans
10

10 51%
Trust D
10 42%

Trust E 6
6
FY20 FY22

• An analysis of the debt profile of the five largest InvITs/REITs shows that the proportion of bank loans in the debt mix has increased with the Reserve
Bank of India allowing commercial banks to lend to these trusts
• Still, the average debt maturity is long at ~9 years
• While the trusts face refinancing and interest rate risks, these are mitigated by:
‒ Long remaining life of the assets leading to healthy project life cycle ratio (PLCR) and ample refinancing opportunities
‒ Healthy cushion in the DSCR

20
Low leverage and diversified asset portfolio improve credit profile
100% Fiscal 2020/21 100% Fiscal 2022
90% 90%
Typical debt/AUM of a
80% standalone infrastructure asset 80%

70% 70%

60% 60%
Debt/AUM

Debt/AUM

© 2022 CRISIL Ltd. All rights reserved.

50% 50%
Adequate cushion

Adequate cushion
40% 40%

30% 30%
in DSCR

in DSCR
available

available
20% 20%

10% 10%

0% 0%
0.5 1 1.5 2 3 0.5 1 1.5 2 3
2.5 Note: Size of bubble indicates number of assets held 2.5
DSCR (Times) DSCR (Times)
• Though InvITs have been allowed to increase net debt to 70% of their asset value, most are still well below the threshold
• These five trusts have completed six distributions and are eligible to raise the leverage
• The mandatory ‘AAA’ credit rating stipulated for a 70:30 debt-to-equity ratio provides an automatic cap to the leverage
• As the InvIT spectrum widens, the risk profile of the underlying asset classes has increased, necessitating lower leverage

21
Credit profiles of InvITs-REITs vary across the risk spectrum
Varied degree of Earnings Counterparty Operating Regulatory Interest rate
risks → risk risk risk risk risk
Power
transmission*

HAM roads^

© 2022 CRISIL Ltd. All rights reserved.

Gas pipeline

Toll roads

Renewable energy

Telecom Infra

Commercial real
estate

The above table represents the risk of these asset classes relative to each other. More ‘active’ asset classes such
as education centres, hospitals, hotels would have higher relative risks
^NHAI assets
*Interstate transmission system assets High risk Low risk

Moderate risk

22
Key takeaways

With evolving regulations, the CAGR was over 90% during fiscals 2019-22; growth momentum expected
to continue with AUM reaching Rs 5 lakh crore by the end of the current fiscal

© 2022 CRISIL Ltd. All rights reserved.

Healthy potential across infra-asset classes with an estimated asset base of Rs 18-22 lakh crore over
the medium term

So far, the credit risk profile remains healthy on account of low leverage resulting in healthy DSCR across
asset classes. Leverage has remained low despite regulatory relaxation, probably due to the mandate of
a ‘AAA’ rating

Beside traditional infrastructure classes, newer assets such as data centres, hospitals, airports,
railways could also provide growth opportunities. As the assets classes move from passive to active,
the underlying risk spectrum would widen.

23
 Their view
Section 2
24

© 2022 CRISIL Ltd. All rights reserved.

Excerpts from a panel discussion held during the webinar (1/4)
Eminent panelists The journey so far and growth possibilities
• InvITs have shown resilience against volatility including against the
Subahoo Chordia
pandemic and economic slowdown
Head - Infrastructure Yield Strategy
Edelweiss Financial Services • Regulators done a good job in forming frameworks considering the
nascent stage of these platforms in India
d
e
rv
Ami Momaya • Gradually, the investor base has widened and more long-term e
s
e
r
Director investors have been allowed in these vehicles s
t
ig
KKR & Co. h
r
ll
• As the market matures and evolves, more relaxation in regulations A
.d
t
L
L
can be expected along with increasing investor participation IS
I
R
C2
Harsh Shah • Effort is needed to educate investors on these platforms and the risk
2
0
2
CEO & Whole-Time Director ©
profile – so that they understand risk adjusted returns and can
India Grid Trust
evaluate the risks and returns of investments in InvITs of different
asset classes
Pushkar Kulkarni
Managing Director, Infrastructure &
Sustainable Energies
CPPIB India Advisors Private
Limited

25
Excerpts from a panel discussion held during the webinar (2/4)
Amenability of various asset classes to InvITs Private versus public listed InvITs
• Any cash flow generating structure with long term predictability can
Private InvITs have more flexibility in taking up under-construction
assets and can be floated with lower number of investors
•
• investors like to
be amenable to build a balanced portfolio of investments – some
this structure • Some businesses may have inherent project risks or plans of building
want to invest in classes such as transmission which have annuity like projects that are amenable to private routes
cash flows while others may wish to invest in roads which give a rv
d
e
• SEBI has enables both kinds of business platforms to allow more e
hedge against inflation and interest rates s
e
r
capital to come in s
t
ig
• While the asset base in renewables is significant and the class is h
r
ll
• Public requires more disclosures – limited business with a longer track
A
.d
amenable to InvITs, there has not been a lot of traction through this t
L
L
IS
record in relatively safer asset classes may opt for this I
route so far. Some reasons may be: R
C2
2
• Eventually as business grow and the markets becomes deeper, we 0
2
‒ Most developers have a sizeable project pipeline – as InvITs have ©
may see private InvITs converting to public
restrictions on allowing under-construction asset, these may not
be amenable • As market evolves, both types of InvITs should flourish well
‒ Ample capital is available for developers should they wish to raise
equity for their under-construction projects
‒ Higher valuation may be available to developers through PE and
other equity raising routes

26
Excerpts from a panel discussion held during the webinar (3/4)
On de-linking of sponsor from InvITs On innovations to propel InvITs and REITs
• In some foreign markets, there is no concept of sponsor. India may • Promote retail investor participation through:
also go down this route a few years down the line
‒ Enablement – Further reduce the lot size to bring it within the
• Already, there are many financial investor owned InvITs now along reach of retail investors
with the traditional developer owned models
• ‒ Education – increase awareness and knowledge base regarding
Next 5-10 years new InvITs would continue to be started with rv
d
e
InvITs and REITs and the businesses of the underlying asset class e
developers as there is a critical mass of assets that developers need s
e
r
to reassure investors s
t
to monetize ig
h
r
ll
• Eventually, the market may migrate into variety of investors and • Deepen the debt market
A
.d
t
L
L
IS
platforms I
‒ Enable long-term capital providers such as offshore bond market, R
C2
• The larger InvITs will continue to growth without having a ROFO on pension funds, and insurance companies to participate
2
0
2
©
developer assets – they will continue to participate in bids whether for
private assets or public ‒ While insurance companies can subscribe to units of InvITs and
REITs, they are not allowed to invest in their debt instruments.
• The InvITs right now are handful but their asset size is large – this
Allowing this would boost participation
trend is expected to continue where smaller number of InvITs
command a large asset size • Promote sponsor/investor confidence through a stable tax regime
• Larger asset size has an advantage in terms of cost, liquidity and
competitiveness

27
Excerpts from a panel discussion held during the webinar (4/4)
On leverage cap for REITs
• While the debt cap is 49%, it is prudent for REITs to stay in the 25-
30% bracket at most times to maintain a good balance

• REITs have to distribute 90% of the net distributable cash flows. This
means they need to raise debt prudently, in addition to equity, when
going for growth. In case the debt cap is increased, it would help rv
d
e
e
lower the cost of debt and ensure greater flexibility s
e
r
s
t
ig
• Banks are still not allowed to lend to REITs – this may be due to real h
r
ll
A
.d
estate as a sector being classified as “unsafe” for bank lending t
L
L
IS
I
R
C2
2
0
2
©

2
8
 Poll view
Section 3
29

© 2022 CRISIL Ltd. All rights reserved.

Results of a survey conducted during the webinar* (1/2)
Q1. As a retail investor, what would be Q2. What can be the most impactful Q3. Which asset class has most
your return expectations while measure in increasing retail investor potential in AUM terms for using the
investing in units of InvITs-REITs? participation in InvITs-REITs? InvIT/REIT platform over the next 5
years?

6%
18% 17%

© 2022 CRISIL Ltd. All rights reserved.

35%
40%
49% 10%

4%
54% 33%

33%

Greater awareness about the InvITs-REITs

Roads Renewables
Upto 8% 8-11% More than 11%
Longer track record of performance Telecom Pipelines
Transmission Real Estate
Further reduction in minimum subscription
amount or lot size
*Attended by over 500 participants

30
Results of a survey conducted during the webinar* (2/2)
Q4. Which newer asset class can be Q5. Where do you see the AUM (asset Q6. As a lender, what can be the most
best suited for InvITs-REITs in the near under management) of InvITs-REITs prominent risk while investing in
to medium term? over next 12-18 months? InvITs-REITs?

10%
20%

© 2022 CRISIL Ltd. All rights reserved.

29%
35%
42%
47%

39%
38%
36%

HAM roads Data centers Less than 5 lakh cr Lack of adequate disclosures

Hotels Hospitals Rs5-6 lakh cr Limited understanding of InvITs-REITs

More than Rs 6
Limited track record to form a view
lakh cr

*Attended by over 500 participants

31
Thank you

© 2022 CRISIL Ltd. All rights reserved.

CRISIL Ratings desk
Toll free: 1800 22 1301
Email: crisilratingdesk@crisil.com

32
About CRISIL Ratings Limited (A subsidiary of CRISIL Limited)
CRISIL Ratings pioneered the concept of credit rating in India in 1987. With a tradition of independence, analytical rigour and innovation, we set the standards in the credit rating business.
We rate the entire range of debt instruments, such as, bank loans, certificates of deposit, commercial paper, non-convertible / convertible / partially convertible bonds and debentures,
perpetual bonds, bank hybrid capital instruments, asset-backed and mortgage-backed securities, partial guarantees and other structured debt instruments. We have rated over 33,000
large and mid-scale corporates and financial institutions. We have also instituted several innovations in India in the rating business, including rating municipal bonds, partially guaranteed
instruments and infrastructure investment trusts (InvITs).
CRISIL Ratings Limited ("CRISIL Ratings") is a wholly-owned subsidiary of CRISIL Limited ("CRISIL"). CRISIL Ratings Limited is registered in India as a credit rating agency with the
Securities and Exchange Board of India ("SEBI").

© 2022 CRISIL Ltd. All rights reserved.

For more information, visit www.crisilratings.com

About CRISIL Limited

CRISIL is a leading, agile and innovative global analytics company driven by its mission of making markets function better.
It is India's foremost provider of ratings, data, research, analytics and solutions with a strong track record of growth, culture of innovation, and global footprint.
It has delivered independent opinions, actionable insights, and efficient solutions to over 100,000 customers through businesses that operate from India, the US, the UK, Argentina, Poland,
China, Hong Kong, UAE and Singapore.
It is majority owned by S&P Global Inc, a leading provider of transparent and independent ratings, benchmarks, analytics and data to the capital and commodity markets worldwide.
For more information, visit www.crisil.com
Connect with us: LINKEDIN | TWITTER | YOUTUBE | FACEBOOK | INSTAGRAM

CRISIL Privacy Notice

CRISIL respects your privacy. We may use your personal information, such as your name, location, contact number and email id to fulfil your request, service your account and to provide
you with additional information from CRISIL. For further information on CRISIL’s privacy policy please visit www.crisil.com/privacy.

33