The Phoenix Mills Limited (503100) Earnings Call Transcript & Summary

Ladies and gentlemen, you are connected to the Phoenix Mills conference call. [Operator Instructions] Ladies and gentlemen, good day, and welcome to the Q4 and FY '21 results conference call of the Phoenix Mills Limited. [Operator Instructions] Management of the company is being represented by Mr. Shishir Shrivastava, Managing Director; Mr. Varun Parwal, Deputy CFO; and [ Mr. Pawan Kamani ], Deputy CFO. [Operator Instructions] Please note this conference call is being recorded. At this time, I would like to hand over the conference to Mr. Shrivastava. Thank you, and over to you, sir.

Thank you. A very good afternoon, ladies and gentlemen. And I hope that you are all keeping well and staying safe. We take pleasure in welcoming you all to discuss the operating and financial performance of the fourth quarter and the full year of FY '21. We'll first talk about retail. Consumption swiftly recovered from Q3 FY '21 onwards on account of increase in mall operational hours across cities, resumption of F&B and the festive season. Consumption across the retail portfolio was up 5% quarter-on-quarter to INR 14.4 billion in Q4 '21. Our gross consumption reached approximately 100% of last year's corresponding quarter. Excluding the contribution of Phoenix Palassio, which was launched in July 2020, consumption recovery in Q4 was 90% on a like-to-like basis in Q4 '21 versus Q4 '20. Consumption across all malls stood at INR 33.3 billion in FY '21 and was at 69% approximate of FY '20 on a like-to-like basis. In line with consumption, retail collections continued to witness sharp improvements. Collections further improved 42% quarter-on-quarter to INR 3.7 billion in Q4 FY '21, taking the total collection to INR 7.6 billion in FY '21. Similar recovery trends were also seen in footfalls and 4-wheeler traffic at our malls, where footfall and 4 wheelers across all malls were at 83% and 93%, respectively, of last year's level in Q4 FY '21. The commercial office business. For FY '21, commercial office revenues were at 98% of last year at INR 1,115 million. Our commercial office portfolio continues to remain resilient. Collection efficiency for commercial portfolio was in excess of 90%. Fountainhead Tower II with leasable area of 250,000 square feet approximately is expected to start contributing to the revenue from July '21. Fountainhead Tower I in Pune has a leased occupancy of approximately 95% and is fully operational. Work at Fountainhead Tower III in Pune is on course and nearing completion. Art Guild House in Mumbai has a leased occupancy of 76% as of March 2021. Talk about our residential business. We have witnessed strong traction in residential sales, mainly led by the reconfiguration of our Kessaku property into smaller units and the robust demand for ready to move in inventory. We sold and registered agreements for inventory worth INR 630 million during Q4 FY '21 and INR 1,725 million during FY '21. We also recorded additional sales of INR 325 million during FY '21 for which registration is yet to be completed, which will take our cumulative sales figure to INR 2,050 million during FY '21. To talk about our hotels. Our hotels had started witnessing early signs of recovery, led by social events, staycations. However, we expect operating performance to remain subdued in the near term due to lockdowns. We continue to report a positive EBITDA at our property level, led by our steps to bring in cost efficiencies. We have also taken up certain projects to overall food and beverage offering and the banquet services at the St Regis in Mumbai, which we should be able to capitalize on post COVID recovery. Our confidence is high that social events in the second half of this year will lead -- will contribute significantly to the recovery. Besides the operational update, I'm also pleased to announce the action of our partnership with CPP Investments. We are partnering with CPP for development of a retail-led mixed-use project on the recently acquired land parcel in Alipore, Kolkata. Just to recap, our subsidiary Mindstone Mall Developers, a 100% subsidiary of Phoenix Mills Limited had acquired this 7.48 acre land parcel in February 2021. Mindstone intends to develop a retail development of approximately 1 million square feet chargeable area on this land parcel in the first phase. As you may have read in our joint press release, CPP Investments has committed to invest up to INR 5,600 million in Mindstone. In tranche 1, CPP will bring in INR 1,800 million for an initial stake of 31.03% on the first closing on a fully diluted basis. Upon receipt of construction approvals, CPPIB will further bring in INR 2,040 million, taking its aggregate stake in Mindstone Mall Developers to 49% on a fully diluted basis. We are taking a conservative approach for now on leveraging in this development project. And both CPP and PML are committed to additional equity infusion to fund the construction phase as well. Like in our earlier alliance with CPP, MarketCity Resources, a 100% subsidiary, will see several fee streams from Mindstone, such as property management, leasing fees and development management fees. Phoenix Mills Limited and CPP Investments are also extending their commitment to the existing joint venture at Bangalore. We have agreed to invest collectively up to INR 8 billion in this -- in our joint venture entity, Island Star Mall Developers, in tranches as required in the ratio of our respective shareholding. The idea is to reduce dependency on construction finance availability in the under-development projects. The alliance was formed in 2017 to develop, own and operate retail-led mixed-use developments across India, where Phoenix MarketCity and Whitefield Bangalore served as the seed asset for the alliance. In addition to owning and operating Phoenix MarketCity, Island Star Mall Developers owns and is currently developing under subsidiaries, 3 retail- led mixed-use projects at Wakad in Pune, Hebbal in Bangalore and at Indore. A quick update on our previously announced transaction with the government of Singapore, that is GIC. We are in the final stages of due diligence completion and negotiations. And we hope to -- we expect to announce the closure sometime in this quarter. I will now request our Deputy CFO, Mr. Varun Parwal, to update you on the financial performance of the company. Thank you.

Thank you, Shishir. Good afternoon, ladies and gentlemen. Thank you for joining us on this call. Continuing with the briefing which Shishir gave, I would like to share with you some of the key highlights of our consolidated financial performance. Our income from operations for FY '21 stood at INR 10,733 million. This regards 55% of FY '20. FY '21 EBITDA was at INR 4,942 million, which was at 51% of FY '20, and we reported a profit after tax of INR 526 million. Income from operations for quarter 4 FY '21 was INR 3,858 million. This was at 97% of quarter 4 FY '20. Our EBITDA for Q4 FY '21 stood at INR 1,734 million, which is at 85% of quarter 4 FY '20. For the quarter, we reported a profit after tax of INR 655 million. Now moving on to our operational performance of our various business streams. Our retail rental income for the full year came in at INR 5,632 million. This number is at 55% of FY '20 numbers. And earlier last year in June, we had guided. Our initial guidance was for rentals to be at 45% to 50% of FY '20 levels. We are very pleased to have ended the year at a number higher than our initial estimates. Our FY '21 retail EBITDA was at about INR 5,231 million. This was at 54% of FY '20. Now coming to a quick update on our cash flows. Our inflows net of GST for the year was at about INR 1,400 crores. Retail contributed to about 7,000 -- INR 7,700 million in FY '21. Commercial was at about INR 1,400 million. Residential cash flows were at about INR 1,370 million, while hotels were at approximately INR 650 million. We had a significant amount in terms of IT returns during the year, which was at about 850 million for the full year. And we also had earlier announced a receipt for the settlement from [ Colonies ], which was about INR 390 million. Our operational expenses for the year were at about INR 7,860 million, and our interest expense was at about INR 3,050 million for the full year. Overall, we had an operational free cash flow of approximately INR 3,000 million for FY '21. This is before CapEx and principal repayment. For FY '21, our CapEx for the year was INR 3,460 million. And in quarter 4, this number was at about INR 1,073 million. We have also completed principal repayments of INR 3,530 million during FY '21. As you would have seen in our presentation, our consolidated debt was at approximately INR 45 billion as on 31st March, and there was a very modest increase compared to where we were at the end of quarter 3 FY '21. Adjusted for the net share of debt and the cash that we have on books at a stand-alone entity level, we are net debt positive. And at a consolidated level, our net debt stands at about INR 27,000 million. We have been working diligently to reduce our cost of borrowing. For the full year FY '21, our average cost of borrowing is down 102 basis points. And during quarter 4, our cost of borrowing came down by a further 29 basis points. We ended quarter 4 at a rate of 8.17%. And we expect this number to continue trending down as we have a few more refinances that we are working on during quarter 1 and quarter 2. With this, I would like to close our opening remarks and open the call for the Q&A session. Thank you.

[Operator Instructions] The first question is from the line of Kunal Lakhan from CLSA.

Just wanted to understand what was the utilization of the infusion of INR 384 crore in Kolkata MarketCity? Because I'm trying to understand the land is paid for and the construction would largely be funded by debt. So like do you plan to acquire new projects into SPV or not? I just want to understand the utilization.

No, thank you for your question. So we have paid approximately INR 310 crore or thereabouts plus stamp duty for the land acquisition. The way we have structured this transaction is that Phoenix Mills Limited will receive about INR 150 crores back from this SPV once the infusion comes in from CPP. The balanced funds will be utilized towards construction. As I mentioned, we are keen to fund a significant part of construction through our equity infusion itself and not be highly dependent on construction finance. And if we choose to go -- to draw down construction finance, it will only be towards the later part of the -- later stage of construction at this asset.

Okay. Sure. Just also wanted to understand why put this separately? Because essentially, like after the fund infusion in both the earlier CPPIB, JV, the Island Star JV and the Kolkata JV, essentially, the stakes would be very similar. So why not put Kolkata under the same Island Star JV?

Well, Phoenix acquired Kolkata under another SPV, and we've decided to -- and CPP has come and invested in that entity directly. It doesn't -- it's not quite efficient to create multiple layers by moving this particular SPV under Island Star and fund Island Star. So we've -- there is no change in the commercial terms nor in the management of this JV as opposed to the ISMS JV. There is not any material difference there.

Okay. Sure. And secondly, Shishir, like, we have liquidity of about INR 1,000-odd crores currently and then this INR 800 crore infusion in Island Star and this -- again, another infusion in Kolkata SPV. And then the GIC platform would add anywhere between INR 1,000 crores to INR 2,000-odd crores. A few years back, we had the target of doubling our retail footprint. But with this kind of liquidity, what is our vision or, say, the target for the next 5 to 7 years?

We stay focused on what we have stated as our objective. We had stated that by FY '23, '24, we will be at-- we will have an operational retail GLA of about 12 million square feet and commercial office GLA of about 6-odd-million square feet. So we are well on track to achieve that. We had also stated that beyond FY '24, we want to continue to deliver 1 million square feet of retail GLA every year. So Kolkata forms the first million that will probably become operational in FY '25 or thereabouts. So we are well on track to deliver our stated goal, and this liquidity is only firepower to achieve that. And also to ensure that our projects under development continue to stay funded and on track.

But wouldn't our existing projects that we have acquired so far, including the Kolkata projects, will get us to these numbers? So I'm just trying to understand this liquidity. I mean, essentially, it is not -- all of it will not go towards like funding the construction cost, considering like cost of equity is a lot more expensive than the cost of borrowing here. So I'm just trying to understand like where will be able this -- I'm assuming bulk of this equity infusion should ideally go towards new project acquisitions?

You're absolutely right. We have a fairly sizable project at Lower Parel, which we have discussed in the past with investors as well, which is called Phoenix Rise. And this gives us the firepower to undertake that development and proceed with paying the premiums and getting the plans approved. So the money is already -- the liquidity that we have at Phoenix at the consolidated level as well is already earmarked for growth capital, as growth capital. And some of it, of course, is going to be deployed towards ongoing projects as well.

Sure. And last one from my side. Just can you update on the rent negotiations that you are currently doing with the retailers anticipating like, there'll be some easing from 1st of June onwards in some states at least.

So, like we did last year, we have taken the decision not to -- at a stage when the mall is not operating and stores are not operating, it's not the correct time for us to engage with retailers in a negotiation when there's uncertainty. I think we will follow the same approach as we did last year when there is visibility of each mall opening up, that's the point in time when the stores start commence trading. That is the time to get into a commercial negotiation and arrive at an understanding. This time around, of course, things are -- while I would say that the impact of the second wave has been huge, the circumstances are different. I think there is a high level of confidence with consumption bouncing back and us having seen that already in the last quarter of FY '21. So I think retailers and ourselves are more confident about the bounce back, and we'll be able to arrive at a mutually acceptable commercial negotiation.

Sure. And lastly, just a data point. What will be a monthly cash burn currently?

Across entities.

Consolidated level.

Kunal, we're in the site. I think at this point in time, given the strong cash flows that we had from our retail in quarter 4, we were actually net cash positive.

That's end of March, right? I mean, I'm asking that in terms of April and May, like what would be our cash burn currently?

It's roughly around -- if we just look at each asset, it would be somewhere between 2 to 2.5 per mall per month would be the operating expense outflow. And just to further expand on that, it's about 25% to 30% of normal operating expense during operations.

[Operator Instructions] The next question is from the line of Puneet from HSBC.

Yes. My first question is, if you can help me understand this Kolkata deal a little better. So you invested INR 310 crores initially. And then CPPIB enters into partnership. They commit to invest INR 560 crores. What is this INR 384 crores? Is it the first level investment or how should we think of this number?

So yes, it's -- I will break this INR 560 crores into 3 parts. INR 180 crores is what comes in tranche 1. Tranche 2 will roughly be about INR 204 crores, which will come in. This is going to be -- so tranche 2 comes in upon receipt of all approvals, et cetera. And so total of INR 384 crores. This will take them up to a 49% stake. And subsequent to that, as and when we -- if -- in the event, we need further funding for construction, then that's the point in time when they will bring in the balance, taking it up to a INR 560 crores number.

Okay. Got it. So for the 49% stake, they're paying INR 384 crores. That's the way to read this?

That's correct.

Okay. Okay. Got it. And what would be the expected cost for completion?

Total cost -- total estimated cost is about INR 926 crores, which includes land, FSI, premium, construction approval cost, construction cost itself, management -- construction management, site operating, everything. Cumulatively, will be about INR 925 crores, INR 930 crores.

Okay. Okay. Secondly, can you also talk a bit about how did your Lucknow mall do in the last 2 quarters? What kind of traction are you seeing and where are we on the entire leasing cycle there?

So Lucknow has, in fact, done some -- has really performed extremely well. As you are aware, it became operational only in July of 2020. I would say that the quarters of Jan, Feb, March have been fantastic. We've seen about roughly around INR 135 crore of consumption in Q4 of FY '21. And trading density inching closer to INR 1,000 a square foot, which is -- as you may be aware, in the same period, our other operating malls, which are much older, mature assets, they were in the range of about INR 1,400 of trading density. So it's fast catching up. Trading occupancy is -- in Q4 stood at about 75%, and that, of course, has improved since then. And yes, so we have about 189 brands that are operational, another 25-odd at various stages of fit-out. It's performed extremely well.

Okay. So is it fair to say that 25% of the area is still to be leased out at this point of time?

No. I said trading occupancy is at 75%, which means that these are the number of stores that are operational. We would be at a leased occupancy of, I would say, close to about 80% now.

Okay. Okay. That's it. My third question is on the -- some sale of assets from the stand-alone to the JVs for some INR 24 crores. Is that all that you paid for the office? Or are there -- is there any more numbers that you need to pay?

Can you repeat the question, Puneet?

The stand-alone entity used to own some units in AGH and Centrium. Those were sold to the subsidiaries for INR 24 crores. Is that the entire amount that's been paid there?

So Phoenix, if I understand your question correctly, and I apologize because the line is not very clear. Is your question pertaining to the commercial office units that PML owned, which we have transferred back to office development?

Correct. Correct.

Sorry. Can you just repeat what was your question on the commercial? I didn't quite hear that, Puneet.

Yes. So I think the notes to account, mentioned some 20 -- sorry, INR 247 crores being from sale of assets. If you can give some more light there, what all is included? And will you need to -- or will the subsidiaries need to pay more for that?

Correct. So it's about 200 and -- no, the subsidiary doesn't need to pay anything more than that. The total value of transfer of units in Kurla alone was about INR 227 crores plus INR 115 crores. Yes, about INR 341 crores. INR 341 crores or thereabouts is the total value at which these units have been transferred back to the SPV.

Okay. And INR 247 crores is the profit recognized on this?

Sorry, may I just clarify? It was my error. It's roughly about INR 310 crore, INR 195 crores plus INR 115 crores.

Okay. And to 274 -- sorry, INR 247 crores INR is just the profit, which is being recognized on that?

Profit being recognized on this will roughly be about 80 -- INR 85 crores. I'm not too sure what is this number that you are referring to.

It's your notes to account point #5 for stand-alone financials.

Just give me one moment, and we'll give you the breakup.

Sure.

I have requested Parwal to give the detailed breakup on this.

Puneet, Parwal here. Hello, Puneet, this transaction was carried out in the third quarter where units which were owned by PML in our Kurla office property Centrium [indiscernible] was sold to the SPV DPL. The total consideration that the SPV paid was in the tune of INR 310 crores to INR 330 crores and the profits, which were recorded on that was the INR 247 crores that we are looking at. But from an income tax perspective, the taxation is not INR 247 crores because, of course, these were all legacy units, and there is an indexation, which will be available to us.

Right. And there is nothing more that SPV need to say, right? So that's final?

This is fully paid and the registration and transfer is also complete. My apologies, one slight correction, the consideration has been finalized and fixed and registration is complete. However, as part of certain transactions, et cetera, which is going to take place, the transfer of funds will happen in due course. The transfer of funds will happen in due course. But the transfer of units was effective from January 1, 2021.

Okay. Got it. Understood. My next question, Shishir, is more on slightly on the strategy side, right? So you bought land and you monetized immediately. Should we think it's more of a derisking strategy rather than an asset monetization strategy?

At this stage, I would say it does look like a derisking strategy. However, the -- this is Kolkata. Acquisition has been underway well before COVID, and we concluded the acquisition only in January this year. So -- but even prior to COVID, we were looking at bringing in a partner at that point in time, who would come in as a financial investor and participate in that asset. So I would say, to a small extent, it was driven by the idea of derisking this project in terms of equity funding. But also it was to monetize at an early stage in a new geography where we'll be able to bring in a partner who also brings a lot of expertise and experience to the development.

The next question is from the line of Biplab Deb from Antique Stockbroking.

Good afternoon, sir. My question is -- first question is on the pipeline that you have at this stage. Just if you could provide, sir, some insight on the pipeline transaction. The context is so post GIC, you will have approximately cash surplus of around INR 3,500 crores or so. Just wanted to understand whether you have some kind of target in your mind regarding schedule? Like how many projects do you want to acquire in the next 2 years, 3 years, some ballpark target? So -- and what stages of those -- the pipeline is at what stages of transaction? This is my first question.

Thank you. So the idea of creating this cash at the consol level is to look at growth opportunities and to plow back some funds as and when required in projects which are currently under development. We have -- in pipeline, of course, we have this possibly one of Mumbai's best commercial centers coming up at our flagship property in Lower Parel, where -- which is a sizable project of roughly about 1.2 million square feet of FAR. And so that's something that we have clearly on the anvil, and we will update once we embark on the project. And after we get approvals, we'll update everyone on that. We are looking at a few acquisition opportunities. These would be under the potential JV that once we form it with GIC and also otherwise. So I would say that for the moment, we would have a visibility or we have the ability to deploy about INR 1,000 crores in the Lower Parel project, expand the new project right. And then we will share with you as we look at -- as we crystallize any further acquisitions.

Sir, just Lower Parel would be mixed, right? Retail plus how much -- that's what I need.

That's right.

Okay. Sir, my second question is on your strategy. We have been saying for the past 2, 3 quarters, residential sector has been showing strong performance across the market. And you also have some business in residential in One Bangalore West and Kessaku. So just trying to understand whether any change in business strategy as everybody is projecting a residential growth momentum in the next few years. And how does Phoenix -- whether Phoenix has any intention to go aggressive in SMA, such as, say, one example could be immediately launching new towers or acquiring new projects for residential. Anything on residential? Or you are content to expanding the existing?

Yes. At present, our strategy continues to remain to be focused on expanding retail and commercial office vertical. You are right, we are seeing very strong traction in residential in our project in Bangalore. But for the present, we are not looking at expansion in that vertical.

The next question is from the line of Atul Tiwari from Citigroup.

Sir, just 2 questions. So on your retail rental income for FY '22, would it be possible to share any broad idea how much of, say, FY '21 or FY '20, what percentage of that we could do? In FY '22, like last year, you had broadly guided that it should be half. And I know things are uncertain and malls are yet to open. But broadly speaking, could it be like 80%, 90% of normal run rate or lower than that? Any rough comment on that?

See, I think it's -- I would hesitate to comment on what will be the impact for the period of lockdown because that is something which is -- which we will only discuss with retailers once we reopen the malls. But if we simply look at the consumption trajectory that we saw in the last quarter of FY '21. I would like to believe that once our malls reopen within say, 40 -- 30, 40 days, we should start hitting the consumption trajectory of FY '20. And really, that is the proof of the pudding. And that will result in us going back to stabilized rentals of FY '20 with some -- perhaps some escalations in a few cases.

Okay. Yes, that's helpful. And sir, my last question is, again, on this Kolkata JV with CPPIB. So this is different from what we had in the case of Island Star Mall Developers. Because there, if I remember correctly, there was a large-ish amount committed. And the understanding was that that SPV will kind of find opportunities in future to deploy that money. Until the time that money is not deployed, any new project will be first presented to that SPV and then only parent company can do it. But here, it looks like it is just limited to 1 project, right? There is no such other arrangement to look for new opportunities.

You're absolutely right. You're absolutely right. One can simply look at this as a further acquisition in that joint venture itself. And that's it. It's just structured as a separate entity so we don't have multiple layers, which become very inefficient going forward.

Okay. Okay. So under this SPV, there is no commitment to deploy more money and look for other land [indiscernible]?

Yes. This transaction is limited to this specific development. I mean, of course, at a larger level, our partnership with CPPIB continues to grow.

[Operator Instructions] The next question is from the line of Mohit Agrawal from IIFL Research.

My first question is, over the last 1 year, what has been -- like as it stands today, what is the lease occupancy and trading occupancy on a blended basis? So what kind of churn have you seen in tenants over the past 1 year since the first wave started? And which kind of tenants have actually moved out? The second part of that question also is that how do you look into that in the next 6 months as uncertainty remains? Do you see a significant churn in the next few months? And what have been the discussions with the tenants on that?

I would say that the last year, saw perhaps across locations anywhere between 4% to 5% on the higher side, 4% to 5% change in our leased occupancy. And most of this -- a bulk of this was in the F&B category. As of now, since malls in Maharashtra shut down in April, we have not really seen any vacancy being -- increase in vacancy. And again, when it comes to food and beverage, we believe that, that sector is largely driven by entrepreneurs and by talent. So even vacancies that we see today, once we see demand pick up, there will be, I think, F&B brands will be back. There may be newer concepts, other operators, but the space will get taken up by F&B as soon as consumption trends start improving.

Sure. So the expiries which are going to happen in the first half, let's say, in the first quarter of fiscal '22, will they also be extended? Or will they be renegotiated?

So what -- by and large, whatever expiry, we were likely to see in the first half of FY '22, these were already negotiated in the last year, in the last financial year and concluded. In some cases, we have simply extended the current -- the last paid rentals for a period of 12 months. And then the escalations would kick in thereafter. So it's a combination of different negotiations that we have done across the brands that were likely to -- hence the end of tenure of the contract in the first half of this year.

Okay. That's helpful. My second question is just a clarification on the initial comment that you made about the Bangalore mall where you have extended your partnership with CPPIB for INR 800 crores. Now I wanted to understand, is it for the 3 malls that you're developing? Is it you are making more funds available for that? Or are you open to look at probably even buying a new mall because I think INR 800 crores is good enough for doing that. So I just wanted that clarification.

Yes. So under that JV, we have these 3 developments. These are not just malls but mixed-use developments at Wakad at Pune. We have 1 million square foot mall plus another 1 million square foot potential of offices. At Hebbal, Bangalore, it's similar, 1 million square foot mall plus a little over 1 million square feet of commercial offices. And of course, in the -- for the moment, we are only completing the mall. But in Island Star, which is the operational asset, Phoenix MarketCity, Bangalore, we also have a further development potential of roughly about 1.5 million square feet, comprising retail and commercial offices. The reason why we deliberated and agreed to bring in INR 400 crore now, cumulatively INR 400 crore now and INR 400 crore in the future, if required, is to go ahead and make sure that all of these projects get completed without dependency on construction finance because construction finance terms, et cetera, are not to our liking today. And so we have the option of going for construction finance, if should we like the terms. And then -- but we are committed to bringing in up to INR 800 crores cumulatively, should it be required. INR 400 crore is already being under process as of now. And the second tranche we will decide as and when we see construction finance availability.

The next question is from the line of Parikshit Kandpal from HDFC Securities.

So this, again, on the INR 300 crores, my question was so earlier, it used to be funding of 1/3 equity and 2/3 debt. So is that moving now to 50%, almost 50-50 or slightly higher? The first thing is that for a developer, with such a strong balance sheet. So at least we can bring in that money and it gives us competitive advantage. But my second question would be that added to that would be that. So what was the total these 3 malls spending CapEx and whether this 800 entirely because of this mix change going towards higher equity requirements?

So I would say that -- just give me one moment to respond. So cumulatively, if we look at the CPPIB JV with the 3 projects in Pune, Hebbal and Indore, we have about -- close to about INR 1,700 crore balance to be spent. We have not drawn down any construction finance across any of these locations as of now. So the idea is that we will defer or back-end the debt requirement as far as possible.

Okay. So if you put this entire INR 800 crores in equity, so what will be after completion of these assets, so what'll be that equity then, net to the CapEx?

So we've spent about INR 1,800 crore of -- as on date, I would say, as on end of FY '21, we've spent INR 1,800 crores. We have about INR 1,600 crores balance. So this INR 1,800 has been all equity. Another INR 800 crores, if we do end up putting, it will take up our total equity infusion to about INR 2,600 crores. That will leave INR 800 crores of construction finance drawn down in the last stages, which will get refinanced by an LRD as soon as these assets become operational. But that, I would say, is the worst-case scenario. In the event, we do not like the terms of construction finance presented, and we end up bringing in the additional INR 400 crores. Otherwise, the -- so I would say between INR 2,200 crores to INR 2,400 crores will be the total equity infusion in these assets.

Isn't it a very inefficient way of capital allocation because the cost of equity is much higher than cost of debt? And even for a company like yours, I mean, you can usually get anywhere about 45% to 50% of that even in current times when most of the other developers are struggling, even financially close the project. But with such a strong balance sheet, with just 23% of debt and about [ INR 1,700 crores ] it'll be [ 74% ].

We've always followed a very prudent capital allocation. It's very important to understand that the stage when under-development projects see stress is when there's -- when you over leverage and your monthly outflow starts becoming -- starts ballooning, right, which is why I said that we are not saying that we are going to fund these projects entirely out of equity. It is a backup plan to ensure that in the event construction finance is not available and not available at our preferred terms, we have the firepower to continue funding these projects and see them through. You can see historically, we have been very, very, I would say, efficient in leveraging all of our annuity generating assets at the right appropriate time by way of LRDs. So we continue to maintain a fine balance of leveraging. Our preference is to back-end construction finance. And more so in the current environment where construction finance terms are not really -- I would say that banks have taken a very conservative view.

So to understand it better. So whatever excess cash you're having right now lying as idle cash where you are not earning more than maybe 4%, 5% yield, you give expenditures, loans and advances, I have seen maybe a slightly better yield to get a little better spread on that. So I would assume that this will not go entirely as your equity. So there will be a mix of loans and advances and some equity, a small portion of equity, right?

Correct. Correct. It may go as loans and advances to the subsidiaries from [indiscernible].

It helps you earn a better yield on your cash, which is lying idle I suppose. So maybe at a lower cost versus a banking finance. So that is what you're trying to do now. I got it now. Okay. So my second question is on the under-construction assets. So how is the lease momentum? Have you started opening up big areas for leasing? And what kind of momentum are you seeing there from the [indiscernible] give perspective over there on the under-construction assets? And approximately, at what level of lease would be that approximately [ all positive control ]?

I would say that we've -- see, we had commenced leasing and then we put it on hold because of the environment. In this last month of lockdown, we've taken the opportunity to really initiate discussions with several of the brands. And I think the response that we are getting is very fantastic. I would hesitate to comment on how much we have leased each of these projects because as a strategy, we had kept that on pause. But we are seeing a lot of traction -- or rather, we are seeing a lot of interest by retailers to expand into these city center locations that we are developing.

Okay. And just the last question now [ the composite can ], so long in the additional business development. So obviously, there are platforms. So besides that, you still spoke about the Lower Parel property. So is there anything else in any new market, any new location, any brownfield expansion where you are in advanced stages? If you can give some color on what kind of opportunities line in the market, that would be helpful.

So there are certain -- as we've always mentioned in the past, there are certain micro markets, which are of significant interest to us. And we will continue to look for opportunities there. Kolkata was one which is now done. Hyderabad is another one where we would be very keen to look at our plan there. And then, of course, we believe that there is a lot of potential in Delhi and [indiscernible]. So we'll continue to look for opportunities there, Chandigarh, perhaps. So there are quite a few cities where we continue to look for opportunities.

Okay. Just lastly, one thing I noticed.

To round that off, our focus remains to complete the projects that we have underway as of now. And we are certainly not deviating our focus from that. Also, I just want to give you a quick -- I think we had last reported that Ahmedabad Mall -- Palladium Ahmedabad was roughly at around 40% pre-leased. We have exceeded that. We are at about 50% now. And Hebbal Bangalore is now above 50%.

How much?

50%.

Okay. And the Pune one?

Pune one, we have just last month, started the marketing of that project.

And Indore?

Indore as well. Indore, I would say is at about 65% pre-leased as of now. So we had --

65?

65, yes. Yes, that we had kept on pause, and we've just again kicked that off again, the marketing there.

Okay. Just lastly, I saw that in Chennai, there has been the consumption a little bit underwhelming. So why is the reason? Like why still not picking up there? It has not picked up in the fourth quarter?

Yes. Well, actually, Chennai malls also opened later than other parts of the country. So I would say that they were trailing behind -- Chennai was trailing behind by about 2 months in terms of catch-up on consumption. The other cities and malls commenced operations in Maharashtra, we commenced operations in August and Chennai was September sometime.

The next question is from the line of Pulkit Patni from Goldman Sachs.

Shishir, my first question is on Project Rise. Is it just going to be retail or do you plan to do some commercial also?

It's going to be a mixed-use development, so it will comprise retail and commercial. We are evaluating multiple design options, but the retail could be anywhere between 2 lakh to 3.5 lakh. And commercial office could be anywhere between 1 million to 1.2 million.

Oh, I thought the total was 1.2 million there.

No, I'm talking about gross leasable area.

Okay. Okay. So that's helpful. And you spoke about a number of about INR 1,000 crores as the total CapEx there?

That's not exactly correct. I had said that about INR 1,000 crore of further expenses could be incurred over there over and above the cost of land transfer. So the total project cost will be -- certainly be a little higher than that. About INR 1,150 crore, INR 1,200 crores would be roughly the overall project cost.

Okay. And secondly, since we're going through the second wave, any thoughts on how the future of rental is likely to shape up? Do you see that revenue share now in rental agreements is going to be a lot higher? Any thoughts on how we should look at this for the next few years? Or do you think it's going to remain the status for the way it has been?

Pulkit, this is Parwal. Pulkit, I think one thing that we have seen even during our negotiations during last year was that while there were certain level that was provided on the minimum guarantee rentals, there was percentage increase in the revenue share, which actually ended up overall, by the end of the year, you saw the numbers, how we were able to get about 55% of what otherwise we would have contractually got. What also happened in addition to it is because of the collaborative approach that we have with the retailers, the retailers agreed that the increase in the revenue share percentage would continue for a particular time and it was to continue even in FY '22, had not further lockdown again being reimposed. So I think, overall, in a 3-year time frame, as we come back to normalcy, in a 3-year period, as a combination of higher revenue share percentages, et cetera, we should be able to get a good traction. However, we think that this current trend is to ensure that these testing times and the financial impact of these testing times are taken care of. Overall, we'll get back to where we were originally. On a final note, given the strong consumption traction that all of our centers have, a lot of these retailers were anyway hitting revenue share. So getting a higher revenue share percentage as soon as normalcy returns is actually turning out to be a faster way for us to get back to our intended absolute number of rentals. Does that answer your question, Pulkit?

That answers. So effectively, we can understand that this could just be an interim thing for maybe a year, 2 years, and then it reverts back to the normalcy.

Absolutely. Absolutely.

Sure. And just a related question, if I may. Can you highlight any change in terms with the multiplexes? And how should we look at that part of the rental?

So as was stated by Shishir earlier, at this point in time, we would hesitate to comment upon how the negotiation might pan out with any of these retailers with the malls being shut. Even last year, we started conversations with a variety of tenant categories, only as such tenant categories started opening. So we'll wait for them to resume operations and then figure this out as we would go.

[Operator Instructions] The next question is from the line of Manish Agrawal from JM Financial.

My first question will be pertaining to the new malls. So you've indicated the pre-leasing number. If you could just indicate the rental at which the pre-leasing is happening across these malls?

We are expecting at Hebbal to achieve a weighted average rental once we've leased it out to be in the region of about INR 160 to INR 165. At Wakad, Pune, we expect our average to be roughly around INR 120 or thereabouts. And at Indore, we are going to be at about INR 90, close to about INR 90 average rental.

And Ahmedabad?

Ahmedabad is going to be about close to about INR 155, INR 150 to INR 155 weighted average.

Okay. And secondly, towards the end of FY '20, you had indicated that there is a certain amount of repricing opportunity, which obviously couldn't come through in FY '21. So post, say, FY '22, '23, do you expect this repricing opportunity in your main malls to come through?

Absolutely. As we see our contracts coming to an end, we -- in fact, we've also seen it in several cases in FY '21 -- in FY '22. We've also seen in several cases where we negotiated the renewal contracts in FY '21. For FY '22, we have seen an escalation. And in some cases, while we may not have seen an escalation in FY '22, there's a catch-up in FY '23 and FY '24 thereafter.

So the base, which we are looking is FY '20 rentals only. So it's not gone down as such. There'll be a catch-up in later years.

Yes. You should look at it like this, that FY '20 has not gone down. What would have been an escalation or an incremental rental coming in FY '21, that has got pushed to FY '22. But FY '22, FY '23 also additionally have a catch-up concept.

The next question is from the line of Amit Agarwal from Nirmal Bang.

I just -- I know you have a very small -- as of now compared to a retail portfolio, you really have a very small office portfolio. But any comments on the -- what you're seeing, the pressure on the rentals and occupancy on the office portfolio? Are you still -- are you also facing the same thing?

Sorry, may I request you to repeat your question again?

My question basically pertains to the office portfolio. I do know it's a pretty small percentage of comparative -- compared to the retail, but what we've seen in other companies is that office portfolio right now is under pressure for last year also because of COVID. So are you also feeling the same pressure in office portfolio in terms of rental and occupancy is going off right now?

So it's a very good question. I want to answer it in multiple parts. One is our current operational portfolio in the office space is roughly around 1.5 million square feet. And we have about 5 million square feet under development, right? And it's important to also understand that these are not stand-alone office buildings. These all form part of our mixed-use developments and form part of our subsequent phases of development, with the exception, of course, of Phoenix Rise, which is the ground-up development at Lower Parel. In our current office operating office portfolio of about 1.5 million, 1.6 million square feet. We've seen -- we've really not seen a disruption in rentals in this last year, right? We've -- in fact, I would say that it has been our office portfolio that has actually kept the cash flow coming in. And we have -- even in this period of lockdown, we've seen collections to be quite strong there. Q4 collections were in close to about 95%, 96%. And so it's -- for us, the office business has not seen a negative impact. The reason is these are not back offices. These are not IT offices. These are all city center corporate offices for several tenants and several reputed international brands as well. Going forward, while there may be -- let's say, that there may be an impact, we believe the impact will be more in IT, ITS spaces and lesser in commercial front-office spaces.

Thank you. That was the last question. I would now like to hand the conference over to Mr. Shrivastava for closing comments.

Thank you, ladies and gentlemen, for joining us today, and do feel free to reach out to our teams for any further questions, queries, clarifications that you may need. And wish you all the very best, please stay safe. And look forward to connecting with you in the next quarter call. Thank you. Have a pleasant day and a great weekend. Bye.

Thank you. On behalf of The Phoenix Mills Limited, this concludes the conference. Thank you for joining us, and you may now disconnect your lines.