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

Ladies and gentlemen, good day, and welcome to the Q2 and H1 FY '24 Results Conference Call of The Phoenix Mills Limited. [Operator Instructions] Management of the company is being represented by Mr. Shishir Shrivastava, Managing Director; Mr. Anuraag Srivastava, Group CFO; and Mr. Varun Parwal, Group President, Strategy and Corporate Finance. [Operator Instructions] Please note that this conference is being recorded. At this time, I would like to hand the conference over to Mr. Shishir Shrivastava. Thank you, and over to you, sir.

Good morning, ladies and gentlemen. We take pleasure in welcoming you all to discuss the operating and financial performance for the second quarter and half year ended September 2024 (sic) [ 2023 ]. We hope that you've had a chance to look at the results presentation shared by us. The same is uploaded on the stock exchanges as well as on our corporate website. I will now take you through the key highlights of the results with reference to the relevant slides of the results presentation. Over the last 10 months, we were tasked with launching 4 million-plus square feet malls, and today, we are extremely proud of having delivered these world-class experiential developments, which set new benchmarks in retail and mall design. Starting with Phoenix Mall of Asia, Bangalore, if I may draw your attention to Page 3. We launched this mall on October 27, with over 440 national and international brands complete with India's largest international luxury watch cluster, a wide array of entertainment and dining options complemented with beautiful and captivating interiors and decor. We expect Phoenix Mall of Asia, not only to be a luxury destination for Bangalore, but a complete family destination and become the true landmark retail asset for the entire south of India. As of the end of October, the mall was operating with a trading occupancy of approximately 43%, and we expect this to inch forward towards the second half of this financial year. From our experience, the ramp-up that we have seen at Phoenix Citadel Indore or Phoenix Palladium Ahmedabad, we expect Phoenix Mall of Asia to be at a trading occupancy of approximately 75% by March 31, 2024. Next up is Phoenix Mall of the Millennium at Wakad, Pune. You may see Page #7. We launched Phoenix Mall of the Millennium on September 1, 2023. The mall is home to over 350 national and international brands and entertainment zone of over 1 lakh square feet with various attractions such as a fan park, entertainment centers such as Time Zone and FunCity, a 14-screen INOX multiplex and over 75 dining options with the food court having a capacity of more than 550 people. Trading occupancy has shown a strong ramp-up since launch and stood at 50% in October '23 versus 44% during September with about 177 stores now operational. We expect this trading occupancy to inch up to about 80% by March 2024. On Page 12, we have Palladium Ahmedabad. This asset, which was launched on February 26, 2023, marked our entry into Gujarat with -- and the trading occupancy again has seen a fast ramp-up from 32% at launch in February to 77% in October '23. Moving on to Page 13. Phoenix Citadel Indore was launched in December 2022. Here again, we have seen the trading occupancy ramp up from 42% at launch to about 90% as of October '23. Now on to a quick update on our underdevelopment retail assets, if you may look at Page #14 and onwards. Phoenix Grand Victoria Kolkata, we have received all development permissions. We have also completed the preconstruction activities and currently excavation and foundation work is under progress. Our second retail destination in Gujarat at Surat, we expect the construction to commence in Q3 of FY '24. At the retail expansion for Phoenix Palladium, Mumbai, spanning across a GLA for approximately 250,000 in the current phase, civil works have reached an advanced stage, and we expect to complete this project by about March of 2024. Moving on with our retail portfolio performance for Q2 FY '24 from Page 17 onwards of the presentation. Consolidated consumption, which represents net sales reported by the retailers at each of our centers. At a portfolio level, for the quarter ended September '23, consolidated consumption stood at INR 2,639 crores, with a growth of 20% over the same period last year. To compare this growth on a like-to-like basis, if we exclude the contribution from the new malls launched, which are Phoenix Citadel, Palladium Ahmedabad, Phoenix Mall of the Millennium and adjust for the impact from closure of the Lifestyle store at Phoenix Palladium, Mumbai, the consumption has grown by about 10%. Turning to Page 21 onwards for the financial performance of our retail portfolio for the year so far. For Q2 FY '24, retail rental income stood at INR 392 crores up 25% when compared to Q2 FY '23 and 8% on a like-to-like basis, excluding the new malls launched. Retail EBITDA for this quarter was INR 402 crores, up 26% compared to Q2 FY '23 and up 11% on a like-to-like basis. For H1 FY '24, retail rental income stood at INR 769 crores, up 21% compared to H1 FY '23 and up 6% on a like-to-like basis, excluding the new malls launched. Retail EBITDA for this period was INR 789 crores, up 23% compared to Q2 FY '23 and up 9% on a like-to-like basis. With the onset of the festive and the winter season now for FY '24, we look forward to a good fabulous performance in the second of the year as well. May I now request Anuraag to take you through the office, hotels and residential section and the overall financial results.

Thank you, Shishir. Good morning, everyone. Please refer to Page 27 onwards for update on commercial offices. Our commercial office portfolio is seeing improving traction with gross leasing of over 3 lakh square feet in the period from April to October 2023, with about 2 lakh square feet of new leasing and 1 lakh square feet of renewals. Total income from commercial offices in quarter 2 FY '24 stood at INR 47 crores, up 9% compared to quarter 2 FY '23, and total EBITDA stood at INR 26 crores with a growth of over 6% over quarter 2 of financial year '23. During H1 FY '24, income stood at INR 91 crores, which was up 9% year-on-year, and EBITDA was INR 52 crores, up 7% year-on-year. Moving on to update on under construction commercial offices projects from Page 31 onwards. We are progressing well on our development of 3 next leg of growth in commercial offices at Phoenix Asia Towers' lobby and common area finishing, façade work is underway. The first phase of these office is about 800 million square feet -- or sorry, 0.8 million square feet is expected to be operational during the current financial year, i.e., FY '24. Millennium Towers, Wakad, slab work is in advanced stages for the office towers. At the Palladium Offices at Chennai, we target completion in FY '25. We have also received USGBC LEED pre-certification with gold rating. For Project Rise, all development provisions have been secured, foundation work has been completed, and basement slab 2 has also been completed. As far as the commercial office component within expansion of our mixed-used asset in Whitefield is concerned, excavation work is nearing completion. Moving on to the hotel portfolio from Page 37 onwards, first covering St. Regis, Mumbai. We continue to see significant improvement in our performance. ARR in Q2 FY '24 was about INR 15,040. And in H1 FY '24, it was INR 15,767, both showing an increase of 27% and 32%, respectively, over previous year. Total income for quarter 2 FY '24 stood at INR 102 crores, with growth of 20% over quarter 2 FY '23 and at INR 213 crores for H1 FY '24, up 39% over H1 FY '23. With the increase in total income, EBITDA margin has also improved to 43% in H1 FY '24 compared to 40% in H1 FY '23. At our property in Agra, Courtyard by Marriott, ARR in Q2 FY '24 was at INR 4,196. And in H1 FY '24, it was INR 4,303, both showing an increase of 8% and 13%, respectively, over previous year. Total income for quarter 2 FY '24 stood at INR 9 crores, up 7% from quarter 2 FY '23, and EBITDA stood at INR 1 crore, up 7%. Total income for first half '24 stood at INR 20 crores, up 20% from last year, and EBITDA stood at INR 3 crores, demonstrating a 19% growth. Our residential business update is from Page 44 onwards. We continue to witness very good traction in residential sales. We have completed gross residential sales booking of INR 495 crores for -- in year-to-date October 2023, which is already higher than gross sales booking of INR 466 crores done in FY '23. Same goes for collections, which stood at INR 423 crores in year-to-date October 2023, surpassing the full year collection of INR 369 crores seen in FY '23. We have built and delivered 2.83 million square feet across One Bangalore West and Kessaku, of which we now have only about 5 lakh square feet of unsold inventory left. At our underdevelopment premium residential project at Alipore Kolkata, consultants for various work streams have been onboarded, and we are in the process of obtaining our development permission. I would like to now move to financial results from Page 47 onwards. Some of the key highlighted -- key highlights of our consolidated financial performance are as follows: Income from operations for quarter 2 FY '24 stood at INR 875 crores. This is up 34% year-on-year and at INR 1,686 crores for H1, up 38% year-on-year. Operating EBITDA for the quarter stood at INR 514 crores, up 35% year-on-year and INR 1,006 crores for first half, up 43% year-on-year. Reported PAT after minority interest and after comprehensive income for quarter 2 FY '24 stood at INR 262 crores, which is up 40% year-on-year and stood at INR 531 crores for the first half. Debt position from Page 49 onwards. Consolidated gross debt stood at INR 4,263 crores as on September 30, '23, down by INR 311 crores since March '20. 97% of our gross debt is an operational portfolio with very competitive average borrowing rate of 8.71%. Currently, our lowest cost of borrowing stands at 8.5%. Despite RBI increasing rates by 250 bps since March 2022, our borrowing costs have gone up only 141 bps so far. As the overall interest rates in the economy starts to rise, our effort will be to minimize the impact of this on our cost of borrowing by reducing the spread charged by the banks on top of the repo rate. Cash flows from Page 51. Our H1 FY '24, we generated about INR 1,060 crores of net cash from operating activities and our operating free cash flow stood at INR 882 crores. Liquidity position from Page 54 onwards, group level liquidity on September 30,'23 stood at INR 2,166 crores, up by INR 411 crores from the position as on March 31, '23. This excludes the amount remaining unutilized in OD accounts. Net debt stood at about INR 2,096 crores, down by INR 186 crores from our position as on March 31, '23. We are bullish on our business prospects and with a strong balance sheet position, our focus remains on delivering our under construction projects in a time -- on time and judiciously deploy our capital to expand our portfolio. Thank you.

[Operator Instructions] The first question is from the line of Resham Jain from DSP Asset Managers.

So I have just a couple of questions. So first one is, if you can just help with your overall CapEx to be incurred over the next 3 years based on the current development, which you are going to do.

Resham, so between now and 2027 from the projects that are already announced and updated on the presentation, we have a further CapEx of about INR 4,800 crores to INR 5,000 crores that is left. And now this is between current calendar year and up to 2027. This includes 3 million square feet of retail that's under construction at various stages and over 5.5 million square feet of commercial offices as well as the residential development planned at Alipore.

Okay. And the overall let's say, if I look at the cash generation over the same period, the cash generation seems to be significantly higher than the numbers. So, how are we thinking about the incremental cash which we are going to generate? Are we further going to -- because our debt levels are at a reasonable level now at -- net debt. So just your thoughts on the same.

You're right, Resham. I think with the excess cash, we'll continue to sort of build our retail portfolio look at further business development opportunities. Retail continues to be our flagship business. And we see a lot of opportunities in expanding in cities where we already exist as well as the new cities in other towns. So that's the focus. And of course, as the retail assets come up, we'll also continue to focus on the mixed-use development. I'll just -- passing it on to Shishir for further comments.

So if we just look at the current run rate, Resham, we see about INR 2,000 crores of free cash being generated annually. And as Varun mentioned, we have about INR 5,000 crores of CapEx for projects which are already under development and already announced. We continue to look for opportunities for expanding our real estate, retail and residential and office verticals. So I think we are on a good path to look at deploying significant free cash in new projects in acquisition and development of new projects.

Okay. Understood. The other question I have is on residential, will you have the post-tax IRR, let's say, of the Bangalore residential project, which is now about to get over, let's say, in '24, '25? What will be your approximate post-tax IRR in that project residential?

So Resham, if you look at how the project has moved and especially in the way the prices have moved, we launched this project back in 2012 at a price of INR 5,500 per square feet on launch day. And today, in October, we have taken the selling prices to above INR 21,000 on a per square foot basis. We, of course, had incurred land cost, et cetera, back in 2012. But then we utilized the base FSI to construct the first 5 towers and return all the capital back. So the company had received full return of its entire equity investment back in 2014, 2015 itself. Kessaku has been launched thereafter, and we have purchased development potential and incurred construction cost to construct this. Residential project, if you look at it from the markup that we see on our construction costs today, today our landed cost of development for a premium residential tower is at INR 7,500 to INR 8,000 a square feet for a Kessaku sort of a development wherein we provide a lot of lifestyle amenities. But the selling price that we have is in excess of INR 20,000. So from a capital multiplier, it's a significant improvement. And that also results in a good post-tax IRR of -- our targeted IRR of 18% to 20% on a post-tax basis.

The next question is from the line of Puneet Gulati from HSBC.

Congratulations on good numbers. My first question is on your office projects. So the Bangalore and the Pune one are close to completion and set to launch. Can you elaborate on what is the progress on leasing there? And how are you seeing the market?

Puneet, we are expecting the OC for the offices at Bangalore, which are Asia Towers shortly. So we've not been able to execute any leases, but I can talk about the pipeline. We've seen a significant pipeline. And the profile typically is for 2 lakh square feet and/or thereabouts, for each tenant. So if we just look at the cumulative pipeline, it's about -- close to about -- no, it's close to about 2 million square feet of pipeline. And several of those are waiting for conversion. At this point in time, I think we feel fairly confident that within about 12 months of the OC coming in, we should have about a 75% kind of an occupancy within development. This is across 800,000 square feet. And for Pune we are expecting the building completion for Millennium Towers for the first phase to be in August of 2024. And again, we are looking at what is the pipeline there. There seems to be significant demand for this part of the city.

Okay. And so I thought the total area leasability was 1.2 million, right? And you said 0.8 million.

So at Bangalore, we have a further 250-odd thousand square feet of FSI potential there, which we have not built out as yet because of the -- not having the clarity on the TDR policy in that city. So we have about almost 400,000 square feet of GLA, where in one of the towers where we have the ability to construct once that becomes clear.

Okay. So you're building 0.8 million in Bangalore and similar 0.8 million in Pune as well.

0.8 million in Phase 1, 0.4 million in Phase 2 in Bangalore. And Millennium Towers, it's a total of 1.4 million square feet GLA, which we are building out. It's just that the first tower will become ready in August of '24. And the next one will take -- will be ready by maybe about January of '25 or February of '25 somewhere in that period. Cumulatively, this is about 1.4 million GLA at Millennium Towers.

Okay. And can you also indicate what kind of rentals are you likely to negotiate there?

So looking at that competitive landscape in Wakad, the numbers currently are at around INR 75 per square foot. I believe that our product is a front office premium grade A LEED-certified product, which will command premium rentals so '24 -- say, 12 months from now, we should see -- we should be in the region of about INR 80, INR 85 or thereabout, would be our starting rent.

And Bangalore?

Bangalore is also going to be around INR 85 as the bare shell rent.

Okay. That's interesting. And secondly, on this land purchase, I might have missed it, I joined a bit late. On the land purchase, what are the thoughts -- what do you want to develop in Thane?

Puneet, as you are aware, I think the competitive landscape there has quite a bit of retail. So we are evaluating what is the ideal development mix. We've also seen that despite the inventory overhang on residential, we've seen that the good grade A quality residential has performed -- outperformed in that market with rates in excess of INR 20,000 a square foot. So we are evaluating the ideal development mix for this location, and we are certainly cautious about the competitive landscape in retail. So I think we are -- it's going to take another 3 months or thereabouts to define what we are going to finally build there.

Okay. But you would have done some IRR calculation, right? And what would that have been based on?

So we've looked at various scenarios. We've looked at mixed-use development with retail in the lead. We have looked at residential, we looked at a combination of residential. And I think the returns work in any scenario in terms of our return expectation on equity. I think they work in any scenario. But the risk is probably, as I mentioned, the competitive landscape one has to be very cautious about. So we are evaluating whether we want to go -- take that risk or we want to mitigate that risk and go with a residential kind of a development, residential development with ancillary retail. But we have not decided and we will -- we -- at this point in time, my answer to you is that we will take 3 months or so to decide on the development mix.

Understood. And just on the broad question, I know you've answered it to a certain extent. How are you looking at deploying the huge amount of free cash flow that you'll be generating? Should we expect anything in next 1, 2 years to get added and in which geographies...?

Adding new developments is routine for us. That is what we -- that is how we are growing. And we have continued to be very, very aggressive in terms of our land -- evaluating land opportunities in some of the key markets. In some of these markets, there were auctions announced which then got canceled. But -- so we are actively looking for land in 4 or 5 different key markets that we have identified where we want to be. So as we have done in the last several years, we will keep acquiring and delivering at least 1 million square feet of retail every year or thereabouts.

Right. Okay. But you have to spend close to at least INR 1,000-plus crores every year, right? So that's a large sum to spend as well.

Yes, it's a large sum to spend, but I think it's good to have that kind of an ammo go and buy the most premium land parcels for the most premium development in these cities. So land cost is not low, right?

Yes, yes.

And we want to also keep our debt levels in check while we pursue these opportunities or pursue expansion opportunities at our existing development. So we will be very judicious about how we utilize our cash flows.

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

So on -- when I look at your trading occupancies in the last 12 months, right, I mean, across your assets, they have increased from, say, 4% to 8%. And when I look at same-store consumption, it's grown by 10%. So adjusted for the occupancy, trading occupancy, is it fair to say that the consumption growth like-to-like same-store would be about 4-odd percent?

Kunal, Varun this side. So I think on your question on first on trading occupancy, we have had a very strong line up of retailers who have either entered India or expanded into India, and we have been accommodating them in our malls over a period of time. And we saw a number of them opening up in September and further more followed up in October as well. And this I'm referring to only the existing operational portfolio. So today, our asset like a Phoenix MarketCity in Bangalore, which was launched in 2011, it's trading at a lifetime occupancy of 98%. And we have a very big line up of brands who we are still waiting to accommodate in this mall. That said, a number of these retailers have recently entered and opened in the mall, and their performance in the first year, first 18-month takes time to ramp up and start contributing meaningfully to the overall trading density perspective. If I look at, say, malls where the new retailers have been operational for some time, I would say that Phoenix Palladium has seen a trading density growth of 7% to 8% year-on-year on a like-to-like basis, whereas a Phoenix Palassio have seen a like-for-like growth of over 14%, if I am looking at same-store sales contribution. And we see the strong high single-digit contribution from stores across our existing operational portfolio. We have also -- to share some light with you, we have also given a category-wise breakup in the presentation, wherein on a like-to-like basis, the overall portfolio has seen a 10% growth. And this contribution has been led by jewelry, which has grown at 25%, by F&B, which has grown at 12% and of course, multiplexes, which have had their best ever quarter at 22%. We have also seen a recovery in hypermarkets. I think some of the legacy issues that we have faced in the hypermarket performance in FY '23 is starting to get addressed and resolved. It still remains way below what we have seen compared to pre-COVID levels, but it is starting to improve from the low basis that we saw in FY '23.

So fair to say that the whole catch-up will happen in subsequent quarters when these newer tenants kind of their consumption normalizes?

Absolutely. Absolutely. We had UNIQLO opened recently and which was in October. Now that's certainly going to add significantly to the overall consumption in that area. Plus I think also now with this festive season, it's going to be a good way to track against what the consumption was last year for the next 3 months, October, November, December. I don't think that there is any sentiment or structural issue that we are seeing impacting the consumption in the mall. Last quarter, certainly, we did see an impact. But I don't think in the long term -- I think in the long term, it will balance out. So this next quarter is very key for us.

Sure. Sure. Sure. My second question was on, again, the Thane land. I mean in the past, we've been very clear in terms of when we buy a land, there's always an end use land strategized, but it seems a little different like in terms of like we bought the land, but even not yet sure whether we'll build retail or residential. Just wanted to understand the thought process behind acquiring this land.

Kunal, it's a landmark location, okay? It does not take away from our confidence in building a fabulous retail development there. But there is significant competition. And there are quite a few of our brands which are already occupying retail space in these other malls in that vicinity, right? So while we've been able to -- I think we acquired this at a fair value, the land, we want to figure out what is the best return for our efforts and our investment into this land. Hence, we are evaluating other asset classes, which are -- where the risk on the return estimates are much lower. So that's the only point here. We have evaluated for a retail-led mixed-use development. And it does meet our returns profile, but there are risks associated with that. So we are looking at the ideal development mix, which mitigate any risks to the return.

Sure. Sure. Any idea on the potential leasable area or salable area potential that this land would have?

Let me say -- tell you that the overall development potential is 3 million square feet or slightly higher than that actually. We may have to slice this up into 3 or 4 different asset classes. And clearly -- so that is what we are trying to really figure out at this point in time.

The next question is from the line of Murtuza Arsiwalla from Kotak Securities.

So just a sense, how much money has already been spent on the projects? You talked about another INR 4,800 crores that is to be spent. How much money is already spent on these projects? That's one. And second, for a lot of projects that have been commissioned, you have co-ownership. Is there any sense or understanding with the partners in each of these individual projects on the fungibility or utilization of cash that these operational malls now throughout?

Murtuza, I will take the first part of your question. You spoke about how much we have spent on these various assets so far. So for the malls that have opened up as well as the money that we have spent on offices and retail under construction, we have cumulatively spent about INR 6,000 crores from 2018 till now on these assets. And we can, of course, connect off-line and share asset-wise details, if required, on the amount spent on each asset.

Sure. On the second question?

Your second question was on the ability to upstream cash flows from SPVs with JV partners. No, so we are looking at -- currently the JVs that we have with GIC, we are earmarking the free cash being generated from there to be invested or deployed in a new acquisition, 1 or 2. In the other JV, which we have with CPPIB, we have ongoing expansion. So a bulk of this INR 5,000 crores of future spend is going to be in these SPVs or in the partnership with CPPIB. So we are looking at the most efficient way of utilizing those cash flows for that expansion.

So I understand that right. For instance, the Bangalore Mall or some of the more recently commissioned malls in Bangalore or Pune, which are in partnership with CPPIB under a separate SPV. The surplus funds will go let's in our Kolkata mall, which is a separate SPV but still the same covenant.

So Bangalore, we have a significant expansion, right? We are building a 300-plus key Grand Hyatt Hotel. We are building 1 million square feet of offices, plus we are expanding the retail at the Bangalore mall. So that SPV in itself will have a sizable CapEx out of this INR 4,800 crores that Varun outlined for you. Similarly, I would say that with the new malls opening, Mall of the Millennium at Pune. It's going to take time for the cash flows to build out. And we will evaluate it -- when we see significant free cash being generated, we'll evaluate mechanism of how that can be upstreamed or how that could be utilized for -- and sorry, let me also clarify Mall of the Millennium, currently, we may have spent only about 70% of the overall project cost for the mall alone, and we are still incurring expenses on the office development. So any free cash that gets generated there will get utilized in that development first. Mall of the Millennium, we've probably spent about maybe 60% of the overall project cost. So free cash getting generated there will get utilized for CapEx and completion of the offices, et cetera. So the cash utilization in terms of CapEx is already pretty straightforward and identified for the next 3 years.

The next question is from the line of Biplab Debbarma from Antique Stock Broking.

So my first question is on the Alipore and Project Rise. Sir, from when do you think we'll see a rental generation from these 2 assets, the Alipore and the Project Rise?

Biplab, so Project Rise is right now at the excavation and foundation stage. We have completed the excavation and basement 2 is completed, and we are now working on basement 1. I would say that the project is about another 36 months away from generating rent, retail may be starting a few months ahead of offices. Kolkata at this point in time, we are coming out of the ground. Excavation is completed there. And the mall, I would say, another 36 to 40 months for the mall to become operational from today.

So FY '27, '28 for both Alipore and Project Rise? Is that correct?

'26, '27, I would say. Yes.

Okay, okay. And my second question is on the -- most of these major cities that your focus is have a quite decent number of malls. And as you enter into these cities to deploy your huge cash flow that you are generating, you -- I think you see such competitive landscape as you are seeing in Thane? So sir, going forward, shall we incrementally see mixed-use development, I mean, that currently you are evaluating in Thane?

Biplab, may I request you to just explain your question again, please.

So sir, basically I'm...

I'm sorry, sir, so I believe the line got disconnected. Just give me a minute, I'll get him connected.

Can we continue with the next individual in the queue?

Okay, sure. So the next question is from the line of Parvez Qazi from Nuvama Group.

So on the resi portfolio, considering that we now just have about 0.5 million square feet of inventory left, any thoughts about launching Tower 8 and 9 in Bangalore? And also a related question about the residential project in Kolkata, when can we see a launch there?

Parvez, so Towers 8 and 9 at Bangalore, we will only be able to -- we will only announce or launch once we are able to proceed with the TDR loading on the layout, which currently, as per policy, there's some ambiguity, right? So we have -- but again, there's -- I think it's a hugely anticipated launch in that micro market, and I'm -- as much as we are looking forward to the launch, we know that there's a huge customer base that's looking forward to this launch. Kolkata is at design stage. I think we may be about 6 months or so away from announcing the launch.

The next question is from the line of from Pritesh Sheth of Motilal Oswal.

Firstly, on Slide 69, where you have given the expiry details. So based on that data, if I calculate roughly 4 million-odd square feet of space in these malls are going to come up for expiry over the next 3 years over roughly 1 million square feet each. So how should we look at rental growth in these, once these are set for renewals? Yes, that's my first question.

Pritesh, so I think you are right. And the idea of putting out a renewal schedule is also for us to plan and see how we can improve upon the brand mix and the category mix inside our malls. If you see over the last 4 years from pre-COVID to now, we have significantly enhanced the presence of newer, faster growth categories, whether it's in cosmetics or jewelry or in fashion by replacing -- by creating space for new assets and new brands entering the country and also increasing the experience-oriented components such as F&B and relooking at how F&Bs run inside the malls. Over the next 3 years, the pipeline that we have allows us to continue to revamp and ensure that our existing assets drive market-leading growth and they continue to stay very relevant for the new-age consumers and the discretionary consumers as well.

If I may top up over that. See, it's for us, it's routine to see every mall go through this renewal or end of contract cycle. So at an average, we would see 15% to 20% kind of a renewal across our -- or end of contract across our portfolio every year. In some years, it may spike up because of -- let's say, because of anchor, which are anchor agreements coming for end of contract, et cetera. However, we -- our learning has been over the last 20 years, and we've tried to implement this learning that every such spike where you may see in a year, 25%, 30% of an area coming up for end of contract, it presents us with a huge opportunity to evolve that asset by making significant changes on the experiential side, maybe circulation-related aspects addressing those, which we learn over a period of time and also changing the brand mix a little. So over the years, as the asset evolves and these renewal opportunities or end of contract opportunities arise, we get the ability to move certain brands to other locations where they will be more successful and freeing up that location for a newer brand or a higher positioned brand. And this is across the life cycle of the asset. Year after year, it evolves and the premiumness of the overall offering keeps moving up. Sorry for that lengthy answer to your short question.

Sure. No, no, no thanks for that detailed explanation, but in general, since most of these assets are up for renewal after 10 years of operations, right? So hence major reset would obviously be expected in terms of rentals as well. So as per your experience, how much should that reset be versus a usual 5%, 7% kind of contractual escalation?

Firstly, the cycle is not 10 years. We see it that -- we see a spike coming every 5 years and at an average on an annual basis, about 20% of the area gets -- 15% to 20% of the area gets end of contract. At end of contract, typically, we see a significant catch-up on the minimum guarantee rent. So minimum guarantee rent moves up to maybe slightly higher than what was the actual rent received on account of revenue share. So at that point, typically, in a renewal, we may see about a 15% kind of an increase in minimum guaranteed rent. And if it's an anchor space, let's say, that we reorganize to smaller stores, in those scenarios, the delta could be as high as 50%, 60% as well in terms of rental increase. But on a portfolio basis, you can assume a 15% to 20% increment, in the rent. So whatever was the last rent paid by a particular brand, when we re-lease that store at end of contract, we expect a 15% to 20% increase there.

Got it. Very clear. So second question on your consumption guidance that you gave of INR 11,000 crores at the starting of the year, we have already done, I think, roughly INR 5,200-odd crores. You will stick to that guidance, or there's an upside potential to that?

I think we may be a little ahead of what we may have estimated for H1 because now the festive season kicks in, and this is really -- I think we're all super excited to see how the next 3 months perform.

Sure. Sure. Got it. And just lastly on Thane again, since it's just Sparkle Two which is the subsidiary and Sparkle One, we have a JV with CPPIB. So this is also with -- in partnership with CPPIB that we are acquiring this Thane land?

No, no. I'm clarifying that Sparkle Two is 100% subsidiary of Phoenix Mills Limited as was Sparkle One before we -- when it was created and then it was used with CPPIB coming into and investing into Sparkle One. So Sparkle Two is a 100% subsidiary. It's not connected to the CPPIB JV in any way.

Sure, sure. But would 1 of the 2 partners be interested in coming up with us for that land? Depends on the mix, I guess.

Yes. That depends on the development mix, which at present, we have not finalized, as I mentioned earlier.

Got it. Got it. That answers my questions. All the best and wish you a advance Happy Diwali to you and your team.

Happy Diwali to you too, Pritesh.

The next question is from the line of Kunal Lakhan from CLSA.

Shishir, I mean, we had earlier highlighted that we'll be looking at acquiring 2 land parcels a year. Just wanted some clarification on that. The 2 land parcels would be towards retail and over and above, you would look at say further residential expansion or it's 2 land parcels in total and it could be either residential or mix or retail?

No. Our goal is, as I mentioned many times previously, Kunal, in the last several years our goal was to -- after 2024 when we've delivered all the projects that we had undertaken in FY '17, our goal was to deliver 1 million square feet after 2024 of retail every year. So we -- I think we are well on track to achieve that. And we will continue to buy 1 or 2 land parcels for retail every year. Yes?

Got it. Got it. That's what I wanted. Also just secondly, on the first CPPIB platform, now that most of the assets with, say, Bangalore and Pune commencing operations, most of the assets under the first platform are operational, what will be the exit strategy for CPPIB? And also like in terms of our interest, would we look at buying back stake as a part of CPPIB's exit strategy?

So Kunal, while the malls have become operational, the other asset classes being developed on those same land parcels continue to -- for the next 2 to 3 years, the project continues. So at present, we are still in active development in the CPPIB JV with the office expansion, the hotel at Bangalore, additional retail area being added. And no, there is absolutely no discussion on exit or any exit strategy at this point in time with CPPIB.

The next question is from the line of Biplab Debbarma from Antique Stock Broking.

Yes, sir. So my earlier question was going forward. As we keep investing in new land parcel in the major cities, do you see that we would be doing mixed-use development rather than purely kind of retail focus because of the high competitive landscape as you were saying in Thane? Or Thane is just one of the incidents that we are seeing here?

Thane may be an aberration because it is already a very dense micro market and with significant competition. So -- yes.

Okay. Okay. Okay. And second question is on the -- so our focus as you rightly said, in the -- focus would be on pure-play retail and opportunistic investment in other segments of real estate. Your focus continues to be retail. Is that correct, sir? That's my understanding sir.

Biplab, if I may explain this to you. See, there are certain markets or rather across the country today, land parcels have much more development potential, which one cannot consume entirely for retail. So even if we acquire a land, which is focused for a retail development, we will consider other asset classes to exploit that maximum potential on the FSI. What that asset class is will depend on what is the demand in that particular city and in that market.

The next question is from the line of Atul Mehra from Motilal Oswal Asset Management.

So just one question in terms of with this outlay of INR 4,800 crores till FY '27 that we mentioned. And given that along the way, we will have renewals and escalations with existing customers. So what is the likely operating cash flow trajectory we will get to in your opinion from the current INR 2,000 crore number that we have? Can this be more like INR 4,000 crores, if we were to go by the current plan?

Atul, tricky question because I don't think we can give a guidance such as this...

No, not a guidance, based on calculations.

But -- okay. I would say that analysts have presented to us that we are really best placed to give you this computation, but you would not be off the mark. I can say that you would not be off the mark on what their computations are showing.

Right, right.

Would you like to tell us what you are estimating?

INR 4,000 crores?

Yes, I think that's a healthy target, and we will definitely try and beat it.

Great sir, great to know. And then secondly, in terms of like we are talking about real expansion going forward and deployment of the free cash flow that we will generate. So if we were to look at some of the next -- in terms of cities, next set of cities versus what we have the top Tier 1 cities in some sense. So is there, in your opinion, a viable model to go to the next rung of cities, maybe with a more -- in terms of improvised retail square footage? And any exploration on that side which can further expand our target market?

Atul, I think we -- our strategy is clear of creating this experiential centers which don't -- which become attractive for like a region. So when you look at a -- what you call a Tier 2 city and we would call it a Tier 1 opportunity like a Lucknow or an Indore, these malls are not just malls for those cities. We are seeing people -- we are seeing our customer base extending to 100 kilometers from that city, which goes into the smaller towns as well, where there is significant amount of wealth. So I would say a city like Coimbatore presents that kind of an opportunity, right, it has 5 or 6 major towns, which could become its feeder -- which are its feeder market even today, a city like Vizag is an interesting opportunity. Chandigarh has always remained an extremely exciting opportunity. Jaipur is another such city. So these are the cities that we have previously identified during our interaction, and we continue to look at opportunities there as well.

Thank you so much. As there are no further questions from the participants, on behalf of The Phoenix Mills Limited, that concludes this conference. Thank you for joining us and you may now disconnect your lines.