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

Ladies and gentlemen, good day, and welcome to the Q1 FY '26 Results Conference Call of The Phoenix Mills Limited. [Operator Instructions] The management of the company is being represented by Mr. Shishir Shrivastava, Managing Director; Ms. Rashmi Sen, Whole-Time Director, and CEO Malls; Mr. Kailash Gupta, Group CFO; and Mr. Varun Parwal, Group President. [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.

Thank you. Good evening, ladies and gentlemen, and welcome to our Q1 FY '26 quarterly conference call. I'm joined today with Ms. Rashmi Sen, CEO Malls, and Whole-Time Director; Mr. Kailash Gupta, Group CFO; and Mr. Varun Parwal, Group President. Today marks a pivotal milestone in the growth journey for our company. Before we discuss the Q1 FY '26 results, we are excited to share a strategic development that strengthens our control over a high-performing retail and office platform and reinforces our long-term vision. We are glad to share that our Board of Directors has approved a proposal to acquire 100% stake in Island Star Mall Developers Private Limited platform, which the group has seeded and grown over the past decade. In the process, we are providing an exit to CPP Investments 49% stake in ISML. The transaction is subject to shareholder approvals, CCI approvals and other customary approvals. The agreed consideration for the proposed transaction is INR 5,449 crores, payable to CPP Investments over a 36-month period in four tranches, subject to applicable laws and any adjustments, including those related to payment -- prepayment of tranches. Allow me to walk you through the investor presentation and share with you some key messages. The investor presentation and the press release for this -- in relation to this transaction has been uploaded on our website and at the stock exchange. If I may draw your attention to Slide 2. The payment of INR 5,449 crores is spread over 36 months. In the interim, ISML continues to be a cash flow generating asset. The large portion of this INR 5,449 crores will be paid by the cash flows generated at the platform as well as additional leverage headroom available at ISML. ISML was the foundation of our partnership with CPP Investments, starting with Phoenix MarketCity Bengaluru in 2017, which comprised of 1 million square feet of retail space, mall space. Together, we have grown it into a large portfolio of marquee operational retail and office assets in key cities of Bengaluru, Pune and Indore, spanning approximately 6.6 million square feet, marking a 6.6x growth in eight years and clocking INR 617 crores of EBITDA in FY '25. If I may introduce the ISML platform for reference and continuity of our conversation. Today, the portfolio comprises 4.4 million square feet of operational retail space. 2.2 million square feet of completed offices, a planned expansion of 0.8 million square feet of retail and 1.6 million square feet of offices, along with two hotels totaling approximately 700 keys at the Phoenix MarketCity, Bengaluru development. The idea of PML looking to acquire this 100% stake stems from the management's belief that the untapped growth potential in this platform can add significant value for shareholders over a period of time as we complete the projects under construction and undertake expansion based on the unutilized development potential or FSI potential. Moving on to Slide 3. The management plan basis 2030 would generate approximately a 13x growth over 13 years since 2017 when CPP entered this platform, which was 1 million square feet in 2017, growing to 13 million square feet in 2030. Over this period of time, we will move from being a retail-only asset to a diversified portfolio of retail, offices and hotels. Slides 4 through 6 capture the overview of the three assets which have been developed in ISML platform using the cash flow of the seed asset, Phoenix MarketCity Bengaluru. Moving on to Slide 7. Here, we introduced our vision for Phoenix MarketCity Bangalore. We have an ambitious multiphase expansion plan for Phoenix MarketCity Bangalore, set to evolve it into a world-class integrated super campus exceeding 4 million square feet. The subsequent slides detail the phase-wise approach, encompassing enhanced retail offerings, premium office spaces and hospitality developments. This super campus will be a peak amalgamation of the best-in-class retail offices and hotels, all of which will sync with each other to create an ecosystem. Details are discussed in the subsequent slides. Moving on to Slide 9. Amongst the key deal rationale that makes the acquisition attractive to PML is the tranche payment structure. where INR 5,449 crores consideration is paid across four tranches over 36 months with the flexibility to prepay along with related adjustments on the aggregate consideration. This structure preserves PML's liquidity to pursue our stated growth plans while also allowing for asset level monetization options within ISML and its subsidiaries should we choose to do so. Moving on to Slide 10. As we see from this slide, the cash flow has grown by approximately 9x to INR 513 crores in FY '25 when compared to FY '17. FY '25 net debt to EBITDA is just 1x at ISML. This also allows us meaningful room to borrow at the platform level and such borrowing, if any, would be staggered over 36 months to fund the acquisition and upstream cash flows to PML if required. Slide 11. This slide explains how the buyout is significantly accretive for PML from the first year in itself. This is an illustration and for representation purposes only, where even if we choose to fund the entire first tranche through debt, the platform remains accretive to PML's earnings. By moving to 100% ownership, we will capture the full share of operating free cash flows and the additional interest cost will be covered by increase in the share of such operational free cash flows. The deferred payment schedule, combined with projected operating free cash flows growth ensures we will continue to maintain a healthy interest cover for each tranche. In the same illustration, with 100% of the first tranche being funded by debt, PMLs share of cash flows from ISML could increase by 58%, assuming the FY '25 free cash flows. The transaction structure also provides a high margin of safety. Moving on to Slide 12. The 100% ownership by Phoenix of this platform brings with it a large flexibility at PML level to gain unrestricted access to cash flows, ability to raise money using multiple means available at the ISML and underlying SPV levels, each of which shall be evaluated at an opportune time. Full ownership also gives us complete control over capital allocation and execution time lines. With this structure, PML's attributable EBITDA is expected to grow manyfold over a period of time, which will be allocated to PML. At the same time -- at the right time, we will also retain the flexibility to monetize selectively, whether at asset level or through a platform level, REIT or listing if required. Moving on to Slide #13. This is just to go back and show you a snippet of our 2020 QIP deck, where we had promised three malls, two offices and one hotel under the ISML platform. I'm pleased to announce that we have delivered all of these assets in totality with the hotel being under construction and expected to be completed by 2027. We've continuously demonstrated strong execution and accountability. This consolidation is in line with PML's objective of owning and developing high-growth retail-led mixed-use assets to add to shareholders' value. With the clear identified growth levers in place in the ISML platform, we remain confident in our ability to deliver robust EBITDA growth over the next 5 years. Slide 14 illustrates the growth drivers, where we expect the EBITDA to grow from INR 617 crores in FY '25 to a much larger number over a period of time through organic growth from our operational retail portfolio further optimizing trading occupancy and increasing trading density via premiumization and brand mix improvements, the ramp-up of occupancy in our completed office assets, unlocking the full earning potential; the Phase 2 expansion at Phoenix MarketCity Bangalore, which adds additional retail office and the hotel; further Phase 3 expansion potential, which will further strengthen our mixed-use ecosystem with additional retail office and a second hotel offering. Balance FSI potential across the developments in Indore, Pune and Bangalore give us additional room for future value creation. Moving on to Slide #15. Across our completed office spaces of 2.2 million, today, only 6% is leased. Our internal target is to achieve a 90% leasing in 2026, and we have a strong leasing pipeline in place. This brings a huge upside potential as all the construction work is already complete. OC is received for two out of the four office towers across Pune and Bangalore. Leasing of these offices is also gathering a strong momentum. Moving on to Slide 16. Millennium Towers and Millennium Club. Our vision of Millennium Towers is for it to be the best office building in Pune. These assets are high quality and have high visibility. They are located in strong micro markets with limited new supply expected. These will drive consistent annuity style earnings. The vision for these offices is to provide a lifestyle-oriented offering with Grade A amenities along with high-quality office spaces. Moving on to Slide #17. At Phoenix Asia Towers, we are ramping up leasing to 90% by 2026, which currently stands at approximately 10%, and this will drive strong EBITDA growth and further value creation. The offices sit in a well-established office micro market with upcoming metro and infrastructure projects, which will enable seamless access to the campus and increase the catchment area and the attraction of offices at this location. The highlight is a metro station, which is -- which has access from within the campus itself. Moving on to Slides 18 through 23, which explain the Phoenix MarketCity Bangalore Phase 2 and Phase 3 expansions. We have several initiatives underway under Phase 2. We will be launching the Gourmet Village in 2026, a brand-new floor of F&B and entertainment spanning 19 new experiential dining options set in a beautiful theme. With a 400 key Grand Hyatt focused on events, we plan to establish ourselves as one of the most renowned hotels in Bangalore and perhaps a very high performing -- with very high performance, focusing on strong occupancy and ADRs. The case study of a similar hotel in the same micro market gives you an idea of the healthy revenue and EBITDA margins achievable. The hotel product has been designed based on our learnings at the St. Regis Hotel Mumbai and the designs have been optimized to yield the highest revenue per square foot. In addition, we will also be introducing about 400,000 square feet of state-of-the-art offices in this campus in Phase 2. Moving on to Phase 3, where this campus further expands, we will add -- we intend to add a second hotel of approximately 300 keys, offices of about 1.2 million square feet and a further retail expansion of about 600,000 square feet by 2030. This will take us and help us deliver our vision of a super campus, one of the largest retail-led mixed-use campuses across the country. Moving on to Slide #24. The super campus is a preferred and top-of-the-mind destination for any consumption, all parts of the campus designed to feed each other with higher visits, longer stays, stronger consumption, all from PML's point of view, fueling stronger rental leads and driving consumption. Moving on to Slide #25. The EBITDA growth drivers at operational malls. EBITDA growth at our malls is driven by optimizing anchor spaces for higher-yield tenants, enhancing category and brand mix, attracting star and luxury brands to prime locations. And with the upgraded infrastructure in the neighborhood, this will also improve access and visitor experience to our malls. Slide #26 represents the significant rental upside. This is an illustration or rather an explanation of initiatives undertaken at Phoenix MarketCity Bangalore in the last year, where we -- where the hypermarket and a fashion anchor were exited from their current locations. The space was redesigned and the layout was expanded to accommodate the growing fashion category. This has created prime space for re-leasing to flagship in-line and mini anchors at higher rental yields, driving stronger trading density. In this particular case, we believe we have nearly doubled our monthly rental from the same space. Slide #27. At Phoenix Mall of Asia, we have about 10% vacancy. 8% is located at the upper ground level, which was kept strategically kept last for leasing to bring in the highest rent yielding luxury and star brands. Some of the watch brand deals recently concluded are currently at a minimum guaranteed rental of approximately INR 550 a square foot. Moving on to Slide #28. We expect the proposed infrastructure upgrades in near and around Phoenix Citadel in Indore, to significantly benefit the mall. The new flyover and underpass are expected to be ready by 2026. This not only improves access, but also reduces the interim hardship that our mall visitors are currently facing because of the road works, which have been ongoing. This will further enhance footfalls and consumption. Moving on to Slide #29. After accounting for all the expansion plans and the ongoing projects across locations, we continue to have balanced FSI potential across all these developments. It's expected to be at about 2.7 million square feet cumulatively across three cities. We do not -- this is based on land that we already own. Clearly, it is subject to regulatory and planning approvals and payment of premiums and charges as may be applicable. We have not yet planned the CapEx for exploiting the potential of this balance FSI potential. Slide #20 -- Slide #30 takes us to ESG initiatives. We are fully aligned with sustainability expectations of long-term investors, and we continue to be driven by them. The USGBC LEED certification has been achieved with a gold rating in place for three of the latest retail assets. We have already initiated solar energy, smart building systems, water conservation, EV charging efforts. To conclude, this transaction fully aligns with our strategic objectives. It gives us complete control of a high-performing platform structured in a capital-efficient manner that safeguards PML's liquidity. The transaction enhances operational flexibility, removes minority interest leakage and provides a clear path to unlocking further value at both asset and platform levels. Since the inception of the JV, we have delivered marquee developments, including three retail assets, two office assets and an iconic hotel and additional offices currently under construction. We remain committed to building destinations of international standards, vibrant retail hubs, attracting a large catchment, lifestyle-oriented offices and integrated mixed-use super campus in Whitefield. The next phase of growth is already in motion and full ownership of this platform positions us to execute this seamlessly. Our other partnerships with CPP investments at Kolkata and Lower Parel continue as planned, and we look forward to exploring future opportunities with CPP investments to further expand this fantastic partnership. Thank you. We will now move to earnings call -- earnings section. And thank you. May I request Varun Parwal to kindly take over the section.

Thank you, Shishir. And just moving on very quickly to an update on quarter 1 results. I will first start with the retail portfolio. Retail consumption at our malls was strong during quarter 1, coming in at 12% year-on-year. We had very strong year-on-year growth at Phoenix Palladium, Phoenix Palassio and our malls in Ahmedabad, Indore, Pune and Bangalore. I would also like to highlight that this strong growth was despite a temporary and a strategic dip in trading occupancy during the quarter. Our portfolio level leased occupancy is at an average in excess of 95% plus. But there was a temporary dip in trading occupancy, owing to a significant repositioning exercise that is currently underway across our Phoenix MarketCity malls, particularly in Mumbai, Pune, Chennai and Bangalore. We are actively reshaping the brand mix across these key centers and the broad goal here is to replace low-efficiency formats with stronger, better trading brands while also creating more room for high-performing flagship in-line stores and other key categories. In parallel, we are also upgrading the underutilized all lower-yielding areas by bringing in premium brands across watches, electronics, beauty, et cetera. This churn has a temporary impact on occupancy and rental income, but it is a planned investment in creating sustainable long-term value for our retail assets. Over the coming quarters, we expect this reposition to result in much stronger and improved brand mix, higher consumption and stronger rental income growth, ultimately supporting and driving the double-digit EBITDA growth that we have seen historically in our retail malls. For the quarter, retail rental income stood at approximately INR 506 crores, up 4% despite an impact from the planned churn at Phoenix MarketCity Malls and also the loss of rentals from the planned conversions block redevelopment at Phoenix Palladium. If I account for the impact from the churn as well as conversions block, this impacted our retail income growth by approximately 5% to 6% for the quarter. This is, of course, temporary in nature. And as trading occupancy returns to stabilized levels of 95% plus in coming quarters, we expect to see much stronger growth coming through. Moving on to our offices. We have had a great start to the year with completion of Phoenix Asia Towers and receipt of OC as well as completion of the three towers in Pune and receipt of occupation certificate for one of the three towers. Our leasing has also picked up in line with delivery of these two developments as well as the commercial offices in Chennai, which are nearing completion. Overall, for the quarter, we have leased an area in excess of 430,000 square feet, and we expect demand to remain strong, especially for these quality well-located office spaces. Our hotel portfolio had a strong performance for the quarter with revenue coming in 11% higher at INR 130 crores and EBITDA showing very strong growth of 19%, reaching INR 58 crores for the quarter. Our hotel portfolio consists of the St. Regis Mumbai and Courtyard by Marriott in Agra. Our operational performance in residential was also very strong with gross sales in excess of INR 168 crores and collections of INR 99 crores. The price hike that we had undertaken in Kessaku and One Bangalore West has been well accepted by the market, and we recorded an average sales price of INR 27,000 a square feet for the sales done during quarter 1. A large part of the sales were completed during the month of June. And as such, revenue recognition for quarter 1 came in only at about INR 40 crores. However, the rest of the sales booking done in quarter 1 will reflect in terms of revenue recognition in coming quarters on completion of registration, and that should boost our revenue and EBITDA performance from the residential portfolio in coming quarters. And now wrapping up, overall, if we look at our gross group level, our EBITDA across the portfolio came in at about INR 544 crores registering a 6% growth. Our group debt stood at about INR 4,435 crores and our net debt-to-EBITDA reduced moderately from the March ending quarter. We have also seen a significant reduction in our cost of debt. Cost of debt came at about 7.92% for quarter ending June 2025, and we expect some of the recently announced rate cuts for RBI to transfer into the balance loan portfolio in the coming quarters. Overall, we have continued to maintain a prudent balance sheet and disciplined capital deployment, which gives us significant headroom to continue investing in high-quality assets while maintaining our financial flexibility to pursue growth. This brings me to the end of our formal update. We can now move to the Q&A.

[Operator Instructions] Your first question is from the line of Puneet from HSBC.

Congratulations on this acquisition. It's quite an interesting one. My first question is if you can give us some color on what is the cap rate you are ascribing to this valuation in your mind?

Puneet, we haven't approached this transaction on a cap rate basis. We see it as being significantly value accretive over the next five years with the several ongoing construction nearing completion as well as the further expansions that we've planned in Phase 2, which are yet -- Phase II in ISML Bangalore, which will commence shortly. So that may not be the appropriate way to assign an enterprise value by simply looking at a cap rate on NOI. Having said that, in FY '25, the EBITDA was at the ISML platform was at INR 617 crores. And with all the ongoing developments, which are nearing completion, plus what is planned to be completed by 2030 in this platform, we are going to see -- we hope to see the EBITDA grow by multiples over this period of time and it becoming highly value accretive to us. We believe that today's acquisition price is at fair value. This has also been, I would say, based on the valuation reports that have been put together by the valuers, registered valuers, Bansi S. Mehta, valuers LLP, and the fairness opinion provided by Morgan Stanley Company India Private Limited. In FY '27, while the retail EBITDA was about -- EBITDA contribution came in mainly from retail, which was about INR 617 crores across four malls. We have 2.2 million square feet of offices, which are ready and a sizable part of that OC is received. And for the balance, we expect the OC to be received. But they are pre-leased only at about 6% cumulatively, right? So there's a huge headroom, which will also be a significant valuation upside trigger as these get leased out during this year. We have a very strong pipeline in place, and we have a very strong team now spearheaded by the CEO for Commercial real estate and offices, Mr. Vithal Suryavanshi, who's recently come on board. We have about 300,000 square feet of retail -- sorry, 170,000 square feet of retail, which is currently ongoing, expansion ongoing, and this will be delivered by 2027.

Got it. So from the valuation perspective, is it fair to assume INR 5,400 crores is only equity value? There is roughly INR 1,000 crores of existing debt in ISML, right? Those numbers are right.

No, that may be the gross debt. Gross debt is about INR 950 crores -- was INR 950 crores is the gross debt.

And net?

And net currently is also about...

INR 650 crores in the net debt.

So adjusting for cash on the balance sheet, the net debt is about INR 650 crores.

Okay. And when you talk about this INR 5,400 crores of value which you pay over three years, is the entire EBITDA attributable to you from day 1 or gets attributable.

No, under the way this transaction is structured, it is pretty much like a spot transaction. And I mean, obviously, every tranche will only be payable as per the applicable law and fair value as certain. But the EBITDA is attributable to us and cash flow uses are exclusively for us going forward from the day the transaction gets approved and the first tranche payment is made.

Understood. And lastly, if I can ask you, what can you do now which you couldn't do earlier in this platform?

Okay. From PML's perspective, I think it helps because minority leakages are kind of addressed. It reduces that or eliminates minority leakages entirely. It allows us PML to upstream or the cash flows to be upstream to PML for efficient utilization. And it allows -- we estimate that our EBITDA could potentially grow 3x to 4x over a period of time, and this will all result in a growth to PML's PAT. At the ISML level, it allows us several synergies to optimize structure and drive operational efficiencies, including costs. It allows us the optionality of future platform monetization of ISML by way of REIT or listing, et cetera. And at the subsidiary levels, again, we retain the optionality for individual asset level monetization should we choose to do so and gives us the opportunity to create new growth platforms.

Understood. But is there a thought at this point of time to monetize individual assets? This is what...

No, no. That is an option available to us, as I mentioned. That is not the desired -- that's not the strategy.

Okay. And from a timing perspective, is it the right time even your offices are not yet leased and CPPIB theoretically would have provided good insights on the office leasing side. From a timing perspective, are you comfortable? Or would you...

Puneet, I think the timing is perfect. The timing is perfect. In fact, as I mentioned earlier, the scale-up or ramp-up of occupancy at the offices from current approximate 6% across locations to what our target is to be at 90% in 2026. And that's what Vithal and the team are actively working on. I think that is where there's a huge, huge valuation upside. that can be achieved based on our performance and our delivery.

Yes. Understood. And lastly, if you can tell us what is your CapEx plan for this year and next year? How much should we pencil in?

I think about INR 1,200 crores to INR 1,300 crores over the next 12 months. Clarifying that INR 1,200 crores to INR 1,300 crores is at a group level, not just at ISML.

The next question is from the line of Praveen Choudhary from Morgan Stanley.

Congratulations on this deal. I have a few questions, but related to the business segment. Can you talk about why Mall of Asia, Bangalore business performance have been down year-over-year. I thought it's a new mall, so it must be ramping. So that was one small question. I had another question on depreciation, which jumped massively. And then the third question I have is on the timing of Kolkata and Surat and the new malls, if you can talk about.

Hi, Praveen, Varun this side. I will take the first question before handing it over to other management, people on the call. To your question on Mall of Asia, Praveen, I think last quarter in quarter 1, we had a significant onetime rental billing that happened for several retailers. That was a onetime increase in rental of about INR 10 crores. So if you compare quarter 1 FY '25 rental billing and you compare it with quarter 4 FY '25 rental billing, we reported about INR 47.5 crores for quarter 1, whereas the quarter 4 rental billing was at about INR 40 crores. So the normalized billing for Mall of Asia in FY '25 was about INR 40 crores a quarter. And if you see quarter 1 FY '26, it has come in at about INR 48 crores. So adjusted for the onetime billing that we had taken in the prior year, we would -- we are seeing a strong 20% growth as far as the rental billing is concerned. Does that answer your question?

Yes, it does. It does. I'm just waiting for other questions.

Praveen, may I request you to repeat the follow-up questions that you had on this so we can address them one at a time.

Yes, I just wanted to get a sense of the latest timing for the opening of new malls that is expected to come in the next two, three years, but just wanted to get if you have better clarity on Kolkata and Surat malls. And then I had a question on depreciation. It seems like depreciation number on your P&L jumped year-over-year. And I just wanted to understand anything which is one-off?

Sure. So we'll take the first part, which is the completion of -- we expect the Grand Victoria Mall Kolkata to be completed in 2027. Surat will also -- is also expected to be completed in 2027. Thane Phase 1 retail is likely -- is expected to be completed in 2029. Coimbatore retail in the same year and Chandigarh Phase 1 retail in between 2029 and 2030. We also have a sizable expansion going on at our flagship property, Palladium Mumbai, which has retail and offices. All of this is expected to be completed in -- by end of 2026 and mid of 2027 in phases.

Yes. So on an accounting piece, basically, there are two things. One is that the rice portion actually, which we have recently opened in the Palladium mall. So that has added depreciation and that will be a continuous over the period of time. And apart from this, there is a onetime depreciation of around INR 7 crores to INR 8 crores, primarily driven from the demolition of a couple of pieces in the Palladium side because there we have used the accelerated depreciation basically.

So existing retail blocks have now been demolished. We have, therefore, written down that in our book value for about INR 8 crores.

Understood. Understood. Can I ask on the deal, last question for me. So this deal that has been done, it will reduce your minority interest, and there's a lot of optionality here, clearly. Would you think of similar deal, maybe not this year, but in future with another partner that you have? Or should I put it differently, was this deal initiated by the other party or it was mutual?

Well, it was mutual. If I may clarify that there was no exit obligation on us to provide our partners an exit, but it was a mutual discussion and both sides saw the benefit of it. With regards to our other joint venture with the other partners, we have the Coimbatore project and the Surat project under development in there. And I think our partners will only see full true value once those projects near completion or rather are completed and commence operations and become revenue generating. There is no conversation ongoing to -- for any similar transaction on that JV.

And once again, congratulations. This deal definitely looks good if you continue to execute the way you have been.

[Operator Instructions] The next question is from the line of Girish Choudhary from Avendus Spark.

Firstly, if you can help us understand the funding of this INR 5,400 crores. I mean, will it be like significantly buyback at the ISML level or let's say, the stand-alone entity also buying out the stake? So how will the funding route happen? And also, I mean, internal accruals and what's the incremental debt we can see from this?

So now the transaction is structured in four tranches, right? Payment consideration is to be paid in four tranches. We have multiple modes of providing -- of making this -- paying this consideration. These include buybacks, payment of dividends, capital reduction and secondary by PML or any of its affiliates. So this is a combination that we are going to be looking at. And in each year, depending on the cash flows at the ISML level, we are going to be affecting dividend payouts or buybacks or capital reduction. Currently, we don't envisage the secondary transaction to take place until perhaps the last tranche. There may be some small amount initially, which PML or any of its affiliates may need to fund. But again, as I mentioned, with this 100% ownership, we get the ability to upstream funds -- free cash flows from the ISML platform to PML as well, which could also fund such secondary transaction.

Okay. Okay. But -- okay. So my second question is, again, from a capital allocation perspective, I mean, in the past, generally, you have said us that -- I mean, for your investments, generally, you look at 14%, 15% yield on cost. So I mean, for this INR 5,400-odd crores of investments or payout, can we expect a better yield on cost, I mean, once everything is up and running? I mean just a follow-up to that. Just a follow-up to that. I mean, this investment, does it also signal that -- I mean -- I mean, in the past, we had a development-led growth. Right now, I mean, are we seeing that we are shifting towards yield-focused asset consolidation? So how should we look at this transaction from that point of view as well?

Okay. Several questions in that question. We'll try and break it up into parts, right? In the first instance, the illustration that we have on Slide #14 will give you kind of an indication on the growing EBITDA at ISML level, and you should be able to work out the yield on cost, right? So I don't -- and we can get into details offline with our team on this, on the structure and the anticipated returns. But we see that if you look at also Slide number -- just one moment, please. If you look at Slide #10, which -- where we have shown what the cash flows are and the leverage headroom is, we've explained how in the last eight years between FY '17 to '25, our asset EBITDA has grown 6x. We hope to see at least double-digit growth in EBITDA from all the initiatives which are underway, including completion of the under construction projects, leasing out of the already completed offices and organic growth at our operating retail malls.

Just to add to what Shishir is saying, and we have already narrated in our commentary earlier. So we are not compromising in terms of our expansion projects, we will continue to do because the -- largely, the transaction will be paid through the ISML platform. So effectively, the PML and its other entities can -- are free to use its cash for acquisition or expansion. So I don't think they're compromising on any of the parameters which we had set as a benchmark for our company. But at the same time, since the cash flow or the free cash flow generation is growing year-on-year basis, we thought to even consolidate because this opportunity was like very tempting for us because one reason is that the -- even the current EBITDA is quite strong. And secondly, the expansion plan is quite big if you see the overall slides and presentation.

Lastly, to again, give you some guidance. If we look at our FY '25 operational free cash, cash flows, they were about INR 1,225 crores at the P&L level, excluding the ISML and its subsidiaries. Now just assume a similar run rate over the next five years without anything else, that itself could potentially translate to over INR 6,000 crores of operating free cash flows. Add to that, the cash flows from the residential sales, which, as Varun explained earlier, we've seen a phenomenal quarter in resi sales. We are gearing to launch the Kolkata residential project sales as well. Add to that, the organic growth at retail, the completion of expansion, leasing out of offices, plus the significant potential to leverage the PML portfolio, excluding ISML. So INR 6,000 crores plus growth triggers plus the leverage potential at PML, excluding ISML assets, is more than adequate to pursue our growth aspirations, including acquisitions of greenfield, brownfield operating assets in identified 10, 11 cities, including funding the CapEx required for our FY 2030 envisaged portfolio of 14 million square feet of retail, taking the gross portfolio to 14 million of retail, 3.5 million of offices, 1,200 keys and hotels and roughly 2.5 million square feet of additional resi inventory.

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

My first question is what is the current book value of the assets which you are buying?

The gross block of all the assets and of all the assets under these ISML and underlying SPVs is about INR 5,080 crores.

You're paying a slight premium to buy this out, which covers the balance growth opportunity?

Growth opportunity -- not opportunity, growth underway, FSI potential, which is -- which continues to get exploited over the next five years.

But your share will be 50% of this, approximately INR 2,500 crores worth of gross block, which you're going out for the share you are buying out. So that is -- you're paying almost 2x, right, INR 5,400 crores, INR 5,500 crores.

I think this is the wrong way to interpret real estate, especially because what you are seeing is the historical value of the assets, but you are not seeing the potential or the market value of the assets, which would be much higher. I mean while we have not assigned the number, but I think the book value -- looking at the book value is not certainly the right approach to value the transaction.

No, I was just trying to arrive at the IRR, which the CPP is getting in seven, eight years, it's almost doubling. So just from that point, I was asking.

Sure.

And what is the balance CapEx for the rest of all the assets? And also what is the balance CapEx for the ISML assets till you reach FY '30 when all these development opportunities complete? So if you can help us.

So we -- barring the new acquisitions and the three assets, basically, we are talking about excluding Thane, Coimbatore and Chandigarh, the CapEx for next five year would be in the range of around INR 5,000 crores to INR 6,000 crores. And against that, the cash flow generation will be much higher.

I just want to ask, ISML when it's reach [indiscernible], you want to take it up. So what is the CapEx for...

See, your voice is cutting out. Can you just repeat this question again?

So I was asking what is the residual CapEx in ISML to reach that FY '30 full development potential, which you highlighted in the presentation?

May I -- we hear you clearly now. Phase 2, which is ongoing at ISML will roughly require about INR 1,000 crores between now and 2027 to take it to completion. Phase 3, we will share the details when we have crystallized on our development plans, and we've received all the final approvals.

Okay. And just last question on the EBITDA of INR 627-odd crores. So what is the clean EBITDA in based on INR 617 crores, which you highlighted? So out of that, if I remove the CAM EBITDA and other EBITDA, or is it just the asset level EBITDA from the malls? Or does it include the CAM and other charges, other income and all. So what is the clean EBITDA?

This is the asset level EBITDA?

So this is the clean EBITDA, there's no other income, no CAM EBITDA on this.

Yes. Parikshit, if you see the reported numbers for each of these assets we have reported EBITDA numbers every quarter, every year. And if you add up the reported EBITDA for Phoenix MarketCity Bangalore, Phoenix Citadel Indore, Phoenix Mall of the Millennium and Phoenix Mall of Asia, you will get to the FY '25 asset EBITDA of INR 617 crores. The offices that was completed and they received OC just in January and April, they are not yet EBITDA contributing.

So they are also not...

See, this is purely retail.

Okay. Purely retail and there is no negative or any -- there is no -- nothing from other income, nothing from CAM coming in...

No. Other income gets -- we reported below EBITDA. So whatever is the contribution from other income is coming below the EBITDA line item. Like Kailash mentioned earlier, if I just see the FY '25 balance sheet, our gross consolidated debt on the ISML platform was INR 960 crores. And our cash on books at the end of FY '25 was INR 360 crores. So our net debt is a shade under INR 600 crores at this point in time. The INR 617 crores of EBITDA generated by the platform also converted into an operating free cash flow of INR 510 crores for FY '25, if you take out interest and tax expense just for the platform. So out of PML's INR 1,800 crores, INR 1,900 crores of operating free cash flow that we reported in FY '25, INR 510 crores came from the ISML platform itself.

The next question is from the line of Pritesh Sheth from Axis Capital.

A couple of questions on the transaction. First, has the value report mentioned about valuation for operational under construction and future potential assets? I mean, has there -- is the breakup available? And if you can provide that to us?

No, there is no breakup as such is in the public domain. And I don't think we'll be in a position to declare or inform you any kind of numbers.

The valuers have not published a sum of parts, if that's what you're.

Yes. Okay. Yes. Okay. Okay. Fair enough. And from CPPIB's perspective, while some of the assets have been recently completed, Citadel, Bangalore, Pune and the office assets which you recently delivered, what was the thought process from their side to exit these assets without even seeing that five years of maturity or a steady state kind of run rate? So what was the thought process of exiting these assets at the early stage? And would this be a precedent for the next assets which we are building under this platform, be it Kolkata, Project Rise and even for that matter, I don't know how Coimbatore. So thoughts on that.

Okay. So I cannot speak for CPPIB. Their rationale is obviously well deliberated. As I mentioned earlier, I want to clarify that we have no stated commitment or contractual commitment to provide an exit to CPPIB. I think it's their own considerations on the time line of their investment, et cetera. And this was a conversation that we have mutually arrived at after negotiations. So I can't speak on their behalf. Coimbatore does not sit under the CPP platform, I'm clarifying since you mentioned that. And this is not intended to be a precedent for CPP to look for an exit in the other JVs where we have ongoing construction or otherwise. And again, I want to mention again that we have a fantastic partnership in CPPIB, and we're looking forward to this relationship growing as we grow our own portfolio.

Sure. And taking this partnership right with our other partner, will we be offering some of the recent assets to GIC for some stake acquisition in this asset? Or do you think that given the cash flows and the leverage potential that we have, we'll be able to easily fund these -- the consideration and create a lot of value and hence, no need to offer to them. So what would be our thought process in this?

Pritesh, I think it's important for you to understand why we have created these two platforms at the time when we did. In 2017, when we entered into this first joint venture with CPPIB, we were looking for growth capital. We had estimates of potentially future cash flows. However, there was opportunities that could be exploited at that point in time, and there was a timing issue in terms of free cash being generated from our resi sales and organic growth resulting in higher free cash from our operating assets, which is why at that point in time, we were looking for capital for growth, and we entered into this transaction. Moving forward, in 2021, when we executed our second JV with our other partners, we were looking at creating sizable liquidity at Phoenix Mills level. This was immediately post COVID, and we were looking at creating some kind of a safety net. And we have been very committed to the growth of that platform, and we've added Coimbatore and we've added Surat to that platform, and we've committed the entire funds or the entire capital that was infused as a primary into that joint venture. We've committed that capital for growth of that platform. Now when we look at our balance sheet, we have a very, very strong balance sheet. We have sizable free cash being generated on a year-to-year basis. And we don't have intention of creating more platforms. At least we have no need to create those more platforms because we have enough cash.

Sure completely agree on that. Just one last on the assets beyond this platform. So there has been drop in terms of trading occupancy for MarketCity malls in Bangalore, Chennai, Pune. Is that it in terms of whatever churn we wanted to plan and potentially from this year-end and next year, we'll start seeing good outcomes and good growth outcomes from the churn exercise that we are doing in these three malls?

So, Pritesh, let me take the first part of that question, and then I will hand it over to Rashmi to expand on what we are doing here. You have seen a significant drop in trading occupancy for this quarter in Phoenix MarketCity Bangalore and dip in trading occupancy, which are lower, but still there in Pune and Chennai. These are, of course, very strategic and planned in nature, and they are aligned in terms of the branded and the key anchor flagship and in-line stores that we want to bring into these malls at this point in time. Bangalore, the churn is happening. It has come together. So that's why there is a big drop from where we were in December at 98% occupancy to today, where we are at about 84% occupancy. And through the rest of the year, this will -- the occupancy will go up significantly from here. There are still some few more churns that are planned, but they are more staggered and they will take place in the coming year. Now I think I will hand the call over to Rashmi to just talk a bit on our philosophy and strategy.

Currently, as you would know, we are undergoing a significant repositioning and premiumization change for most of our legacy assets, which are completing close to 14, 15 years. And we see that there is a lot of headroom and appetite for increasing rental for a lot of these older deals. We also see that there is a lot of room for optimizing the anchor sizes to in-line stores. And over the last few years, there has been increased demand and appetite from international brands for coming and opening stores in our centers. And I think it's sort of a moment in pivot where everything is coming together for us because a lot of these large boxes expiries are coming up, and it gives us a beautiful opportunity to sort of rethink, reimagine because change is the only constant, and we want to continue to give newer experiences to our customers. And so all these changes that we are making is from a long-term perspective. And even though you may see a drop in trading occupancies, all of these are typically leased to the newer premium international brands. And what we do is like if hypermarket, we feel like a 50,000 -- a larger hypermarket may not be as relevant. So the hypermarket may get leased to another brand in a different category. But we move the hypermarket to a smaller gourmet concept. And basically, these are the things that we do. And what you see right now is basically a short-term impact of the long-term visionary changes that we are making.

Got it. So just to clarify, there would still be some bit of staggered churn across the three assets, which will come through the year and then it will be done and probably '27 is when it will stabilize.

Pritesh, Varun this side. You will have trading going up, and there may be some churn that could happen. But overall, we should see a ramp-up in trading occupancy. See, [ 36% ] plus that we see, you will see the progression of trading occupancy towards the leased occupancy. These repositioning brand, et cetera, they are already under very active setouts. So if you're in Bangalore any time, give us a shout, and we would love to show you and walk you around either the Bangalore mall or the Pune or the Chennai mall.

So to summarize what Varun is saying that the gap between what you see as the trading occupancy and the leased occupancy, leased occupancy is much higher than trading occupancy. That gap is stores are going to become operational soon.

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

Firstly, congratulations on the deal. I think it's a very elegant exit that you're planning to the CPP. But just on the operational numbers, the two or three pieces. One is, if I look at this quarter's numbers, 12% consumption growth, 4% rental income, should that be just explained by a possible less favorable shift in mix or anything else that we should read into that number, number one. Number two, on the CPP piece, you also, amongst other things, highlighted the potential upside in the occupancies for the recently commissioned office assets. Any visibility because to me, that number on how much is leased appears low for an asset which has just received OC. But any sight you have said that you're targeting 90% in '26 -- but any near-term visibility numbers on how you look at a ramp-up in that occupancy. So two pieces, one, on the retail side, the growth in consumption versus rental income. Second, on the leased occupancy for the new commercial assets.

Sure, Murtuza. Varun this side. I think first on the quarterly performance for the rental income compared to the consumption trend. We spoke about it earlier on at the starting of the call that this quarter, we had impact on two accounts. One is because of the planned churn that we had undertaken and the significant churn that we had undertaken at our Phoenix MarketCity malls in -- even in Mumbai, Pune, Chennai and significantly in Bangalore. That churn contributed to about a 3% drop in rental income compared to the numbers that we reported. There is also a negative impact from -- when you compare year-on-year at Phoenix Palladium, we have demolished a large part of the retail block, which house retailers like Nike and Hamleys, which for the full year last year contributed about INR 200 crores in consumption and over INR 45 crores in rental income. So the quarterly rental loss from the demolition of that retail block is also at about INR 12 crores. The plan churn and the loss of rent from conversions block between them have a 5% to 6% impact on our rental income growth for the quarter. I'm not taking into consideration the other aspects where there may be smaller fit-outs or any rent impact from retailers being exited. But broadly, these are the two main reasons for the gap between consumption and for the gap between consumption and rental income growth.

So a couple of high-yielding tenants have been sort of turned out. Is that the way to read it? Nike lease would have been, how should I read that?

Yes.

And on the office assets, the newer off--e assets in terms of visibility in the near term on occupancy ramp-up?

So we have every reason to be confident about seeing a significant ramp-up in the next 12 months. In calendar year 2026, our target is to see a 90% occupancy across office assets. We have completed these assets and completed all the amenities at these locations. Also, we have a very strong pipeline. Just to give you an illustration, in Chennai, the office asset we have completed about 60% leasing in about four months. That's -- and we expect to see a similar trend even in Bengaluru and Pune.

[Operator Instructions] As there are no further questions from the participants, I would now hand the conference over to the management for closing comments. Over to you, sir.

Thank you very much, ladies and gentlemen, for joining us on our Q1 earnings call. Wish you all the very best, and talk to you next quarter. Have a good evening.

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