The Phoenix Mills Limited analyst Q&A

Thank you very much. We will now begin the question -and-answer session. Ladies and gentlemen, we will wait for a moment while the question queue assembles. The first question is from the line of Puneet from HSBC. Please go ahead.

Thank you so much and congrats on decent performance. My first question is on the multiple interventions that you're doing on your mall portfolio. How long should we think the impact will last for those? And what kind of CAPEX will that entail?

Hi, Puneet. Varun this side. When you are asking about the impact, are you asking about the time it takes to reopen the new spaces?

Yes, correct. So, some spaces are gone, for example, in High Street Phoenix (Phoenix Palladium Mumbai), and (Phoenix MarkeCity) Bangalore also you alluded, some stabilization, (Phoenix MarketCity) Pune as well, some, I think change in occupancy is what you indicated. So how long will your rejig exercise take before we start seeing again, you decent growth there?

Okay. I think in terms of some of these spaces coming back, (Phoenix MarketCity) Bangalore and Pune you will see the spaces coming back with new formats and new brands within the next 6 to 9 months. Some of them are already actively under fit out and some are kept ready and we are just finalizing the lease agreements for new tenants to move in and commence their fit outs. At the same time when we are talking about Bangalore , we are also adding and operationalizing the 3rd floor in Bangalore during this year, second half of this year which is new retail area of about 170,000 sq. ft. which will house an exciting mix of F&B and some new age anchors opening their first-time stores within our mall portfolio and that will also enhance the overall area and together with the planned churn and revamp that we have, I think FY27 should prove to be a very strong year for (Phoenix MarketCity) Bangalore in terms of consumption both on account of new brands as well as additional area. In Phoenix MarketCity Pune, at this point we are not adding any new area, but in Phoenix MarketCity Mumbai, for example, we are adding about 50,000 sq. ft. of new area which again is being added within the current development of the mall. So the time to make it operational is very quick and you should see the impact of it by the end of this financial year. Now when we come to Phoenix Palladium Mumbai, there is the new zone that we have added which is Rise 2 (Phoenix Palladium West Zone) which is about 250,000 sq. ft. and which should become fully operational by June of this year. Currently retail stores are operational which are on the ground, first and the second floor and the F&B and entertainment floors are under fit outs, which would see a stagger ed opening between now and June -July for the various F&B village and entertainment destinations there. The Courtyard retail, which is undergoing revamp, that together with what we are doing in Rise 1 (Project Rise) in terms of retail and the revamp of the Lifestyle block, I think will in aggregate add about 450,000 sq. ft. of new retail area. Again, we will give more updates on it in the coming quarters, but I think you should see the new retail space coming through in the next 2 years, so 8 to 9 quarters from now.

So you said 100,000 sq. ft. down and plus 450 ,000 sq. ft. or is it 450 ,000 sq. ft. in addition to the 100,000 sq. ft. which has come back?

So Rise 1 (Project Rise), Puneet it is about 200,000 sq. ft. as we have disclosed previously. And between the revamp of Courtyard Retail and Lifestyle block, we were at about another 250,000 sq. ft. So it is, in aggregate, you would have another 350,000 sq. ft. of additional retail area in Phoenix Palladium.

Understood. That's really helpful.

I would just add that new area as well as new age brands actually drive a significant upside in trading densities and consumption profiles across our malls and we are already seeing that with the addition of these new anchors in Rise 2 (West Zone) at Phoenix Palladium where (we have) Uniqlo and Bershka.

When does Rise 1 come, along with this 450,000 area, what is timeline for that?

Puneet, two years from now.

Understood. That is helpful. Secondly, also if you can comment on Citadel and Palladium Ahmedabad which have done some bit of tenure, and have they achieved peak there in terms of near-term trading density or is there a significant initiative being taken out to further push up the momentum?

I think Palladium Ahmedabad has done extremely well and the ramp up has been quite exciting to see in Palladium Ahmedabad and during the coming year we in fact expect occupancies to further increase from the current 95%. The entire area is leased up now and we have also given space to some exciting new brands. So, in the full year impact, I think you should continue to see double digit growth in Palladium Ahmedabad. Palladium Ahmedabad has established itself as a new modern premium destination for the city and with our brand mix and marketing programs, I think they should perform quite well in the coming year as well. Indore as well, while the growth has been a bit muted during this year, it has grown in double digits , but we would have expected the growth to be much stronger, but I think there are some very exciting infrastructure developments in Indore with the authorities constructing multiple highways on all sides of the mall. There is a bit of a constraint in access to the mall at this point in time, but with the highway activities scheduled to be completed in the next 12 months, we believe that access to the mall will improve multi -fold, and we should see very strong growth in consumption going forward in Indore in FY27 and beyond.

Understood, that's very helpful. And just last question, then I will come back in the queue. If you can also talk a bit more on the commercial office space leasing, should we expect material leasing to happen in FY26 or does it look like more an FY27 pickup event?

I think in terms of leasing, Puneet, you will see material leasing happening in FY26, especially I think if I add the pipeline that are under active discussions between Pune, Bangalore and Chennai, we are talking about 1.2 to 1.4 million sq. ft. of leasing discussions going on across these three new offices and we should see significant conversions during this year.

Understood. That's very helpful. Thank you so much and all the best.

Thank you.

Thank you. The next question is from the line of Saksham Mongia from Dymon Asia. Please go ahead.

Thank you for the opportunity. I have 2 questions. First is related to the consumer demand, moderation and rising competition in real estate. Are you seeing increased instances of rental negotiations or brand exits? How does this compare to the past cycles that you have seen? And what actions are you taking to protect trading density and the rental lease going forward? Second, w ith the global supply chain disruptions and macro risk, how are you managing exposure across international brands and domestic brands? And which categories or tenants appear to be most vulnerable in the current environment? These two questions from my end.

Hi, Saksham. Thank you for your questions. I think to your first question, Saksham, I would say that our malls have established a very strong and a credible performance track record over the last several years. And we just don't create great malls, we actually create destinations where we engage deeply with tenants and consumers to drive a differentiated experience. We continue to invest in future -proofing our retail destinations by adding complementary asset classes such as offices and hotels and with improving infrastructure and brand profile, we remain confident that our malls will continue to do well going forward as well.

Thank you and on the macro?

I think on the macro, Saksham, at any point in time we retain a very balanced approach. We don't have overexposure to any one particular category or group. We maintain a balance between both exposure to domestic brands as well as international brands. My view is that India is a retail market of significant size and scale, and it remains quite under-penetrated. So it is a market which is going to remain in focus for all tenants, both global as well as domestic. And in fact, if any, there are better placed people to comment on it than us, but impact if any, think it's going to be limited and restricted for a short term. We also believe that the consumer catchment across our mall portfolio is significantly densifying and with improving infrastructure, governments are increasing the development of vertical residential and commercial buildings, which actually increase the addressable population within the very immediate catchment for us and this is a story that's playing out across cities in India. So, from that perspective, if the catchment profile is strong and India macro story remains intact, we believe that consumption impact, if any, would be transitory in nature.

Thank you for the detailed answer.

Thank you. The next question is from the line of Varun Thakkar from FYERS Asset Management. Please go ahead.

Hi sir. So I just wanted to better understand the leasing agreement structures you have in your retail portfolio, I mean specifically how the revenue share component is structured and at what threshold it typically kicks in? So that will be my first question.

Sure Varun, our leasing agreements are typically structured as fixed rent or revenue share, whichever is higher. Revenue share for any particular retail brand is actually driven by the margin economics for that particular category and it could vary across fashion categories as well as say gold or jewelry or watches which tend to be high trading categories, but they have a lower margin profile. You can connect offline with Karl and Madhurima for better clarity and granularity on this topic. They are in a great position to explain this to you.

Alright, I just like had a follow up. I mean, when does this typically kick in , know, like is it when the total sales threshold is crossed or is like you have escalated thresholds and like what proportion of your tenants are currently paying revenue over the minimum guarantee in your top performing malls?

So, Varun, typically about 70% to 75% of the tenant mix hit the revenue share threshold. Now revenue share is payable when the revenue share component crosses the fixed rent component. So from that perspective, I would say that about 75% of the tenants are right now hitting the revenue share threshold at this point in time. And how operationally it works is that on a monthly basis you test based on the audited sales figures given by the retailers, whether the revenue share is payable or not. And if any is payable over and out of fixed rent, then there is a separate billing that happens for that.

Okay, thank you sir, I'll just join back the queue. Thank you.

Thank you.

Thank you. The next question is from the line of Parikshit Kandpal from HDFC Securities. Please go ahead.

Hi team, congratulations on a decent quarter. My first question is on consumption. So now if I see a matured mall, so Phoenix, Palladium, Mumbai, consumption is almost flat, trading density is negative. Bengaluru, again, we seeing mall consumption is again negative, minus 1% further here. Pune there has been some growth, about 7%. So the malls are not even delivering inflation. So what is happening in these malls and what are we doing to improve the consumption here?

Hi Parikshit, Varun this side. I think in the opening remarks, Parikshit, we had outlined reasons for some of the impact that we saw in Phoenix Palladium, (Phoenix MarketCity) Bangalore and Pune. So Bangalore, in particular for example had a trading occupancy dip of about 10 % and that is because strategically we have taken over the area from the hypermarket and we are creating a new anchor zone in here. Now as you are aware hypermarket s typically have a low trading density and fashion stores typically will end up doing a trading density which is 3x to 4x higher than that of a hypermarket. So, the revamp of this space along with some other areas that are under-fit out overall should help us revive and demonstrate very strong consumption and rental growth FY27 onwards. I also spoke about you know, Bangalore getting new area in the form of an expansion of the third floor, which would add about 170,000 sq. ft. of additional leasable area, which again should become operational by the end of this coming financial year. Similarly, in Pune, we have taken space from our home furnishing anchor as well as a fashion anchor and we have replaced a few of the older restaurants. This is all with the perspective of revamping and elevating the brand experience and the consumer experience at these centers. They remain flagship centers, and they are catering to the best city center locations in each of the cities that they are present in. So, with the introduction of new age modern anchors and densification of brand stores across high-performing categories such as gold, jewelry, watches, cosmetics and accessories, we will remain confident of delivering strong growth from these locations going forward. As far as Phoenix P alladium is concerned, Pari kshit, we have also undertaken some revamp of the retail area in the Courtyard section of the mall. This includes the Hamleys store, Nike and some other prominent retailers . So about 100,000 sq. ft. of the area is currently being redeveloped and revamped into a modern new age ready destination. That had a negative impact of about Rs. 40 crores directly in consumption and about Rs. 7 crores in rental income for the quarter. Annualized impact would be about Rs. 200 crores in consumption and about Rs. 40 crores in rentals.

The only question here is that the traditional consumption format somehow has slowed down and which is the reason you are revamping towards more new age consumption formats. But do you think you have enough to fill in because you'll have to keep re-engineering this and then there will be a period of..

If you look at historically any mall which has been operating, any of our malls have been operating for the last 15 years, you will see that it is very routine in our business to go through a significant change where we have enhanced these assets, right? S o the addition of retail space, taking back older formats, these malls are evolving, customer aspirations are evolving. Varun touched upon in the opening statements about the performance of some of our fantastic stores, Bershka highest performance in the country, I mean globally ever in any store since they've launched, right? So , the customer aspiration is changing ; we have to keep enhancing the asset to accommodate for these newer brands which are more relevant in today's time. So you go through these cycles and that is exactly what's happening at Phoenix Palladium, Mumbai. That's exactly what's happening at Bangalore and also has happened in Pune. So this is very routine in our business. Because we do these things, it's like a machine, right? You have to keep optimizing it and that's exactly what we're doing. Because we do this, we continue to see consumption growth high for a relevantly long period of time and then again you undergo this churn, you undergo the asset enhancement, again for a little while you will see for maybe a period of two quarters you'll see a decline or flattish consumption, then again you will see growth. This is very routine in the mall business.

Got it, Shishir. My second question is on, as we are ramping up and renewing the format or the pattern of consumption towards new age, they are also increasing competition in the vicinity with at least two new malls, large malls coming in by Prestige and Oberoi. It'll take 3-4 years for them to come, but so how do you read into the competition and do you think that that micro market has enough consumption pool that will continue to grow on sustainable basis of high single digit?

I would like to address this in two parts as you identified. One is the market, there is substantial demand and with the improving infrastructure in that area, I think a lot more people will come to this part of the city, even from places like Bandra and beyond, right. So, it's becoming very, very convenient. We have always taken the same approach that we have always executed in the past and that has worked for us, where we want to have a great variety and we want to compete with size and scale and hence we have undertaken this significant asset enhancement at Phoenix Palladium, Lower Parel. What we are building there, what kind of brands that are likely to come there are going to be one of a kind and we hope to be in pole position with all of these actions that we are taking in that market.

Sorry, Parikshit, may I just ask you to repeat the question? Were you asking about Thane?

Yes, Thane. So what do you want in Thane, and when do you really break the ground on that asset?

So, Parikshit, it's going to be a retail -led mixed-use development with a retail mall in size of about 1.2 to 1.4 million sq. ft. We have secured most of our approval permissions at this point in time and in fact, the demolition of the old factory structures is currently underway, and we will start preparing grounds for commencing excavation very soon. In terms of operations at this point in time, I would say that launch should be somewhere towards end of FY29 keeping enough safeguards in terms of board approval timelines and construction timelines.

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

Yes. Hi, Varun. Hi, Shishir. Just a question on the commercial piece. In the more near term, you've got a lot of commercial real estate which is getting its OC. You talked about the leasing pipeline, but is there any agreements which have been signed which could start contributing to rentals this year or a lot of that pipeline still needs to convert to formalized agreements. And so the rental contribution from the commercial piece would only start more in FY27. Just a clarification on that?

Sure, if I may take that question, Murtuza, maybe I should have mentioned it in my remarks. We have done leasing of about 120,000 sq. ft. and those spaces are currently under fit -outs with a couple of the smaller spaces commencing their rent payments in quarter four. It's a smaller contribution at this point in time, but from second half of this year, you should start seeing a more meaningful contribution both from the area that we have leased as well as the new discussions that are underway right now.

Okay, so it's going to be more towards the end of the fiscal in terms of the incremental office spaces contributing to rentals and a full year benefit should be more in FY27, is that fair?

Yes, I think considering the both agreement timelines and the fit out timelines, I would presume that you should see a more meaningful contribution from quarter three of this financial year.

Okay. Thank you.

Thank you. The next question is from the line of Parvez Qazi from Nuvama Group. Please go ahead.

Good afternoon, Varun and Shishir. So two questions. First, it would be great to get some more details on the additional FSI purchase that we have done in Lower Parel? And second, excluding this FSI purchase, if we total up all your other plans over the next 5 years, by FY30, what is the total CAPEX which will need to develop all those assets? Thank you.

Sure, Parvez. Varun this side. I will take the question on the FSI and Lower Parel and then I will hand it over to Kailash to comment on the CAPEX part. I think overall as we mentioned we have acquired development rights of about 136,000 sq. meters which is at a consideration of about Rs. 585 crores. At this point in time, we are currently in our design development stage and finalizing the asset mix that we intend to add to the Lower Parel's development. We are still in early stages, so as we progress on our designs and plans, we shall more debate in the coming quarters. I would now ask Kailash to come in and comment on the CAPEX part.

Parvez, as you have seen in the past for last three years , on an average we are doing around Rs. 1,000 crores to Rs. 1,200 crores annual CAPEX. I think this will be maintained even for next five years for sure. I mean of course this will, I mean any other acquisition or a bigger FSI purchase will be over and above that but on a construction side the number should be restricted to around Rs. 1,200 crores every year for next 5 years.

Thanks and all the best.

Thank you. Ladies and gentlemen, that was the last question for today. With that, we conclude today's conference call. On behalf of Phoenix Mills Limited, that concludes this conference. Thank you for joining us and you may now disconnect the lines.