Phoenix Mills Builds War Chest For Distressed Assets
Pedestrians walk past Phoenix Market City shopping mall, developed by Phoenix mills Ltd., in Chennai. (Photographer: Dhiraj Singh/Bloomberg)

Phoenix Mills Builds War Chest For Distressed Assets

India’s largest mall developer has readied a war chest to acquire distressed retail assets with the government now allowing malls to resume operations even as the number of Covid-19 cases rise.

Phoenix Mills Ltd. will use the recent fundraise of Rs 1,100 crore to cherry pick properties when normalcy returns by the end of the year, Shishir Shrivastava, managing director of Phoenix Mills, told BloombergQuint on Talking Point. “In four to five months, we expect to see further visibility to normalcy in our business and cash flows.”

“That would be the time we could convert this safety net into a war chest and use the money to go out and perhaps cherry pick some quality assets at very attractive pricing which could be greenfield, brownfield or operational assets,” Shrivastava said.

India’s lockdown to contain the pandemic was the strictest in the world as it completely stalled economic activity barring essential services in the first phase, before the government began easing curbs. Malls were among the last businesses allowed to reopen, nearly wiping out one full quarter. Consumption has cratered with job losses and salary cuts and the economy is expected to sharply contract this fiscal, first time in decades.

Phoenix Mills waived 50% of the rentals during the lockdown and renegotiated rental with 20-25% minimum guarantee and higher revenue share form stores sales, according to Shrivastava.

Its first-quarter revenue tumbled 78% over a year earlier. Retail space leasing contributes two-thirds of its revenue, while 28% comes from commercial real estate. The company last week raised Rs 1,100 crore through a qualified institutional placement, joining dozens of Indian firms that have raised cash to tide over the uncertainty stemming from the virus.

“We are looking at those Rs 1,100 crore as a safety net,” Shrivastava said. The company has cash and equivalent at Rs 750 crore as of June, which now stands at more than Rs 835, he said. Including the funds raised, he said, it is sitting on Rs 1,920 crore that will be used in the event things worsen.

Operational cash flow from the malls was about Rs 40 crore in the quarter ended June. But Shrivastava said the situation has improved since the lockdown curbs were eased. All the company’s malls, barring one in Chennai (1.2 million square feet), have resumed operations. Almost 5.7 million sqft of mall space has resumed trading, said Shrivastava, adding that the second quarter will be better.

The company is seeing revival in footfalls in cities where lockdown has been lifted, and with Maharashtra lifting the lockdown, it’s expected to improve further. While footfalls are still at 25-30% lower compared with a year earlier, average spends have risen by 2.5-3 times since July.

“We do expect some polarisation and consolidation in retail space with non-performing stores being shut down. However, we haven’t seen that in our malls,” he said. “Yes, there are some formats which is going through stress and food and beverage is one of them.”

How Retail Categories Are Faring

According to Shrivastava:

  • Categories electronics have seen high level of consumption. It’s anywhere between 78% and 80% of last year and at some locations have surpassed those levels, he said.
  • “Fashion is now picking up as we have seen in cities where there is no limitation on office occupancy or restaurants have become operational, you are seeing fashion and footwear sales have moved up significantly from where they were in June.”
  • Hypermarkets are seeing huge demand in some markets, and are facing issues with logistics and inventory.
  • Jewellery, watches, accessories almost average about 60% of last year’s sales. Home accessories started off very strong but are now stable at 45-50% of last year sales, he said.

Debt

The company has four malls under constructions across four cities, and it will spend up to Rs 300-330 crore in capex by the March 2021.

Phoenix Mills has funded bulk of the construction through equity and the company has equity to fund all these projects for the next nine to 12 months, he said.

Phoenix Mills plans to keep its 1:1 debt equity ratio, he said. So far it has funded almost Rs 2,900 crore by way of equity and needs to Rs 1,500 crore to complete four retail projects across four cities that will take its portfolio of retail assets to 12 million sqft.

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