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Phoenix Mills Q1 rental income growth below expectation

Under-construction malls will add ~Rs 5 bn of rentals by FY23-24 (on current rental base of ~Rs 10 bn).

Q1 rental income growth at 7% YoY (9% in Q4) was below our expectation of 10% on lower consumption growth of 5% YoY (6% in Q4).

Consumption growth was impacted by upgradation/churn at its malls resulting in lower trading area. Management expects the impact to be transient and consumption to rebound Q4FY20 onwards as upgradations/renewals start yielding revenues. We expect its existing malls to post 13-15% CAGR over next 3-4 years. Under-construction malls will add ~Rs 5 bn of rentals by FY23-24 (on current rental base of ~Rs 10 bn). As PML plans to generate considerable FCF (~Rs 5 bn annually), it continues to scout for opportunities in underserved tier 1 markets across India. Further, PML has ~2.5 msf of development potential within existing portfolio (incl. 1.5 msf at HSP) and net cash flow of ~Rs 27 bn from development business that can drive growth, while keeping leverage under check.

Despite a 1% YoY decline in consumption at High Street Phoenix (HSP), rental income grew 5% YoY led by 5% increase in average rental rate. Subdued rental income growth at Chennai (up 4% YoY) and Bengaluru (up 6% YoY). However, Pune and Kurla clocked double digit growth of 12% and 10% YoY respectively. No new sales were booked in Q1. Launched Tower 7 in July and has received strong response. Revenue moderated to Rs 2 bn in Q1 after posting strong Q4 (Kessaku revenue recognition).

Phoenix Mills Ltd (PML) has amalgamated its subsidiary Phoenix Hospitality Company Pvt. Ltd (PHCPL) in which PML held 56.92% stake and balance 43.08% stake was held by Ruia International Holding Company Pvt. Ltd (RIHCPL – a promoter group entity which held 32.18% stake in PML out of the promoter holding of 62.75%). It’s a non-cash transaction and as a result of the amalgamation, PML will allot 6.27 mn shares to RIHCPL, which we believe is being done at arm’s length (our estimate of 6.4 mn shares).

Consequently, the Promoter group holding in PML shall increase by 1.46% to 64.21% from 62.75%. This is subject to approval from regulatory bodies.

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Source: Financial Express