Phoenix Mills Ltd

NSE:PHOENIXLTD

Earnings Call Transcript 2022-Q4

[Operator]

Ladies and gentlemen, good day, and welcome to the Q4 and FY '22 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; Mr. Varun Parwal, Deputy CFO; and Mr. Pawan Kakumanu, Deputy CFO. [Operator Instructions] Please note that this conference is being recorded.

At this time, I would like to hand over the conference to Mr. Shishir Shrivastava. Thank you, and over to you, sir.

[Shishir Shrivastava, executive]

Thank you very much. A very good morning, ladies and gentlemen. As always, we take pleasure in welcoming you all to discuss the operating and financial performance of the fourth quarter and full year of FY '22. I'm happy to inform you that business operations across all our retail destinations and commercial office and hotels have normalized in this preceding quarter, and we are seeing very encouraging trends in consumption across all categories.

I will now take you through the key highlights of our results. To start with our retail business, consumption across our portfolio in FY '22 was at approximately 71% of FY '20 and approximately 73% of FY '19. Barring the impact of the Delta wave in the first half of FY '22, and the Omicron wave in the month of January 2022, consumption across all categories had recovered to pre-COVID levels in the year ending March 2022.

We have seen a strong recovery in consumption growth in the second half of FY '22. Consumption came in at approximately INR 1,670 crores in Q4 FY '22, which was at about 103% of Q4 FY '19, the pre-COVID quarter. Excluding Phoenix Palassio, Lucknow, the new mall launched in July 2020, consumption in quarter 4 FY '22 was at 92% of quarter 4 FY '19. Consumption growth has been on a firm uptick month-on-month and it stood at approximately INR 720 crore in April 2022, which was at about 129% of April 2019.

We have further seen very strong trajectory in the first 3 weeks of May 2022, and the consumption across our portfolio is up over 25% when compared to the period of May 2019. In line with consumption growth, our retail rental collections have also improved substantially. In Q4 FY 2022, our collections stood at approximately INR 476 crore, while for the full year of FY 2022, it was at about INR 1,174 crore. Collections remained strong in April 2022 at over INR 170 crore.

I'm also glad to share that we have resumed marquee events, live concerts and activations across our malls in the recent months, post the easing of restrictions, which has further aided consumption growth. Overall, we are cheered by the momentum that has been built up in consumption across all our malls, and we are confident the trend should continue going forward under normal operating conditions.

Moving on to our commercial office business. Our office portfolio continues to remain resilient. We have seen strong leasing traction during the financial year FY 2022, with growth -- with gross leasing of approximately 4 lakh square feet. Collection efficiency for the office portfolio was at 96% in FY '22. Office income was up 22% year-on-year at approximately INR 158 crore. The office segment has benefited from rental contribution from Fountainhead Tower 2 at Pune in FY '22 as well. The leasing momentum has continued in FY '23 with gross leasing of over 120,000 square feet during the months of April and May.

Our Hotels business has shown strong improvement on the back of higher occupancies, social events and food and beverage consumption. Revenue for March, April 2022 is 4% higher than revenue for the pre-COVID period comparable -- for the pre-COVID comparable period of March-April 2019. In quarter 4 FY '22, we witnessed gradual improvement in average room rates and occupancy levels, which have breached pre-COVID levels despite the transient impact of the Omicron wave in January '22.

I'm pleased to inform you that occupancy levels reached 90% in the month of March '22 and 92% in April '22 at the St. Regis, Mumbai. While ARRs in April '22 are at approximately INR 11,700 and at par with pre-COVID levels. Further for May '22, we have seen ARRs crossing INR 12,400, which are far above the pre-COVID levels. The operating performance at the St. Regis, Mumbai has surpassed most parameters in the past couple of months. led by a resumption of foreign travel, domestic corporate travel, social events and staycations. These factors provide an excellent visibility for higher occupancies and ARRs in the coming months.

Additionally, most venues on the hotel's 37th and 38th floor were under innovation and did not contribute to the revenue in the last financial year. And they have opened, a few of them have commenced operations in the last week and the others will commence operations during May and June, which will further add substantially to the monthly revenue run rate. Our hotel at Agra, the Courtyard by Marriott, also had a good quarter and contributed approximately INR 8.4 crore in Q4 FY '22, with average Q4 occupancies of 55% and ARR is reaching INR 4,300.

Moving on to the residential business. We have witnessed very good traction in residential sales, mainly led by the reconfiguration of our Kessaku development into smaller apartments and the robust demand for ready-to-move-in inventory. Overall sales in FY '22 stood at about INR 341.5 crore out of which INR 153.5 crore of sales is pending registration. We have booked sales of about INR 180.8 crore in Q4 FY '22.

Collections in Q4 FY '22 were at INR 97.8 crore and for the full year at INR 276.5 crore. During Q4 FY '22, we registered agreements for inventory worth INR 57.9 crore. And for full year, it's -- this number stood at INR 188 crore approximately. We continue to see a strong buildup in demand and faster conversions for our ready inventory. We are stepping up our efforts to sell inventory by launching attractive subvention schemes for the entire development, special offers on ready-to-move in apartments and digital marketing campaigns to widen the reach of our product. Momentum in sales is expected to continue in the coming quarters as well.

Moving on to an update on our under-construction projects. Our current pipeline of under construction malls, Phoenix Millennium at Wakad, Pune, Phoenix Citadel in Indore, Mall of Asia at Hebbal in Bangalore, Palladium at Ahmedabad and the new mall in Kolkata will take our portfolio to approximately 13 million square feet of retail GLA. Construction work at all our sites continues in full swing and retailer interest for leasing spaces at our malls remains extremely high. We have seen some fantastic traction on leasing in the quarter gone by.

Phoenix Citadel, Indore is expected to open around September '22. We have seen approximately 74% of the retail GLA being leased so far. Phoenix Palladium Ahmedabad will also be open to public by mid of FY '23, and we have already leased 85% of retail GLA here. Phoenix Mall of the Millennium in Pune and Phoenix Mall of Asia at Hebbal, Bangalore should become operational by the first half of FY '24 with Phoenix of Mall of Millennium Pune currently being leased at approximately 51% and Mall of Asia is currently leased at approximately 66%.

At our flagship property in Lower Parel for the new development project rise, we have received the environment clearance for the project, and we have awarded the initial shore piling contract. We expect to commence excavation soon. For our Calcutta project, we have received approvals of the building plans in April '22 and expect commencement of work in the coming months. We have already commenced work on expansion of our Mall of Asia development with Asia Towers construction having commenced, construction for offices at Wakad, Pune and at our existing development, Phoenix MarketCity, Bangalore at Whitefield will also commence shortly.

In the last month, we also concluded a stake purchase from our partner in Classic Mall Development Company, taking our stake up to about 200%. 50% of the equity stake in Classic Mall developers was owned by Crest Ventures Limited and Escort Developers Private Limited, a 100% subsidiary, and Phoenix Mills Limited own 50% in the company. Post this acquisition, Classic Mall is now a wholly owned subsidiary of Phoenix Mills Limited, effective May 5, '22.

For this transaction, Phoenix Mills has paid approximately INR 936 crore to the sellers to acquire this 50% stake. Crest and its associated companies have repaid ICDs of INR 251 crore back to Classic Mall. Classic Mall has also received approximately INR 97 crore on account of the OFCD redemptions from its associate company, Starboard. So effectively, net cash outflow for this transaction stands at approximately INR 637 crore. The company has funded the acquisition by way of internal accruals and cash on its balance sheet. This transaction is a testament to our strategy to prudently deploy capital and consolidate stakes where we feel the investments are most value-accretive.

May I now request our Group CFO, Mr. Anuraag Srivastava, to update you on the financial performance. Thank you.

[Anuraag Srivastava, executive]

Thank you, Shishir. Good morning, ladies and gentlemen. Thank you for joining us on this call. Continuing with the briefing which Shishir gave, I would like to share with you some of the key highlights of our consolidated financial performance.

Income from operations for FY '22 was about INR 1,483 crore, which was up about 38% year-on-year basis. Income from quarter 4 FY '22 was INR 495 crores, which was up 28% year-on-year. EBITDA for FY '22 was about INR 733 crores, up 49% year-on-year and for quarter 4 at INR 241 crores, up 39% year-on-year. Reported PAT for FY '22 was INR 263 crores, and for quarter 4 was INR 117 crores, which is up by about 101%. Quarter 4 FY '22 retail EBITDA mirrored consumption recovery and came in at about 106% of quarter 4 FY '19, which is a pre-COVID quarter and about 119% of quarter 4 of FY '20. FY '22 retail EBITDA was about 80% of FY '20 retail EBITDA.

Moving on to our commercial office portfolio. The commercial office portfolio reported a total income of about INR 43 crores in quarter 4 and EBITDA of INR 27 crores. Our total commercial income for the year was at INR 158 crores and EBITDA of INR 98 crores. On the hospitality end, INR 54 crores in quarter 4 FY '22 and INR 173 crores in -- for the full year FY '22.

On the collection side, we had a very good year for collections, and we collected about INR 1,800 crores of collection, I'm just rounding off the numbers. Retail collections were at about INR 1,174 crores, commercials at INR 169 crores, residentials at INR 277 crores and hotels at INR 173 crores. During the year, we also did multiple transactions with our long-term partners, CPPIB and GIC. Total inflow from these transactions was approximately INR 2,600 crores for the year. We have further funds of over INR 1,150 crores, which is to come from this transaction. This is certain defined milestones across our projects in Calcutta, Lower Parel and our continuing investment from GIC on the Vamona and Offbeat properties.

Our CapEx was about INR 267 crores for the quarter and INR 1,200 crores for the entire year. FY '22 CapEx includes amounts spent towards acquiring FSI and approvals for the office-led mixed-use development at Lower Parel for about INR 350 crores as well as payment towards land from Plutocrat to PML of INR 350 crores. Including these expenses, balanced CapEx across rest of the portfolio is about INR 700 crores.

As Shishir mentioned, we are targeting a Diwali launch for our malls in Indore and Ahmedabad, and a FY '24 launch for malls in Wakad and Hebbal. As a result, we'll see an increase in spending in these malls towards this year as we near completion of these 4 months and next few months. Further, during FY '23, we expect to commence construction at our retail site in Kolkata as well as Lower Parel, the commercial side. We also intend to commence construction of offices on top of our operational malls in Whitefield, Bangalore as well as under construction malls in Hebbal and Wakad. Therefore, our CapEx estimate for FY '23 is approximately INR 1,600 crores.

We have currently secured additional construction finance lines of INR 1,000 crores to fund the final leg of completion of our under-construction malls at Indore, Wakad and Hebbal. So far, construction of these malls have been funded entirely out of equity. And now for the last 6 to 12 months of funding, we'll draw on some of these construction finance loans to fund the balance construction.

Coming to the debt side, our consolidated gross debt stood at INR 4,380 crores as of 31st March '22 compared to INR 4,300 crores at the end of quarter 3, which is up by INR 75 crores. The increase is mainly on account of drawdown of debt towards under-construction mall at Ahmedabad and Indore, as mentioned above.

Average cost of borrowing is down to about 7.3% from 7.61% in December and 8.17% in last year, March closing. Currently, our lowest cost of borrowing stands at 6.40%. And we have been renewing our -- some of our portfolio at 6.40% to 6.75% levels. During the year, we have refinanced about 55% of our gross debt and were able to drive significant reduction in interest rates.

As overall interest rate in the economy starts to rise, our effort will be to minimize the impact of this on our cost of borrowing. We have potentially another 30% of our debt portfolio, which we aim for refinancing during FY '23, which could yield us interest rate benefits about 30 bps at a portfolio level and offset a large increase because of the rate increase by the RBI. For our office construction across portfolio and new mall in Kolkata will continue to fund the construction in the initial period by way of equity.

On the liquidity side, our liquidity position on 31st March was almost INR 2,500 crores. This includes INR 619 crores of unutilized or unutilized OD accounts. Compared to March '21, our liquidity position has improved by INR 1,750 crores, while gross debt has reduced by approximately INR 130 crores during the same period. At a group level, our net debt is about INR 1,880 crores and PML share of net debt is INR 1,253 crores. We are bullish on our business prospects and with a strong balance sheet and improved liquidity position like us, our focus is now to deliver on our under-construction projects in time and judiciously deploy our capital to expand our portfolio.

With this, we would close our opening remarks, and we'll open the call for interactive questions-and-answer session. Thank you.

[Operator]

[Operator Instructions] We have the first question from the line of Parikshit from HDFC Securities.

[Parikshit Kandpal, analyst]

Congratulations on a very strong quarter and especially the month of April. My first question is on consumption. Can you help us better understand or give granularity on this consumption growth of about 129% in April '19? If you can give more and how has the mix changed in terms of tenants? How much is the contributing factor from tenant? How much is the contribution from the social [ leases ]? So if you can give some color there.

[Shishir Shrivastava, executive]

Thank you for your question, Parikshit. If I understand correctly, you would like us to break this down on the contribution to the consumption growth coming from inflation. Is that your question? The line is not very clear.

[Operator]

Mr. Parikshit, I would request you to kindly go off the speaker phone, as there's a lot of disturbance coming from your background.

[Parikshit Kandpal, analyst]

Yes. Yes. So I was talking on inflation as well as on the base business side, if there has been any changes in the client mix, then you would have removed some nonperforming plans, so the rejig in the entire client portfolio because what I understand that the trading entity is still 10% lower versus -- sorry, trading occupancy versus leased occupancy, but still we are giving -- delivering almost 129% of April '19 numbers. So this number looks to be on a little on a higher side. So just wanted a breakup on the change in mix and also the contribution coming from the inflation?

[Shishir Shrivastava, executive]

So really, we've not seen a change in the brand in the category mix as such. We have seen a churn in brands within categories. As you are aware that there were a few brands that could not survive this period of COVID and certain brands which were not performing, we had to churn them out. Despite that, as you rightly pointed out that trading occupancy may be low. Our leased occupancy continues to remain across the board in the high 90s. Trading occupancy may be low because of several brands being under fit-out during this last year.

In context of the contribution, see we've seen footfalls recover to about 85% or thereabouts in this last quarter as compared to pre-COVID level, but the average spend per customer has gone up. And also, as you -- as covered previously, a lot of the trading density remains quite high with many stores not being operational and yet consumption moving up. Now it's very difficult with 300-plus brands at each location to really deep down -- to deep dive to understand how much of the growth has been as a result of inflation. To my knowledge, price escalations have -- if any, have only happened from the retailers' end in the last month or so. But generally, it is -- the consumption -- our sense is that the number of SKUs sold at all of these locations would still be higher than the pre-COVID period. So this is certainly not getting -- there's not a significant contribution of inflation in the last quarter. Going forward, yes, one is likely to see that.

[Parikshit Kandpal, analyst]

Sir, that was my next question. So do we see -- now see a higher consumption growth? Because if I compare last few years, you have been -- consumption has been growing at about 7% to 9%. And now if I adjust for the Lucknow consumption, like for like, the consumption is about 18% higher on the April '19 base. So if you're saying that inflation is still not very meaningfully contributing to this consumption growth. So the dual impact of inflation hitting in as well as trading occupancy is moving towards these occupancies. The base business growth on consumption could actually surprise positively in the coming quarters?

[Shishir Shrivastava, executive]

Absolutely. So we are already seeing this in the month of May. For the first 21 days, we've seen consumption already being 25% higher than May 2019, right, which was -- which FY '20 being the -- a big blockbuster year for us. So the base consumption growth itself remains strong. And this is further going to move up on account of price escalations, if any, done by the retailers, which translates to a higher revenue share for us. We are also entering the sales season in June and July, which will also boost consumption significantly.

[Parikshit Kandpal, analyst]

Okay. Great, sir. Just the last question on the business development pipeline, so you did touch upon last time about 4 to 5 new malls, which you are looking at like Surat, Chandigarh and Hyderabad and other places. So if you can just walk us through what any status update on that? Have we tied up any new land, greenfield lands? And lastly, on the capital allocation side, are we now incrementally looking to 100% owned lease new assets or again, we'll have some partners here. So what will be the capital allocation strategy given very low levels of debt, which we have on the book now?

[Shishir Shrivastava, executive]

Sure. So we have been actively looking for opportunities. In fact, I'm pleased to mention that we have an in-principle closure for our land acquisition at Surat along with our partners of the Ahmedabad mall. We are currently also looking for opportunities for assets own either 100% by Phoenix or under our joint venture with GIC in cities like Jaipur, Hyderabad, Chandigarh. And this is an ongoing part of our business.

We -- I think at every location, one can assume that the mall cost is going to be anywhere between INR 1,200 crore to INR 1,500 crore at an average, and we will be prudent in our capital allocation and not look at high leveraging. And we have the capital available on our own balance sheet and also in the joint venture with GIC. So we hope that in this coming year, we will be able to conclude Surat and perhaps another 2 line passes between Jaipur, Hyderabad, Chandigarh and another market. And these would be either in the GIC JV or directly owned by Phoenix depending on how the opportunities are viewed by our partners.

[Parikshit Kandpal, analyst]

Okay. So congratulations on all the best. I mean, hopefully, we do hear something on Surat.

[Shishir Shrivastava, executive]

I want to just add on to that one point. We will continue with our current approach in all of these new greenfield projects, where we will look at funding the initial stages of construction through equity, and look at construction finance only towards the last 18 months or thereabouts of the project cycle.

[Operator]

We have the next question from the line of Adhidev from ICICI Securities.

[Adhidev Chattopadhyay, analyst]

The question is now with this strong consumption growth on [indiscernible] you are seeing? What is that the INR 1,000-odd crores...

[Operator]

Adhidev, your voice is not very clear. We request you to kindly go off the speaker phone.

[Adhidev Chattopadhyay, analyst]

Yes. Yes. I'm on a hands-free. Is it better now?

[Operator]

No, it's still not very clear actually. There's some sort of a disturbance that is coming from your handset.

[Adhidev Chattopadhyay, analyst]

One second. Is better now? Yes. Sorry, I'll just go ahead with my question. So my question was [indiscernible]...

[Operator]

I'm sorry, Mr. Adhidev, but we still can't hear you very clearly. Can the management hear Mr. Adhidev clearly?

[Shishir Shrivastava, executive]

No, we cannot.

[Operator]

Mr. Adhidev, I would request you to kindly join back in the queue, probably reconnect to the call because there's some sort of a disturbance in your line.

[Adhidev Chattopadhyay, analyst]

Is it better now or...?

[Operator]

No sir. It's still [indiscernible]. We will now take the next question from the line of Kunal Lakhan from CLSA.

[Kunal Lakhan, analyst]

My first question was on your Phoenix Palladium. Now if I look at your consumption at the Phoenix Palladium versus pre-COVID, it's almost at 98%, but your retail EBITDA is at about 85%. And if you look at most other assets side, your retail EBITDA is in line with the consumption trade compared to pre-COVID levels. Anything peculiar happening here?

[Shishir Shrivastava, executive]

Sorry, could you repeat the last part of your question again?

[Kunal Lakhan, analyst]

So for most of your other assets, right, your retail EBITDA as a percentage of your pre-COVID level is broadly in line with the consumption trend. But in case of Phoenix Palladium, right, it's at -- your retail EBITDA is at 85% versus your consumption is at 98% of the pre-COVID level in Q4. So what's happening over there? What's the reason for that?

[Shishir Shrivastava, executive]

So in -- we have quite a few upgrades happening at our Lower Parel asset. In fact, we are in the process of adding close to 600,000 square feet of retail space, of which about 200,000 is now nearing completion and will become operational soon. So there are certain expenses, which are booked for these upgrades on to the P&L. That would have brought our EBITDA percentage low. Additionally, in terms of marketing expenses, we have now amped up the marketing. So in the last quarter, we've seen a few of these live performances, a lot of marketing initiatives undertaken, which would have been impacted. But I would say that it would only be an aberration in this quarter, and we should track close to 100% on a normalized basis or even higher than that.

[Kunal Lakhan, analyst]

Sure. Sure. That's very helpful, Shishir. Again, second question related to Palladium again. The 60,000 square feet that we have leased or added this quarter, at INR 300 per square feet per month rent. The rent seems a bit low for that asset, your comments?

[Shishir Shrivastava, executive]

Yes. So this is the new space that we have opened at the lower ground floor of Palladium -- of the Palladium structure. And these are minimum guaranteed rents. In addition to this, of course, we have the percentage of revenue. We expect, again, on a normalized basis, this is going to track closer to the average or slightly higher than the average for that building, as the stores become operational and consumption moves up. We also have a few anchors which are obviously priced lower than the average for the mall.

[Kunal Lakhan, analyst]

Sure. Sure. And my last question was on -- if I look at the markets that you spoke about, right, Surat, Jaipur, Hyderabad, Chandigarh, like most of these are like Tier 1 cities. So would it -- I mean I just wanted to understand your thoughts on like do you think metros are kind of now or are adequately supplied or maybe oversupplied in terms of malls? Or would you look at opportunities in metros as well?

[Shishir Shrivastava, executive]

No, we continue to look for opportunities in metros where there is a potential. Now we believe that a market like Pune, where we have 2 malls, which will be with the one in Viman Nagar and the other one on the Western part at Wakad, we've covered that market. However, a city like Bangalore continues to have some opportunities in some markets. We have a city like Chennai continues to have opportunities in some markets. Certain parts of, I would say, Gurgaon, a certain micro market in Gurgaon has an opportunity for a mall. MMR, I would say, the Navi Mumbai belt continues to have an opportunity. So there are specific micro markets in all metros where there are opportunities for -- or rather where there's a huge demand, we believe an unfulfilled demand in terms of retail mall projects.

[Kunal Lakhan, analyst]

Any opportunities in terms of operational malls available for sale in these markets?

[Shishir Shrivastava, executive]

Not really. We've scouted the markets extensively, and it's difficult to find assets that meet our quality or design criteria.

[Operator]

We have the next question from the line of Puneet Gulati from HSBC.

[Puneet Gulati, analyst]

Congratulations on the strong numbers. My first question is, how should one think about the minimum guarantee range for FY '23. Will it be fair to assume that the last 2 years, which have been lost FY '21 and '22, the growth would be on the base of FY '20? Or should we assume a 4%, 5% CAGR growth in '21, '22 and building a minimum guarantee for a [indiscernible]?

[Shishir Shrivastava, executive]

That's a very good question, Puneet. So let me answer it by sharing with you that if we look at whatever was the exit rate for contracts that would have ended in FY '22, in the current year, where we are looking at either renewals or new brands taking up the same space, we would see anywhere between 11% to 12% growth from FY '22.

And again, this is only on the minimum guarantee rent. Over and above this, you would also see perhaps higher percentage of revenue share from the same brand of any category going forward. You may remember, Puneet, that for contracts which were expiring in the year of FY '21 and FY '22, we had extended those for short terms for 12 months or 18 months, which are also coming up for renewal in this -- or have come up for renewal in FY -- latter half of FY '22 or will be coming up for renewal in FY '23. So we expect to see this growth in the minimum guarantee rent and perhaps also on the revenue share percentage on all of these end-of-contract renewals or new leasing.

[Puneet Gulati, analyst]

Okay. You had alluded to this percentage share of revenue, will that be applicable for just a small period of time to recoup the loss centers in '21 and '22 or that be a new norm going into '24, '25, '26, '27?

[Shishir Shrivastava, executive]

So I would say for this first half of FY '23, we will continue to see a higher rental on -- or higher revenue share percentage on account of waiver negotiations or discount negotiations that we had done in the year FY '21 and part of FY '22. So we will see a positive impact on that. But for all new leasing as well the revenue share percentage in a few cases should certainly move up.

[Puneet Gulati, analyst]

Okay. And will that -- for new leasing, will there be a lower minimum guarantee? Or will the minimum guarantee standards remain intact?

[Shishir Shrivastava, executive]

No. As I mentioned earlier, we should see a growth in the minimum guarantee rent as well.

[Puneet Gulati, analyst]

Got it. This is helpful. And my second question is your malls are close to completion in Indore and Ahmedabad this year and Pune, Bangalore next year. There has obviously been a rise in construction cost as well. What impact has that made to your budget in terms of the total construction spend for these malls?

[Shishir Shrivastava, executive]

So I would say, fortunately for the malls that are under construction, we had progressed significantly on the RCC construction until the last 3 or 4 months. So the cost escalation impact on account of price escalations or input costs going up, the impact is minimal. For the subsequent phases of the project, which we -- which comprise of offices in a few locations like Hebbal and at Wakad, which are on top of our malls, we will -- we are evaluating what is the impact going to be. Steel prices and cement prices, of course, have gone up. But in terms of rupee value, we have to -- I don't have a number to share. But already, we are seeing some softening in the steel prices in the last couple of -- in the last week or a couple of weeks. So we don't expect to see a significant impact.

[Puneet Gulati, analyst]

Okay. So -- but there will be impact on the finished products, right, the marble whatever the...

[Shishir Shrivastava, executive]

Finished products, the impact is minimal because all the orders had been placed even for elevators, escalators, all the equipment, high-side equipment, all the orders have been placed previously and the pricing is locked. It's only -- the price escalations that we will see on account of increase in steel prices and cement prices will be for the subsequent phases of the construction which will take, let's say, another 24 months and all, and we expect the pricing to average out to lower than what it is today.

[Puneet Gulati, analyst]

Got it. Got it. That's very helpful. My third one is now that Chennai Mall acquisition is completed and paid for, when you did the calculation, what kind of cap rate did sign for purchase of that acquisition, for the mall for the balance of 50%?

[Shishir Shrivastava, executive]

So we looked at what are the FY '23 revenue, what is the FY '23 NOI potential, Puneet. And in fact, we are currently closing out our budgets for the next year. So effectively, this should be in the range of about a [ 9 ] cap based on 1 year forward [indiscernible].

[Puneet Gulati, analyst]

Understood. And lastly, the timeline for completion for Project Rise?

[Shishir Shrivastava, executive]

We are looking at FY '26 commencement of operations or perhaps latter half of FY '25 for some part of the retail, but FY '26 for the offices.

[Puneet Gulati, analyst]

Great. And if I can just squeeze one more. On your commercial offices now that you've started work on a lot of new assets, what kind of demand are you seeing? Has there been any interest for build-to-suit kind of tenants as well?

[Shishir Shrivastava, executive]

So we are tracking the RFPs in many markets, Puneet. As you are aware, our current portfolio is about 2 million square feet. And by FY '26, we should be at approximately 7.2 million square feet, including the Lower Parel project rise. So we've been tracking the RFPs in the markets of Pune and Bangalore, and there seems to be a very, very strong pipeline in both these markets, not just from IT, but also from corporates for front-of-the-house office space, which is essentially what we are building. There's nothing remarkable to report right now in terms of any build-to-suit discussions. But yes, there are ongoing discussions with a few tenants who are likely to take up sizes of 150,000, 200,000 square feet or more.

[Operator]

We have the next question from the line of Sourabh G. from Motilal Oswal Financial Services.

[Sourabh Gilda, analyst]

Hello? Am I audible?

[Operator]

Yes, you are.

[Sourabh Gilda, analyst]

So I just have 1 question on the commercial side. Just wanted to know how are the rentals on Pune commercial assets different from the micro market? Do we have any significant gap or is it at par?

[Varun Parwal, executive]

Sourabh, Varun this side. So in Viman Nagar, Fountainhead Puna is the latest Grade A commercial building that has become operational and the rest of the supply in the micro market is at least 3 to 10 years old. We are achieving a net rent in Fountainhead of INR 70 to INR 75 for all 3 towers. And I would say that, that has had some premium to the interesting trends in the market. We, in fact -- we have seen some good leasing traction in the first 45 days of this fiscal year as well. And so in fact, as of this morning, we have leased about 1.25 lakh square feet for our commercial offices. This includes new leasing of about 1.1 lakh square feet.

[Sourabh Gilda, analyst]

Okay. Good. Great to hear that. And one more thing on the tower 3, now that it has received OC. So the new -- how are the general [indiscernible] discussion happening and the recent [indiscernible] that you're talking about, is it on the Tower 3 or still on Tower 2?

[Varun Parwal, executive]

So Sourabh, right now, I would say that Tower 3, we have, in fact, leased the first floor in Tower 3, just a week ago. And Shishir alluded in his prior comment that we are in talks with some tenants for large areas wherein they can take multiple floors for our various commercial offices as well. I would prefer to give a more comprehensive update on Fountainhead Tower 3 sometime during quarter 2. So since we are still in early phases of discussions with multiple tenants for -- but I would say the response has been phenomenal, and we are trying to balance out both the quality of the tenant and the area that they are taking vis-a-vis the rent expectation that we have.

[Operator]

We have the next question from the line of Venkatesh from Tata Asset Management.

[Venkat Samala, analyst]

So my first question is now that we are trending quite well in terms of consumption versus 2019 levels. If you could give category-wise some trend as to how we are doing -- how these categories are performing versus 2019 level? Is there a broad-based recovery or there are some categories which are doing better than the other?

[Anuraag Srivastava, executive]

Yes. So some of the -- this is Anuraag here. I think we are seeing a very good traction in terms of jewelry and electronics are the 2 items, which we see along with fashions and accessories. These are in all the 3 categories which have come up. I think some of the cafes, restaurants and the movie theaters, et cetera, are just sort of coming back on track and the content is being released as we -- the pipeline of content is increasing. So that will come up over a period of time. But these are the 3 categories, which I think are doing better than the others.

[Venkat Samala, analyst]

Right. Right. And in terms of recovery, at least in terms of multiplexes we there at 100% level?

[Anuraag Srivastava, executive]

Yes. Yes, we are there at 100% levels.

[Venkat Samala, analyst]

Okay. Okay. Okay. Sure. My second question is with respect to Chennai Mall. So when we look at the other malls, they are meaningfully outperforming this mall, right? So given that even in April-May, whatever numbers you've given, we are above 100% level, but still there's some divergence in the performance versus other malls, right? So just to understand what's really happening there and if at all, we're taking any mitigative measures to improve?

[Pawan Kakumanu, executive]

Pawan this side. On the numbers that you are seeing for Chennai, this is a combination of Phoenix MarketCity, Chennai plus Palladium Chennai put together. An important thing to note is here, the hypermarket was Big Bazaar. And as you very well know, during the final quarter, hypermarket, which is a large contributor to consumption, Big Bazaar had its own issues. So that has been one of the impact here. We are now seeing stocks, et cetera, coming back and thereby expect this consumption to pick up. Even separately on the other Palladium Chennai Mall, we have initiated certain measures to ensure that we are able to generate the kind of pull that's this kind of asset deserves. And with these occupancies also moving up, we will see this come back pretty soon.

[Venkat Samala, analyst]

Understood. Understood. Right. Right. Right. So then when I see the leased occupancy also, it seems to be on the lower side at 90%. So do you expect that to pick up and therefore, then the consumption to pick up at a lag, right?

[Pawan Kakumanu, executive]

Absolutely. Absolutely.

[Venkat Samala, analyst]

Okay. Okay. Okay. Perfect. And my last question is when I looked at the EBITDA margins of the office vertical at mid-60s, it seemed to be slightly on the lower side, right, when I compare with the same vertical of some of the other real estate companies because generally, this is a vertical where the flow-through is quite good, right? So any reason for us to kind of lag there?

[Varun Parwal, executive]

So Venkat, Varun, this side, I think the reason for the low EBITDA margin, particularly for quarter 4 was on account of brokerage payments that we had done on account of new area leasing in Fountainhead Tower 2. Given that our overall portfolio is about 2 million square feet, and we have about 0.6 million square feet of new assets, I think the overall brokerage payment in relation to the reported EBITDA may appear a bit high, but as the portfolio spaced up this would normalize. On steady assets, you will see EBITDA margins of 75% for Art Guild House and Phoenix Paragon Plaza in Mumbai. And for Fountainhead, for example, if you see, Tower 1, which is 95% leased, there the EBITDA margin is actually at 90%. This is also to do with how these are structured in each respective market.

[Venkat Samala, analyst]

Right. Right. Right. So I mean, on a normalized basis, post-stabilization 75% is what we can expect, right?

[Varun Parwal, executive]

75% for Mumbai and 85% to 90% for Puna.

[Venkat Samala, analyst]

Okay. Okay. Okay. So it will be closer to 80% at a portfolio level whenever it stabilizes?

[Varun Parwal, executive]

Yes.

[Operator]

[Operator Instructions] We have the next question from the line of Niket Shah from Motilal Oswal Mutual Fund.

[Niket Shah, analyst]

I think most of the questions are answered. I just had 1 question. If you can talk a bit about the enhanced app and other tech initiatives that you're doing? And how should one think about some of these initiatives contributing into our P&L over the next few years?

[Shishir Shrivastava, executive]

Thank you for a good question, Niket. Yes, it's -- actually, I'm very excited about the subject. This enhanced app, we have really seen a lot of memberships and these are at different locations, but members can use the points that they earn across any of our locations. Bangalore recently breached the 100,000 members club and other locations, we'll be adding to that. What this is really doing for us is giving us a lot of insight into our consumer, customer journey within our malls. And it's also helping us curate experiences and shopping and products for them. We have, in fact, upgraded our digital initiatives across various areas. We have a very, very strong CRM platform that has recently been implemented, which is helping us maximize our reach to our customers. This is the enhanced app integrated with this, but we also have several other data sources, which add to this CRM's capability. We are currently working on an e-commerce omnichannel platform, which is backed by the retailers who occupy spaces within our malls. And this will give us, again, not -- it will extend our reach beyond the cities where we are currently located.

There are several other initiatives for customer convenience that we have recently incorporated and we are rolling out at multiple locations, which include involved in-mall navigation. We're talking about proximity marketing. We're talking about geo-fencing, mobile triangulation, have dedicated WhatsApp chatbot services, which are for customer convenience again and response to the queries. So we are seeing a lot of engagement. And of course, through our website and our social media handles. So we're seeing a lot of engagement opportunities with our customers. And we have put in place the technology to communicate with them, and that will also have a very positive impact on the consumption at our malls. I'm particularly excited about the omnichannel e-commerce platform, which we hope to have start the pilot in about 8 to 9 months from now. And that will also boost sales and open another channel for sales for our portfolio.

[Niket Shah, analyst]

Got it. So the enhance will be separate and the omnichannel is completely 2 separate part of the piece, the tech part of it?

[Shishir Shrivastava, executive]

They are all independent parts, but they come together cohesively in our overall digital setup. So CRM will talk to enhance, CRM will talk to omnichannel, our data science team will be getting access to all of this information to put together a more robust digital marketing program and to be able to also curate products and experiences. So it's all going to integrate seamlessly into the overall digital ecosystem that we are creating.

[Niket Shah, analyst]

Sure. And what would be the traction that you would have seen enhance app, like in terms of, obviously, there are number of numbers that you highlighted, but there will be some traction that you would have seen, right, where people would have generated points and started hooding in the vouchers and then that again leads to a virtuous cycle of consumption growth as well the numbers [indiscernible].

[Shishir Shrivastava, executive]

Yes. I would say we have more than 300,000 members across the app across multiple locations. And we are seeing -- we track -- we basically track our active users who are basically users who scan their bills and earn points. So just to give you an idea in Phoenix MarketCity, Bangalore, for the third quarter, we saw an average value of scan of about only -- of about INR 14-odd crore for that particular mall. But total since inception of that program since December '21 is about INR 44 crore. And this continues to grow. At Chennai, it's already grown to about -- we've had about 2 years of operations since we launched the program there in October 2019, we were shut for a year, let's say, during COVID.

So for about a year, we saw our value of scans going up to about INR 142 crore in that 1-year period. So we are very, very focused on continuously engaging with the enhanced members and incentivizing them to scan their bills and earn these points. The earn-burn ratio is averaged at about 30% for -- when we track it on a quarterly basis. And this number will also increase significantly. The rewards usage ratio. So when our members unlock coupons for rewards, we're seeing the usage ratio being as high as close to about 60%, 65%. And also, this enhance also gives us an opportunity in the future. Currently, we are partnering with our retailer brands at each mall and they are able to promote by way of in-app banners and videos promote their product, but there's also a monetization opportunity there in the future.

[Niket Shah, analyst]

Got it. Got it. My second question was -- and obviously, I'll take this off-line to understand better. But the second question was on the fee side of it, and I don't know if it's covered in the initial part of your remarks. If you can just give us some sense of what -- how should we really look at this line item over the next 2 years? And this is -- so one is that once you build your own incremental malls where you have partnership models, you obviously generate a fee income. But why not extend this entire fee income model to build malls for other mall owners, which are trying to come into the country, and that can also be a source of income. So is there a business model case there?

[Shishir Shrivastava, executive]

So at present, we are providing property management services and development management services and leasing services because these are resources that are housed within a subsidiary of Phoenix Mills Limited. So we are providing these services to our own malls, which sit in partnerships with other investors and partners. For this current year of FY '22, we've seen a fee income of about INR 100 crore from these malls spread across property management, development management and leasing fees. We expect this number for FY '23 to be in the range of about INR 150 crores, INR 160 crores. This bump up will be on account of the new malls opening and new projects going under development as well where we will be earning this fee income.

The second part of your question, whether we will be looking at providing these services to other mall operators and developers, I don't think that is our intent. We want to we want to utilize the maximum bandwidth that we have on a substantial portfolio of our own, and we see that we're going to be pretty busy for the next 5 years in building and delivering all our new malls. And just to give you an example, our leasing team in the last financial year was able to across our new malls, not the operational malls, across our new malls, they were able to deliver leasing of more than 4.2 million square feet. That translates into 1,300 -- approximately 1,300 agreements. That's the quantum of work that our in-house leasing team has contributed to the group.

[Operator]

[Operator Instructions] We have the next question from the line of Parvez Akhtar Qazi from Edelweiss Securities.

[Parvez Qazi, analyst]

So the first question is, what is the kind of CapEx which is pending in our mall and office portfolio?

[Shishir Shrivastava, executive]

Okay. Across our mall and office portfolio, which will also include the development at Lower Parel, the latest project, is -- I think the balance to be spent will be about INR 7,300 -- just allow me 1 second. I apologize for the delay, Parvez. We have a balance spend of about INR 4,600 crore across all the projects that are currently undertaken. This does not include Surat. But excluding Surat, the balance to be spent is about INR 4,600 crore. But we'll be happy to take this question offline and run you through the details.

[Parvez Qazi, analyst]

Sure. And last question is, what is the expected completion timeline for the Kolkata mall?

[Shishir Shrivastava, executive]

Kolkata, we expect to have it operational in FY -- latter half of FY '26 or early '27.

[Operator]

We do the next question from the line of Manish Agrawal from JM Financial.

[Manish Agrawal, analyst]

Two questions from my side. Firstly, the transaction Phoenix does not seem to have recovered in the April month. It is at 101%, while the average portfolio is much higher. So any particular reason for that?

[Pawan Kakumanu, executive]

This is Pawan here. In specific to our Kurla asset, we were able to start our marquee events only from the month of April and May that too in the later part of April. Now in all of our other assets, we were able to in some form or shape, be able to bring back events, et cetera. And as you very well know, events are a cornerstone of achieving the consumption that you have seen across all our assets. I think that's the only reason why there has been a slight lag here. But other than that, PMC Kurla, at least in the month of May, seems to be on track with others. Also, a very important thing is, from a leasing occupancy perspective and trading occupancy perspective also, Kurla has caught up a lot, and thereby, we should be able to see similar trends across all assets in our first quarter.

[Manish Agrawal, analyst]

Sure. Understood. Secondly, on the new malls, which are coming up, so Indore and Ahmedabad more specifically, what would be the trading densities which you can expect going forward or the consumption in these malls? Would they be in line with Palassio, Lucknow or broad sense?

[Pawan Kakumanu, executive]

I think it should be fair to look at consumption or trading density trends closer to Phoenix Palassio, which was the latest asset that we added in our portfolio, which definitely Ahmedabad trending a little higher than that, but Indore should be much, much closer to our trend that we have seen in Phoenix Palassio. This is specific to the trading density question that you had asked.

[Manish Agrawal, analyst]

Yes. Yes. Sure. And consumption?

[Pawan Kakumanu, executive]

Consumption should be a multiplier of that depending on the size. So basically, if you look at Indore, Indore is 1.1 million square feet. So obviously, the consumption will be a tad higher than Palassio. And Ahmedabad, effective with the higher trading density, should be able to trade at or higher than the gross consumption that Phoenix Palassio achieves.

[Operator]

We have the next question from the line of Pritesh Chheda from Lucky Investment Managers.

[Pritesh Chheda, analyst]

Two clarifications. One in the retail assets of our, what would be our blended holding post this transaction of the Classic Mall, so that we get an understanding of your share of the retail revenue or rental revenue, sorry?

And second, my question is on the office assets. There is a slide about new agreements of about 170,000, 180,000 square feet, so is it possible for you to give a 180,000. So is it possible for you to give us a view in terms of we have the capacity available, considering the Fountainhead 2, what kind of utilizations we'll see over the next couple of years?

[Shishir Shrivastava, executive]

I apologize, but can you just repeat your first question again?

[Pritesh Chheda, analyst]

I want to know our blended holding in the retail rental revenue.

[Shishir Shrivastava, executive]

You're talking about across the portfolio?

[Pritesh Chheda, analyst]

Yes, of the portfolio.

[Shishir Shrivastava, executive]

Okay. Let me put it like this, that we have -- in Phoenix MarketCity, Chennai, which is a 1 million square foot mall, we own 100%; Lower Parel, we own 100% of the existing mall, which is going to be roughly about 1.2 million square feet, excluding Rise; we have -- we own 100% of Phoenix Lucknow -- Phoenix Palassio, Lucknow; and the 2 smaller malls, Phoenix United at Lucknow and Phoenix United at Bareilly. In the other operational malls, Phoenix MarketCity, Bangalore, we own 51%. In Phoenix MarketCity, Mumbai and Phoenix MarketCity, Pune, we own about 67%. And we own about 74% today, and we'll be at 67% once the subsequent infusion is concluded by GIC. In the under construction malls, we own 50% across the board.

[Pritesh Chheda, analyst]

Okay. So the Ahmedabad is 50%.

[Shishir Shrivastava, executive]

Indore is 50%, Ahmedabad is 50%, Mall of Asia, Bangalore, Hebbal is 50%, Phoenix Mall of the Millennium, Pune is 50% -- 51%.

[Pritesh Chheda, analyst]

So from an existing portfolio, MarketCity, Bangalore, MarketCity, Pune and MarketCity Mumbai is where you have less than 100% holding. That's about whatever, 64% you mentioned, 64%, 65%?

[Shishir Shrivastava, executive]

So blended average would work out to about 86% overall GLA.

[Pritesh Chheda, analyst]

I was looking for that simple answer, sir. Okay. And on the office asset side, if you could give us what kind of leasing activity growth that you see over the next couple of years? So you have -- I think your -- you have leased out 890,000 square feet, which I can see from your presentation. This 890,000 should be what number in the next couple of years?

[Shishir Shrivastava, executive]

We are expecting -- okay. So our operational portfolio today is about 2 million square feet. This includes Fountainhead Tower 3, right? And out of this 2 million square feet, currently, we are at a leased occupancy of about 1 million square feet. And we are expecting this to move up to about 2 million in this current financial year.

[Pritesh Chheda, analyst]

In this current financial?

[Shishir Shrivastava, executive]

Yes. Over and above this, over and above this, we also expect to do some pre-leasing for the new offices, which are under development. We've set out some targets for our team on that, should be in the region of about anywhere between 600,000 to 800,000 square feet.

[Pritesh Chheda, analyst]

Okay. So this 1 million to 2 million you have the necessary visibility so it's all -- because I don't see in your presentation, usually, you have given in your retail assets, how much is pre-leased but you haven't given that in your rental assets, office assets.

[Shishir Shrivastava, executive]

We have shown what is the area leased. If you go to Slide #44 of our investor presentation...

[Pritesh Chheda, analyst]

Yes. I see the -- yes -- but from 1 million to 2 million, you haven't mentioned anywhere in the presentation. So that's why I'm asking...

[Shishir Shrivastava, executive]

Yes, because it's a forward-looking statement, and that's our best estimate at this stage.

[Operator]

That was the last question. I now hand the conference over to Mr. Shishir Shrivastava for closing comments.

[Shishir Shrivastava, executive]

Ladies and gentlemen, thank you very much for joining us for our Q4 and full year FY '20 investor call. We look forward to interacting with you during this coming quarter and at the next investor call. Thank you very much for your time.

[Operator]

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