Phoenix Mills Ltd

NSE:PHOENIXLTD

Earnings Call Transcript 2023-Q4

[Operator]

Ladies and gentlemen, good day, and welcome to The Phoenix Mills Limited Q4 FY '23 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded.

I now hand the conference over to Mr. Shishir Shrivastava. Thank you, and over to you.

[Shishir Shrivastava, executive]

Good morning, ladies and gentlemen. We take pleasure in welcoming you all to discuss the operating and financial performance of the fourth quarter and year ended FY '23. We hope you've had a chance to look at the results presentation shared by us. The same is uploaded on the stock exchanges as well as on our website. I will now take you through the key highlights of the results and with reference to relevant slides of the results presentation from time to time.

To start with the performance of our retail portfolio. Please refer to Page 4 onwards of the results presentation for an update on consumption at our retail malls in Q4 FY '23. Consumption in Q4 FY '23 stood at INR 2,211 crores showing a growth of 59% over Q4 FY '20. If we exclude contribution from the newly launched retail malls, which are Phoenix Palassio at Lucknow, Phoenix Citadel at Indore and The Phoenix Palladium at Ahmedabad, this number was 37% over Q4 FY '20.

Consumption at our retail malls was robust across categories in the fourth quarter. Some of the top-performing categories were: Jewelery, which is up 164% from Q4 FY '20; food and beverage up 64% from Q4 FY '20; fashion and accessories up 62% from Q4 FY '20; FEC, multiplex and entertainment up 61% from Q4 FY '20 and Electronics, up 58% from Q4 FY '20.

Turning to Page 5 of the presentation for an update on consumption at our retail malls in FY '23. This year, we witnessed the highest ever annual consumption of INR 9,248 crores, demonstrating a growth of 33% over FY '20 and slightly beyond our guidance of over INR 9,000 crores. If we exclude consumption contribution from malls launched in FY '21 onwards, which are Phoenix Palassio Lucknow, Phoenix Citadel at Indore and Palladium Ahmedabad, like-to-like growth number is at 19% over FY '20.

Collections from the retail mall business for FY '23 stood at INR 2,167 crores, maintaining the quarterly average run rate of over INR 540 crores, slightly ahead of our guidance of approximately INR 500 crores run rate per quarter.

Moving on to Page 6 of the presentation for an update on consumption for the month of April '23. Consumption in the month of April '23 came in at INR 851 crores, up 18% compared to April '22. If we exclude contribution from Phoenix Citadel Indore and Palladium Ahmedabad, then the like-to-like consumption growth is at 11% compared to April '22.

At Phoenix Palladium Mumbai, renovations were underway for 2 of our key stores, Zara and Reliance Digital, and this had a temporary impact on consumption growth. We are delighted to announce that Zara has now reopened at Phoenix Palladium in a bigger, better and more tech-savvy avatar.

Moving on to a brief update on our newly opened retail malls, starting with Palladium Ahmedabad on Slides 7 through 12 of the presentation. On 26th February 2023, we marked our first presence in Gujarat with the launch of Palladium Ahmedabad. We have some images of the retail mall and its beautiful interiors and art and decor uploaded on the presentation. The mall opened with a trading occupancy of 32% and with scaling completion of fit-outs, this has ramped up to 57% as of April '23. Trading occupancy will scale up closer to the lease occupancy of 93% by Q3 FY '24.

We are also glad to highlight that the trading density at this mall in the month of April '23 stood strong at INR 1,021 per square foot per month, breaking the INR 1,000 per square foot per month threshold very early on in its life.

Moving on to Slides 13 through 15 for an update on Phoenix Citadel Indore. We launched Phoenix Citadel Indore on 1st December 2022. Trading occupancy has shown a steady ramp-up and is now at 79% versus 42% in the first month of its operation, that is December '22. This mall represents many firsts for us. Not only is this our first mall in Madhya Pradesh, but it is also the first certified green building in our portfolio. We are pleased to announce that Phoenix Citadel Indore recently achieved 2 prestigious green building certifications, U.S. GBC LEED Gold certification and the IFC EDGE Advanced certification.

Phoenix Citadel in fact is the first retail asset in India to have received the IFC EDGE Advanced certification. These certifications reflect our commitment to a sustainable development model across our existing and new developments. And you will see more progress in this regard across other assets in the coming months as well.

Please turn to Slide 16 onwards for an update on our upcoming malls. We are gearing up for the launch of our second malls in the cities of Pune and Bangalore. The construction at Phoenix Mall of Asia Hebbal, Bangalore is progressing well. As can be seen from the photos, we are completing interior works. We have received the OC for the mall and multiplex recently.

Phoenix Mall of the Millennium at Wakad, Pune is also on track and expected to commence operations by Q2 FY '24, with the offices forming part of the mixed use development set for launch in FY '25. At our retail project in Kolkata, we have completed the demolition work of the old on-site structure. And currently, construction activities are progressing. Preconstruction work is nearing completion. We will soon commence excavation on the site. At Project Rise in Lower Parel, which also has a retail component, requisite approvals are all in place, excavation is nearly complete, and the RCC work on the tower foundation is in progress.

Now moving on to the financial performance of our retail portfolio from Page 25 onwards. In line with consumption, our rental and EBITDA growth also demonstrated an upward trend. Q4 FY '23 retail rental income was INR 340 crores, up 53% compared to Q4 FY '20.

Retail EBITDA for this quarter was at INR 349 crores, up 64% compared to Q4 FY '20. For FY '23, our retail rental income stood at INR 1,312 crores with a growth of 29% over FY '20. And retail EBITDA came in at INR 1,331 crores with a growth of 36%.

Moving to Page 33 in the presentation. In FY '23, we saw significant ramp-up in lease occupancy, trading occupancy and trading density over FY '22 across all our major malls. You will further see trading occupancy going up across our existing malls as we have several new retailers and formats under active fit-out currently, and we expect trading occupancies to move closer to 93%, 95% levels before Diwali 2023.

In the year FY '23, we have seen a cumulative leasing in excess of about 3.3 million square feet, with operational assets seeing approximately 2.2 million, including renewals and some churn. And at the new malls yet to be operationalized, we've seen leasing of about 1.1 million.

We are ready for FY '24 with renewed optimism, with the launch of 2 new malls within the next 6 months, a sustained consumption growth in existing malls, ramp-up at existing malls at Chennai, Pune and Kurla on account of new trading area becoming operational and consumption growth in our latest malls, Phoenix Citadel Indore and Phoenix Palladium Ahmedabad, demonstrating a significant upward trend.

Just to talk a little bit about the gross consumption. In FY '23, we've seen approximately INR 9,300 crores of consumption. We have an outlook for FY '24 to breach the INR 11,500 crores consumption number, of which we expect Ahmedabad and Indore to add about INR 1,200 crores. We have a robust event calendar for each mall in place with major spike events scheduled for weekends and engaging mini spike events for weekdays. We continue to invest in innovative eye-catching decor across properties and bringing the best of brands and categories in fine dining, food and beverage experiences. We gear all of these activities towards making each mall the de facto destination for consumption.

I will now request Anuraag to take you through the office, hotel and residential section and the overall financial results. Thank you.

[Anuraag Srivastava, executive]

Thank you, Shishir. Good morning, everyone. I would direct your attention to Page 34 to 40 for an update on the commercial office portfolio.

Our commercial office portfolio is seeing improving traction with gross leasing of about 4.31 lakh square feet in FY '23, of which 2.81 lakh square feet is new leasing and 1.5 lakh square feet are renewals. The total office income in quarter 4 of FY '23 stood at INR 43 crores, flat percentage year-on-year. Total EBITDA stood at INR 27 crores. Collection efficiency for the quarter was close to 97%, with a collection of about INR 47 crores. For the year FY '23, office income stood at INR 170 crores, this was up 7% year-on-year, and EBITDA was flat year-on-year at INR 98 crore.

We currently have active accounts of over 180,000 square feet under progress at Pune and Mumbai, which will add quarterly rental income of more than INR 5 crores. We expect contribution to fully reflect from quarter 3 FY '24.

Moving on to updates on under construction commercial office projects. These are covered from Page 38 onwards. At Phoenix Asia Towers Bangalore with a GLA of about 1.2 million square feet, roof slabs up to 9th floor have been completed. Interior work, lobby, common area finishing is currently undergoing. We have commenced construction for 2 of the 4 of Millennium Taj, Pune, and we expect to launch the same in FY '25.

We are also engaged actively across our under construction assets, particularly in Bangalore and Pune where leasing inquiries from marquee M&C clientele have been very strong, and we'll keep you posted on the leasing progress made in this result.

As mentioned earlier, construction has commenced at Project Rise in Lower Parel, Mumbai. At offices in Whitefield Bangalore, excavation and tolling is in focus, whereas Palladium offices in Chennai construction has commenced. Launch of these offices will progressively take our office GLA from 2 million square feet to 7 million square feet by FY '27.

Now moving on to hospitality business, please refer Page 41 to 47 of our deck. Starting with St. Regis, Mumbai. The St. Regis, Mumbai saw the first-ever annual gross revenue and EBITDA in FY '23. The operating performance has surpassed most parameters in last 12 months. This was led by resumption of foreign business and leisure travel, domestic corporate travel, social events and staycations. The year has been good in terms of F&B as well with launch of new venues, including Koishii, Koi Bar and high-end event space, which is called 38 Manhattan.

Total income for FY '23 stood at INR 404 crores. This is up 31% from FY '20, occupancy for the year stood at 84% and ARR was at about INR 14,851, which is up 21% from FY '20. Operating EBITDA came in at INR 180 crores, demonstrating a growth of 54% compared to FY '20. We have used the strong cash flows during FY '23 to reduce debt by INR 115 crores on this asset and also invest in CapEx for upgrading various facilities in the hotel.

Our second hotel, the Courtyard by Marriott, Agra, total income in FY '23 stood at INR 24 crores, which is up about 20% from FY '20. Occupancy for FY '23 was at 72% and ARR stood at INR 4,795 showing a healthy growth of 23% over FY '20.

Moving on to residential business covered on Page 46. We are witnessing very good traction in terms of residential sales, mainly led by robust demand of ready to move in inventory and faster conversion. We achieved an overall sale of INR 466 crores in FY '23. Collection in quarter 4 FY '23 was at INR 115 crores and FY '23 was INR 369 crores.

I wanted to talk about our key acquisitions. These are covered on Pages 50 and 51. We acquired a 7 acre land parcel in Surat at a cost of INR 501 crores during December 2022 to build a retail development of about 1 million square feet. We await environmental clearance to begin construction. Currently, the clearance is the final stages of approval. We also forayed into warehousing through a purchase of 33-acre land parcel in Sona NCR at a cost of INR 54 crores, where currently appointment of contestants for various work streams is underway.

During February 2023, we purchased a land parcel in prime locality of Alipore, Kolkata at INR 414 crores to build an exclusive luxury residential development with a gross sellable area of about 1 million square feet.

I will draw your attention to Slide 53 onwards for our financial results. Some of the highlighted of our consolidated financial performance is as follows: income from operations for quarter 4 FY '23 is at INR 729 crores, up 47% year-on-year and up 83% over quarter 4 FY '23 . Income from operations at INR 2,638 crores for FY '23, up 78% year-on-year and up 36% compared to FY '20.

EBITDA for quarter 4 FY '23 was at INR 431 crores, up 79% year-on-year and up 111% over quarter 4 of FY '20. EBITDA at INR 1,519 crores for FY '23 is up 107% year-on-year and up 57% compared to FY '20. Reported PAT after minority interest and after comprehensive income for quarter 4 FY '23 at INR 244 crores and at INR 1,318 crores for FY '20.

Switching on to cash flow, debt and liquidity positions covered on Slide 59 onwards. For FY '23, we generated about INR 1,717 crores of net cash from operating activities. Our operating free cash flow post reduction of interest stood at about INR 1,403 crores, with a is INR 501 crores as of FY '22.

Talking about the debt, which is covered on Slide 62. Consolidated gross debt, which stood at INR 4,037 crores as on March 31, 2023, showed a decrease of INR 535 crores since March 2020. As Phoenix Citadel and Phoenix Palladium, Ahmedabad became operational, the debt has been moved to operational assets at the level which our under construction portfolio has witnessed a decrease in debt. Average cost of borrowing is up by 33 basis points to 8.74% in March 2023 from 8.41% in December '22. Currently, our lowest cost of borrowing stands at 7.45%.

Despite RBI increasing rates by 250 bps since March '22, our borrowing costs have gone up only by 144 bps so far. As the overall interest rate in the economy starts to rise, our efforts will be to minimize the impact of this on our cost of borrowing by reducing the spread charged by the banks on top of repo rate. Further, as our under construction assets becoming operational, we expect some savings in interest rates as we refinance and convert the construction finance to [indiscernible].

Covering liquidity on Page 64. Our liquidity position as of 31st March '23 was INR 1,755 crores. This excludes amount remaining in unutilized OD accounts. At group level, our net debt is INR 2,282 crores and PML share of net debt is INR 1,780 crores. We saw credit rating upgrade, revision and outlooks across our many of our assets in the last 12 months. We continue to make good progress on all our under construction assets.

During FY '23, we spent close to INR 1,400 crores in capital expenditure. We are bullish on our business prospects and with a strong balance sheet position, our focus is now to deliver on our under construction portfolio in time and judiciously deploying our capital to expand our portfolio.

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

[Operator]

[Operator Instructions] The first question comes from the line of Vivek from DSP Mutual Funds. I think we have lost the line. Next in line is Mr. Parikshit Kandpal.

[Parikshit Kandpal, analyst]

Can you hear me.

[Shishir Shrivastava, executive]

Your voice is coming a little muffled?

[Parikshit Kandpal, analyst]

Is it better now?

[Shishir Shrivastava, executive]

Yes.

[Parikshit Kandpal, analyst]

Congratulations on a great quarter and the whole financial year. Shishir, now retail is on autopilot. I think most of the malls they've already delivered besides rest of the two there and the under construction portfolio. So my question is more on the office side and the densification of malls. So how do we see the journey of office over the next 2, 3 years? If you can just explain what areas will get delivered over the next 2 years? And how is the rental ramp up going to happen in that portfolio?

[Shishir Shrivastava, executive]

So presently, we have about 2 million square feet of office space, which is operational. And this number is going to move up to about 7.2 million or thereabouts by end of FY '26, early FY '27. Out of this, the 1 million square feet at Project Rise Bombay will be the one which will be the last to commence operations in year.

This year, we are expecting about 880,000-odd square feet of Asia towers at Hebbal, Bangalore, becoming operational. This will soon be followed by the office building of 0.5 million square feet at Chennai. And then thereafter, we will see the 1.2 million square feet in Wakad, Pune becoming operational in FY '25 and rent generating, let's say, from the last quarter of FY '25 or early FY '26. This is the current 2 million to about 7.2 million.

[Parikshit Kandpal, analyst]

So what kind of rentals are we looking at in Chennai 0.5 million and Wakad 1.2 and 0.88 in Hebbal?

[Shishir Shrivastava, executive]

See, Hebbal, we're looking at -- we have underwritten, I would say, the model at a lower number of about INR 65, but I think the current market trends are indicating about a net rent of INR 80 upwards. Wakad in FY '25 and FY '26, we expect net rent to be in the range of about INR 70 or slightly higher. Chennai about INR 65. Rise is going to be end of FY '26, early FY '27. Here, the net rate estimates are underwritten at about INR 300 or thereabouts, but we expect to do better than that because this asset is positioned very differently. So there are very few buildings of that nature in this neighborhood.

We also have an expansion at -- I missed talking about that. We have an expansion at our existing site in Bangalore -- existing development at Bangalore, which is Phoenix Market City on Whitefield Road. We are expecting that to be delivered. It's a total potential of about 1.2 million square feet of which the first phase is about 0.5 million square feet and we expect that to be delivered in -- again, towards the end of FY '26. We're looking at rentals over there to be in the range of about INR 75, INR 80 or above that.

[Parikshit Kandpal, analyst]

And all these rentals you discussed are excluding CAM, right?

[Shishir Shrivastava, executive]

Yes, these are net rentals.

[Parikshit Kandpal, analyst]

Okay. And anyway, it will take almost 1 year to lease them out. When you're saying that these malls will -- some of them will complete by FY '25, like 1.25 million in Wakad, operational from FY '25. So it will have a lease journey of at least 1, 1.5 years.

[Shishir Shrivastava, executive]

So I'll just tell you from our current experience since we are marketing Asia Towers in Bangalore. I think we are seeing a good traction. We're seeing very good, I would say, pipeline of demand in that city. We have not yet started marketing the Pune, Wakad asset yet because it's still about a year away. But we're seeing strong traction there. I think the team believes that we should at least have signed out about 70% of the leasing in about 7, 8 months in -- from getting the OC in Asia Towers Hebbal, Bangalore. And it's typically a 2.5, 3 months fit-out period that one would assume before the rental start accruing.

Let me complete that statement that -- I would say that the revenue is going to scale up from the first month that you start leasing out spaces because it will take 2 months or 3 months depending on the size of the office for them to finish their fit-out period. So it will scale up. Let's say, from within 3 months of getting the OC and signing the first lease, you'll start seeing the first rental to start trickling. And then over the next 6- to 8-month period as we lease 70%, you will see revenues scale up.

[Parikshit Kandpal, analyst]

Okay. And just one last question on the residential piece. So we have almost 1.3 million feet yet to be including unlaunched area in One BW and 1 million in Kolkata. So do you think in FY '24, we'll open up new towers in One BW and also exhaust existing inventory and go to portfolio? And what is time launch for the Kolkata?

[Shishir Shrivastava, executive]

So One Bangalore West Towers, 8 and 9, we have not yet launched. We are also waiting for some clarity on the TDR policy there before we proceed on that. Kolkata, we are actively working on the design development at this stage. So I think we should be -- we should assume about 8, 9 months for approvals and launch thereafter.

[Parikshit Kandpal, analyst]

Any other land parcels besides Kolkata in the business development pipeline, so both for malls and residential portfolio, if you can help us with the business development being currently undertaken?

[Shishir Shrivastava, executive]

Parikshit, malls unlike what you stated that it's on autopilot, it's not because the operations are set, but growth is very, very -- our focus on growth remains very strong. We continue to look at opportunities in the MMR region, Jaipur, Chandigarh, Hyderabad, NCR, Goa, Nagpur, Vizag amongst some of the markets.

And I think that we do have a decent pipeline for the mall development. Residential, we are continuing to be extremely selective. It's only in mature markets where we can create a marquee product that we are looking at opportunities.

[Operator]

[Operator Instructions] Next question comes from the line of Mohit Agarwal from IIFL.

[Mohit Agrawal, analyst]

Congratulations on great set of numbers. My first question -- my questions are on the retail business. Now if I look at full year FY '23 numbers versus FY '20, on a like-to-like basis, your retail EBITDA has grown 22%, the rental growth has been 15% and the consumption growth is about 19%.

I'm just trying to understand how do we understand these numbers? If you could give some color on that, especially in the context that you've given guidance right now in the comments that you're guiding for a 12.5% consumption growth in FY '24. So could you give some indication on what could be the rental growth in FY '24 based on what you've achieved in FY '23?

[Varun Parwal, executive]

Mohit, Varun this side. Let me take the first part of the question, which is on how the margins has changed and what has changed in the business in FY '23 versus FY '20. I think first off, while we have spoken about footfall being at about 80% of back to pre-COVID levels, one thing that we have seen is the number of four wheelers that are coming to the mall has increased and that has led to an increase in our parking income as well. That coupled with improvement in income from marketing events, signages, et cetera, has contributed to an improvement in the EBITDA margins compared to the overall rental income growth.

Secondly, while consumption has grown the leaps and bounds during FY '23, we have also undertaken significant churns during the year. If I draw your reference back to Shishir's opening comment in our operational mall portfolio, which was about 7 million square feet before Indore and Ahmedabad became operational, we have undertaken renewals for 1.2 million square feet, and we have done new deals for 1 million square feet. So that's an aggregate of 2.2 million square feet.

So that is roughly 50% of our operational portfolio, that has been renewed with existing and new brands during FY '23. The impact of this has been seen on the trading occupancy. If you see quarter 1, we had started off with trading occupancies, which were at about 85% across most malls with the exception of Bangalore, which was at about 90%. And through the quarters of FY '23, we have seen a 3% to 5% increase in trading occupancy.

However, as Shishir also guided in his opening remarks, we still have significant amount of areas that are under active fit-outs across malls in Mumbai, Pune, Bangalore and Chennai, and we expect our trading occupancies to ramp up to about 93% to 95% level by before Diwali 2023. So this change in trading occupancy should also lead to an improvement in our rental income and it should support growth, provided that all the brands come on stream as we have currently envisaged. Does that answer your question, Mohit?

[Mohit Agrawal, analyst]

My second question was that you are guiding for a consumption growth on a like-to-like basis around 12.5% for '24. I'm referring to the INR 11,500 crores number that you mentioned. What could be a rental growth? Could rental growth exceed the consumption growth in FY '24?

[Varun Parwal, executive]

So I think consumption growth, of course, is very strong. Rental growth, it would depend a bit on the amount of areas that come on stream. You will see the benefit in rental growth in the first 2 quarters of FY '24 because about 3% of our mall area became operational in quarter 4 FY '23. So you will have a spillover impact happening in FY '24.

At the same time, about 3% to 5% of the existing operational retail mall area is projected to become operational before the Diwali 2023 period. So we will not be able to capture the full year impact of that. So I would say that rental growth would be in line or near about the consumption growth. But like we typically would suggest that look at rental and consumption growth over a 3-year CAGR or a 5-year CAGR data and to converge at that point in time.

[Anuraag Srivastava, executive]

Anuraag, this side. I think we gave a long-term view of our rental growth while consumption keeps on increasing year-on-year. I think the historical trends suggest both of these convert over a longer period of time. And our usual guidance which we gave is that rental growth and consumption growth over a longer period of time would be in mid-teens. So we're giving a 12.5% guidance on consumption for next year. But given the new assets are coming in and the ramp-up and the renewal of leases, et cetera, I think a longer-term trend will be around mid-teens.

[Mohit Agrawal, analyst]

My second question is on the new malls, which includes the 2 malls that have started recently Bangalore, Pune. How should we look at the trading density, let's say, over a 12-month period? So what I'm trying to understand is Palassio, which is today at 95% trading occupancy and INR 1,300 kind of trading density, a good proxy? Or will every mall have a different journey in terms of trading occupancy and trading density?

[Anuraag Srivastava, executive]

So I think what our expectation on trading densities is that we should very soon see Indore ramping up to about INR 1,000 per square feet of trading density. Palladium because slightly premium and the area is smaller as well with lesser F&B, et cetera. I think there, we're expecting a trading density between INR 1,200 to INR 1,300. The 2 new malls, I think we would wait to see open up the mall and see the initial experience or initial retailer performance and then comment on that. But I think it should be in line with our existing malls in Pune and Bangalore.

[Operator]

Next question comes from the line of Pritesh Sheth from Motilal Oswal Financial Services Limited.

[Pritesh Sheth, analyst]

Congrats on good numbers. Just continuing on the new mall trading occupancy, what is the current leasing status right now? And how much time we should take to ramp up to 85%, 90% kind of trading occupancy for the 2 new malls? And if you can just refresh the time line for us, so Bangalore should be this quarter and Pune should be next quarter, is it right to assume?

[Shishir Shrivastava, executive]

So first of all, on the operational dates of these malls, so Bangalore mall has received the OC very recently. I think in the last couple of days, we've received the OC for Bangalore mall. Now it's just a question of timing the launch and opening the doors to public depending on the fit-outs, the availability of people, et cetera, and the shopping season. We expect this to be opening either at the end of this quarter or early next quarter is where we are expecting the Bangalore mall to go up. So let's say, roughly around July is what we are targeting.

For Wakad, I think the OC is yet to be received. We are looking at August as the opening of the mall. And this will take into account some fury of monsoons is over and its effect, so we are timing August. In terms of the ramp-up of trading occupancies, your question around that, I think as we have seen in Indore and in Ahmedabad as well, the trading occupancy to reach about, let's say, in higher 80s or early 90s, it takes about usually 8 to 9 months to get over there from the launch.

We usually open somewhere between 50% and 60% of trading occupancy and then are ramping the mall occupancy. And I think that 7 to 9 months or 8 to 9 months, the mall should be in the late 80s or early 90s. Those were the questions or did I miss anything?

[Pritesh Sheth, analyst]

No, no. That was my first question. And second on very healthy margin performance this quarter on our portfolio, and that you have been highlighting since last couple of quarters as well that as and when trading occupancy increases, we see an uptake in margins.

Still, we are like 3% to 5% probably away from fully ramping up. What should we assume as -- or look at the stabilized EBITDA margin for the portfolio. Right now probably, on an average every asset is at 100% of rental income, but how should we see it going forward once trading occupancy ramps up?

[Shishir Shrivastava, executive]

So I think getting occupancy ramp up is just one of the factors of margin improvement as you are seeing in the financials. I think a couple of other factors, which contribute to margin improvement. I think one is that resi sales, they're picking up and our premium offering in Kessaku is doing very well now in terms of sales as compared to earlier quarters. There's more number of units have picked up. Also, we have taken a price increase. So that is contributing to some extent in terms of the margin uptick.

Strategy, which is pertaining to the hospitality business, I think we are maintaining a very good room rate in St. Regis, and that is what has caused the margin uptick in the Hotels business, especially St. Regis I think, and we are seeing a margin of 50% -- operating margin of 50% for this year. And we expect to continue with that. Of course, you mentioned about the trading occupancy sort of going up and taking to the retail margins, so yes, these are the trends. And I think we hope to continue on these trends.

[Operator]

Next question comes from the line of Kunal Lakhan from CLSA.

[Kunal Lakhan, analyst]

My first question was on your Slide 32, where you've given trading density for FY '23 and FY '22. If I look at the growth in the trading density across assets, it's been in the range of about, say, 30% to 40%. In some assets like Pune and Kurla, it's been a lot more. But when I look at the average rental per square feet per month growth, it's obviously much lower than that. So how should we look at this number going ahead in terms of will the average rentals catch up with the trading density performance that we are seeing?

[Varun Parwal, executive]

I think Kunal, directionally, we would say, yes. What has happened in FY '23 has also been that the recovery has been much faster than what anyone was anticipating and that has led to significant improvement in trading densities like Bangalore at a trading density of INR 2,100 or Pune as well. They are higher than what one might have expected, had you asked this question in FY '22.

And partly, because of this, we have also ramped up the renewals and the churns of grandness at these centers because to support a higher trading density, one does need a newer category mix. We have introduced more family entertainment centers and better F&B offerings and also broadened bridge to luxury brands at some of these centers and those changes are extensively underway.

If you were to just look at Kurla, we have opened the new Dizo store, which is the first in India. We have reopened Reliance Smart Bazaar, which is spread over a massive 80,000 square feet. We have opened new FVC centers. And going forward in FY '24, you'll see significant offerings as far as F&B is concerned. We're further strengthening the entertainment fees, and we are also bringing in newer anchors like Uniqlo, et cetera, which would open up in the second half of this financial year in centers like Kurla.

So there is a full change and a revamp of the brand mix, which is underway and you will see these changes happening. And like Anuraag had also mentioned in response to an earlier question, rent over a period of time will catch up with the consumption growth, so take it on our longer 3-year and a 5-year horizon.

[Kunal Lakhan, analyst]

Sure. My second question is actually a little conflicting with my first one. Shishir, you gave a guidance of about 12.5% same-store consumption growth for few stabilized malls. But when I look at our trading occupancy, right, there is obviously like 5% to 6% catch-up that would happen based on the leased occupancy, which had happened this year.

So of this 12.5%, 5% to 6% will come because of the trading occupancy catch-up. And then there is inflationary growth of, like, say, 5%, 6% or 6%, 7%. So essentially, are we saying that the trading density growth for the stabilized assets will be inflationary in nature?

[Anuraag Srivastava, executive]

Kunal, this is Anuraag here to do the math. So I think the number, which you are talking about on trading occupancy, that will only be for part year. It's not that on -- the growth will come I think for whole of the year. So I think it will come in stages, and we expect that I think the annualized impact of this will be about 3 months or so. And balance is the normal growth, which is there.

[Kunal Lakhan, analyst]

Okay. So basically, like your trading density growth going ahead could be about 8% to 10%.

[Anuraag Srivastava, executive]

Yes.

[Operator]

Next question comes from the line of Vivek from DSP Mutual Funds.

[Unknown Analyst]

This is Kunal from DSP Mutual Fund. So my question was more on the competitive landscape and that too in the non-metro cities. So are you seeing any sort of consolidation happening in the favor of large players like yourself? Or is the market size large enough to take care of the existing as well as upcoming supply, if any? So that was my first question.

And second question was in terms of do you plan to raise any debt in the current year through capital markets, if you can just provide something on that? That's it.

[Anuraag Srivastava, executive]

Thanks for your question. I think, firstly, on the competitive landscape, I mean the way we look at our strategy when we enter a city or a town is that we want to be the dominant consumption center in that city. Our offering, as you would have seen in our products in our malls, et cetera, is quite different in terms of what the competition offers.

I think we spend a lot of time on making it a grand affair, and we try and make it as the -- not only the shopping hub or the shopping center for the city, but also an event center and various play center and places where families can hang around for a full day and still not be able to cover the mall or do justice to the mall as they go around.

So we are not seeing any consolidation or any -- in fact, the competitive activity is not much in terms of especially the opening of new malls across the country. I think there are very few players, if at all, who are entering into this and definitely not at the size and scale and number of the malls which we are targeting.

We have many new retailers, first-time brands, et cetera, which sort of enter into the city when we open up a mall. So for example, our Indore mall had about 100-plus new brands, which came in the city and also 30% of the stores are local stores of the local businesses as well. So that also gives it a very unique flavor.

Similarly, in Ahmedabad, we are opening with more than 35 luxury stores and over 50 new brands, again, entering the city of Ahmedabad, while a city like Ahmedabad had a few malls spread across. So as I said, we try and create a differentiated product. We've not seen much of the competitive activity across in terms of -- especially opening the new malls, while there may be mergers and acquisition activity happening or other such activity happening in new malls.

On your second question of debt from capital markets, I think you're referring to bonds, et cetera. We have not raised money on bonds up till now largely because we have a very efficient cost of borrowing in terms of the lease rental discounting model. We tend to fund the construction and the land acquisition, the approvals and the construction of our assets on equity. And only when we have a line of sight available for opening of the mall in, let's say, next 6 to 9 months, that's the time when we start sort of looking at the borrowing on that asset.

Our philosophy is that our assets should support themselves in terms of the debt. There should not be any cross subsidization and only operating malls, et cetera, should have a debt. We don't find the bond structure of the borrowings from capital markets very attractive at the moment. But yes, we keep on evaluating and at the right time, if the right product is available, we will look to raise money on that. There are no definite plans of raising a significant amount of debt at the moment.

[Operator]

Next question comes from the line of Pulkit Patni from Goldman Sachs.

[Pulkit Patni, analyst]

Just one on multiplexes. Now we've heard recently the largest multiplex company in the country talk about closing 50 screens. And I know those could be in locations otherwise. But my broader question is, even if you look at multiplexes globally, as a percentage of revenue, their rentals happen to be much lower than what they pay in India. So given this uncertainty around that particular business right now growth, how should we look at multiplex as being a significant tenant for us and in many cases, an anchor tenant?

[Varun Parwal, executive]

Pulkit, it's Varun this side. Multiplexes are at quite an interesting juncture this point in time. We have seen people coming back for content when provided and packaged in the right manner, whether it was release of the movie Pathaan or some of the recent Bollywood releases or like we have been doing screenings of IPL matches in our courtyards or even registered events. So entertainment as a category is sort of here to stay and it is something that gets people out of their houses on every week provided the right event is there.

We have seen some increasing responses in the multiplex category as well. Content, of course, is king, but they have also worked on improving and expanding beyond movies and becoming a one-stop destination in itself by bringing in celebrity chefs to curate to F&B menu as well. And I think they are better place to talk about what all initiatives that they are taking.

But we definitely do see that when we are opening a destination mall in any particular city, multiplexes help us get the right audience as well. And we are also not opening one of the multiplexes. We're opening megaplexes. We are opening biggest screens in that particular city with the best decor and the best F&B offering as well. So it is as much as an event not just a movie, but seeing that, it is as much of an event from that particular city.

[Pulkit Patni, analyst]

And maybe if I could just follow up, Varun, on that. So for the 3 new malls, Ahmedabad, Indore, multiplexes would be what percentage of our total tenant? Would it be 15% to 20% or lesser?

[Varun Parwal, executive]

No. So I think in terms of total, it's typically 8% to 9% full fit in Indore. Inox already opened up to open up 8 screens in Indore. In Ahmedabad, PVR will open up their -- they are under fit-out at this point in time, and we are looking at about 9 screens there. And Pune and Bangalore would be larger. But in terms of area, we typically benchmark 8% to 9% of chargeable area for the malls towards multiplexes.

[Operator]

Next question comes from the line of Puneet Gulati from HSBC.

[Puneet Gulati, analyst]

Just going back on the consumption guidance that you gave, is it possible to break down what is the same store or same mall consumption growth guidance that you're looking for FY '24? So same area operating into new year, excluding Indore and Ahmedabad, what should be the consumption growth on those accounts?

[Varun Parwal, executive]

I think, Puneet, if we were to execute Indore and Ahmedabad from FY '23, our consumption will come at, say, about INR 9,000 crores from the existing operational assets. And we are looking at this going to INR 10,500 crores for -- about INR 10,300 crores to INR 1,500 crores.

[Puneet Gulati, analyst]

We are not INR 1,200 crores, but you're not counting.

[Varun Parwal, executive]

Indore and Ahmedabad combined, let me clarify that.

[Puneet Gulati, analyst]

So Indore, Ahmedabad combined INR 1,200 crores, and then you're not counting in your guidance anything from the new Pune and Bangalore malls.

[Varun Parwal, executive]

No, not yet, not yet.

[Puneet Gulati, analyst]

That's very clear now. Secondly, on your office occupancy, what is your strategy? You have about 1.2 million square feet, both in Pune and Bangalore yet to lease. What kind of tenants are you looking for? And are you looking for more smaller spaces or more bigger spaces kind of tenants?

[Varun Parwal, executive]

So is this you're referring to our offices?

[Puneet Gulati, analyst]

Office, yes.

[Varun Parwal, executive]

So I think the demand in each micro market is different. In Bangalore, the demand is actually for larger office spaces. There are tenants who are looking at taking entire tower or even 2 towers and the requirements would range from 100,000 square feet going upwards to 1, even 2 million square feet from a similar tenant. In Pune, the demands are more in the range of 100,000 to 200,000 square feet from both Indian corporates as well as multinational clientele.

[Puneet Gulati, analyst]

And is it still possible to raise out the entire tower, given that somebody who will take the entire tower would want it to be built to suit, which is not going to be possible now, right?

[Varun Parwal, executive]

Actually, it is not a requirement. We do have -- I think we have internally debated whether we should leave out entire towers to a single tenant. They don't have a build-to-suit requirement, but we do see that our dependence on them, that one plan for the next 8 or 9 years of the lease term becomes very significant.

[Puneet Gulati, analyst]

Understood. Lastly on trading occupancy for your malls, do you think the trading occupancy has largely been in line with what you would have thought for FY '23? I thought the trading occupancy growth was slightly slower than -- and has been much slower than the lease occupancy for the entire fiscal '23?

[Varun Parwal, executive]

I think on a lighter note, Puneet, we have to rework on some of our targets because of the consumption growth that we have seen, and actually work on relooking at the brand mix and the category mix in some of the malls, given the very strong pace of consumption and the demand from retailers that has come in.

[Puneet Gulati, analyst]

Okay. So trading occupancy -- should lease occupancy by Diwali this year now?

[Varun Parwal, executive]

For lease, we do keep some margin for churning out retailers, right? And I think what we alluded to even earlier on the call, a 50% consumption growth has been really strong and that creates an opportunity for us to bring in some newer brands and categories. So we will look at some churn during the year across the malls, and that's why we are keeping the trading occupancy target to about 93% to 95% and not taking it up to lease occupancy because lease occupancy is actually at 98%, 99% across assets.

[Operator]

Next question comes from the line of Pritesh Chedda from Lucky Investments.

[Pritesh Chheda, analyst]

I just have one small confusion. In your opening comments, you mentioned the new mall addition at about 1.1 million square feet. And this is basically Ahmedabad and Indore, and I was looking at my past notes, basically Ahmedabad is about 1.1 and Indore is some 0.7, 1 and -- Indore is 1 and Ahmedabad is 0.7. So it should be 1.7. So is these malls coming up in phases?

[Varun Parwal, executive]

So I think the total malls have come up together. There is no change in areas. Indore has opened up with 1 million square feet and Ahmedabad has opened up a full mall area of 750,000 square feet. We will recheck on the opening remarks and carry out any corrections, if required.

[Pritesh Chheda, analyst]

So then it should be 2.2 million of operational assets plus 1.7 million of the new, right?

[Varun Parwal, executive]

Okay. So I think what you're referring to is the leasing target. The leasing target only refers to new area that we leased during FY '23. Some of the new malls have been leased even prior to FY '23. So we are talking only about incremental leasing done during FY '23. So for operational malls, we renewed or we did new deals for about 2.2 million square feet. And for the upcoming assets, which includes Indore, Ahmedabad, Mall of the Millennium in Pune and mall of Asia in Hebbal, we have done about 1 million square feet of new deals during FY '23.

[Pritesh Chheda, analyst]

Okay. But what will show down in your numbers will actually be the operational plus whatever is the Ahmedabad and Indore, which is supposed to come this year, right?

[Varun Parwal, executive]

So the financials were captured only the area that is trading and rent generating. So if you see, Indore, at the end of March, Indore was about 50% rent generating and Ahmedabad was about 43% rent generating.

[Pritesh Chheda, analyst]

My second question is the last question. Can you give me a blended holding in your retail assets? See, I have a separate number that Lower Parel is 100, Chennai is this and Market City malls are a different number. But what will be your blended holding in your malls? And what will be your blended holding in your retail assets?

[Varun Parwal, executive]

I think it would be about 73%, 74%.

[Pritesh Chheda, analyst]

In retail?

[Varun Parwal, executive]

In retail, yes.

[Pritesh Chheda, analyst]

And in office?

[Varun Parwal, executive]

In offices, it would be about 60%.

[Operator]

Next question comes from the line of Pritesh Sheth from Motilal Oswal Financial Services Limited.

[Pritesh Sheth, analyst]

Sorry, I didn't realize I was on mute, sorry. So first question is on, what is the pending CapEx in ongoing retail assets and ongoing offices that we are going to complete over the next couple of years? And what is our CapEx target for this year?

[Shishir Shrivastava, executive]

So the pending CapEx across all our assets, which are under construction is about INR 4,650-odd crores, which covers all the assets of retail, office, et cetera. Our CapEx spend is between INR 2,000 crores to INR 2,300 crores every year, and we expect to do the same for FY '24 as well. That's the same amount of CapEx we spend.

[Pritesh Sheth, analyst]

INR 2,000 crores, INR 2,300 crores every year. This year it was lower, right? You also include land investments and all in this?

[Shishir Shrivastava, executive]

No, no. So CapEx, close to about INR 1,400 crores, INR 1,500 crores is on the actual CapEx and balance is on the land acquisition.

[Pritesh Sheth, analyst]

And second just on existing leasing status at Bangalore and Pune malls, which are coming up, how much you have leased in them?

[Shishir Shrivastava, executive]

Both the assets are in 90s.

[Pritesh Sheth, analyst]

Okay. Got it.

[Shishir Shrivastava, executive]

And this is on retail, of course. Office, as we said, Bangalore, the commercial office, we have started marketing because we are very close to getting the OC for the office, and this will be launched this year. So Pune, because it's still a year away, we have made very initial pre-marketing efforts, but not pre-leasing or marketing the property.

[Operator]

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