Phoenix Mills doesn't see itself returning to normalcy before FY22

Firm is readying a war chest to pay back debt or buy new properties

Phoenix Mills, one of the biggest mall developers in the country, does not see business returning to normal before the next financial year (2021-22, or FY22).

While malls in many states were shut even before the lockdown was announced on March 24 this year, they have become operational in some states such as Uttar Pradesh, where Phoenix Mills has its properties.

“We hope FY22 will see normalcy, and bring us back to the levels of 2018-19, if not 2019-20 (FY20),” said Shishir Shrivastava, managing director (MD) of the company in a conference call earlier this month.

Phoenix Mills has reached an agreement to waive 50 per cent rent during the lockdown period with 75-80 per cent retailers (except for multiplexes). Further, once malls reopen after lockdown, the company will consider a waiver of 30 per cent on a minimum guarantee for three to six months’ rent.

“The solution broadly entails relief to a certain percentage level, subject to negotiation with retailers on the minimum guarantee rent. Moreover, retailers have also understood that in the event consumption does go up, they would be willing to share a higher percentage of the revenue when compared to the contract for this limited period. Should retailers arrive at a 70-75 per cent of consumption for the last year, we would revert to the original rental terms,” said Shrivatsava.

With the pandemic likely to linger till at least the second quarter of 2020-21, or FY21 (July-September 2020), in a worst-case scenario, the company stands to lose 40-50 per cent of its FY21 revenue, said Adhidev Chattopadhyay of ICICI Securities.

“We have assumed that Phoenix will lose Rs 400 crore or 40 per cent of the FY20 rental income in FY21 (on a like-for-like basis) owing to Covid-19, and expect FY22 rental income to recover to the FY20 levels of Rs 1,000 crore. We expect Phoenix to now see 35 per cent year-on-year decline in rental income to Rs 660 crore in FY21 (adjusted for marginal revenue from the new Lucknow mall),” said Chattopadhyay.

Building a war chest

Shrivastava, however, said the company is readying a war chest to pay down its debt or buy distressed opportunities in the market.

“… We are seeing unprecedented times and there is no visibility to the end of the crisis. It will help to have some kind of a war chest to meet uncertain times to pay down debt to probably even if there is some spectacular distress opportunity that comes our way because we believe in the long-term potential of our business to be able to participate in such an acquisition opportunity,” said Shrivastava, in a conference call with investors.

Though the company has a liquidity of around Rs 770 crore, it has taken an enabling resolution to raise up to Rs 1,200 crore. The company will take the equity route for fundraising and is not looking at raising any significant debt, said Shrivatsava.

“The decision on whether we want to raise capital at the listed company level is still being deliberated. Right now, we are not contemplating any debt increase, except to the extent where we may draw down on debt-free projects,” he said.

The company has availed of a moratorium on debt repayments on its mall properties, he added.

The company last week opened a mall in Lucknow. The mall has an area of 950,000 square feet. Analysts have termed this as a positive sign for the company.