Ladies, and gentlemen, good day, and welcome to the Q1 FY 2026 Results Conference Call of The Phoenix Mills Limited. As a reminder, all participant lines will be in the listen-only mode, and there will be an opportunity for you to ask questions after the presentation concludes. The management of the company is being represented by Mr. Shishir Shrivastava, Managing Director, Ms. Rashmi Sen, Whole Time Director and CEO Malls, Mr. Kailash Gupta, Group CFO, and Mr. Varun Parwal, Group President. Should you need assistance during the conference call, please signal an operator by pressing the star to zero on your touchscreen phone. Please note that this conference is being recorded. At this time, I would like to hand the conference over to Mr. Shishir Shrivastava. Thank you, and over to you, sir.
Thank you. Good evening, ladies, and gentlemen, and welcome to our Q1 FY 2026 Quarterly Conference Call. I'm joined today with Ms. Rashmi Sen, CEO Malls and Whole Time Director, Mr. Kailash Gupta, Group CFO, and Mr. Varun Parwal, Group President. Today marks a pivotal milestone in the growth journey for our company. Before we discuss the Q1 FY 2026 results, we are excited to share a strategic development that strengthens our control over a high-performing retail and office platform and reinforces our long-term vision. We are glad to share that our Board of Directors has approved a proposal to acquire 100% stake in Island Star Mall Developers Private Limited platform, which the group has seeded and grown over the past decade. In the process, we are providing an exit to CPP Investments' 49% stake in ISML. The transaction is subject to shareholder approvals, CCI approvals, and other customary approvals.
The agreed consideration for the proposed transaction is INR 5,449 crore, payable to CPP Investments over a 36-month period in four tranches, subject to applicable laws and any adjustments, including those related to prepayment of tranches. Allow me to walk you through the investor presentation and share with you some key messages. The investor presentation and the press release in relation to this transaction have been uploaded on our websites and at the stock exchange. If I may draw your attention to slide two, the payment of INR 5,449 crore is spread over 36 months. In the interim, ISML continues to be a cash flow-generating asset. The large portion of this INR 5,449 crore will be paid by the cash flows generated at the platform, as well as additional leverage headroom available at ISML.
ISML was the foundation of our partnership with CPP Investments, starting with Phoenix Marketcity, Bengaluru, in 2017, which comprised a million sq ft of retail space, mall space. Together, we have grown it into a large portfolio of marquee operational retail and office assets in key cities of Bengaluru, Pune, and Indore, spanning approximately 6.6 million sq ft, marking a 6.6-time growth in eight years and clocking INR 617 crore of EBITDA in FY 2025. If I may introduce the ISML platform for reference and continuity of our conversation. Today, the portfolio comprises 4.4 million sq ft of operational retail space, 2.2 million sq ft of completed offices, a planned expansion of 0.8 million sq ft of retail and 1.6 million sq ft of offices, along with two hotels totaling approximately 700 keys at the Phoenix Marketcity, Bengaluru development.
The idea of PML looking to acquire this 100% stake stems from the management's belief that the untapped growth potential in this platform can add significant value for shareholders over a period of time as we complete the projects under construction and undertake expansion based on the unutilized development potential or FSI potential. Moving on to slide three, the management plan basis 2030 would generate approximately a 13x growth over 13 years since 2017 when CPP entered this platform, which was 1 million sq ft in 2017, growing to 13 million sq ft in 2030. Over this period of time, we will move from being a retail-only asset to a diversified portfolio of retail, offices, and hotels. Slides four through six capture the overview of the three assets which have been developed in ISML platform using the cash flow of the seed asset, Phoenix Marketcity, Bangalore.
Moving on to slide seven, here we introduce our vision for Phoenix Marketcity, Bangalore. We have an ambitious multi-phase expansion plan for Phoenix Marketcity, Bangalore, set to evolve it into a world-class integrated super campus exceeding 4 million sq ft. The subsequent slides detail the phase-wise approach, encompassing enhanced retail offerings, premium office spaces, and hospitality developments. This super campus will be a peak amalgamation of the best-in-class retail, offices, and hotels, all of which will sync with each other to create an ecosystem. Details are discussed in the subsequent slides. Moving on to slide nine, among the key deal rationale that makes the acquisition attractive to PML is the tranched payment structure, where INR 5,449 crore consideration is paid across four tranches over 36 months with the flexibility to prepay, along with related adjustments on the aggregate consideration.
This structure preserves PML's liquidity to pursue our stated growth plans while also allowing for asset-level monetization options within ISML and its subsidiaries should we choose to do so. Moving on to slide 10, as we see from this slide, the cash flow has grown by approximately nine times to INR 513 crore in FY 2025 when compared to FY 2017. FY 2025 net debt to EBITDA is just 1x at ISML. This also allows us meaningful room to borrow at the platform level, and such borrowing, if any, would be staggered over 36 months to fund the acquisition and upstream cash flows to PML if required. Slide 11, this slide explains how the buyout is significantly accretive for PML from the first year itself. This is an illustration and for representation purposes only, where even if we choose to fund the entire first tranche through debt, the platform remains accretive to PML's earnings.
By moving to 100% ownership, we will capture the full share of operating free cash flows, and the additional interest cost will be covered by increase in the share of such operational free cash flows. The deferred payment schedule combined with projected operating free cash flows growth ensures we will continue to maintain a healthy interest cover for each tranche. In the same illustration, with 100% of the first tranche being funded by debt, PML's share of cash flows from ISML could increase by 58%, assuming the FY 2025 free cash flows. The transaction structure also provides a high margin of safety.
Moving on to slide 12, the 100% ownership by Phoenix of this platform brings with it a large flexibility at PML level to gain unrestricted access to cash flows, ability to raise money using multiple means available at the ISML and underlying SPV levels, each of which shall be evaluated at an opportune time. Full ownership also gives us complete control over capital allocation and execution timelines. With this structure, PML's attributable EBITDA is expected to grow many-fold over a period of time, which will be allocated to PML. At the same time, at the right time, we will also retain the flexibility to monetize selectively, whether at asset level or through a platform level, REIT or listing if required.
Moving on to slide number 13, this is just to go back and show you a snippet of our 2020 QIP deck, where we had promised three malls, two offices, and one hotel under the ISML platform. I'm pleased to announce that we have delivered all of these assets in totality, with the hotel being under construction and expected to be completed by 2027. We've continuously demonstrated strong execution and accountability. This consolidation is in line with PML's objective of owning and developing high-growth retail-led mixed-use assets to add to shareholders' value. With the clear identified growth levers in place in the ISML platform, we remain confident in our ability to deliver robust EBITDA growth over the next five years.
Slide 14 illustrates the growth drivers, where we expect the EBITDA to grow from INR 617 crore in FY 2025 to a much larger number over a period of time through organic growth from our operational retail portfolio, further optimizing trading occupancy and increasing trading density via premiumization and brand mix improvements, the ramp-up of occupancy in our completed office assets, unlocking their full earning potential, the phase two expansion at Phoenix Marketcity, Bangalore, which adds additional retail, office, and the hotel, further phase three expansion potential, which will further strengthen our mixed-use ecosystem with additional retail, office, and a second hotel offering. Balanced FSI potential across the developments in Indore, Pune, and Bangalore gives us additional room for future value creation. Moving on to slide number 15, across our completed office spaces of 2.2 million sq ft, today only 6% is leased.
Our internal target is to achieve a 90% leasing in 2026, and we have a strong leasing pipeline in place. This brings a huge upside potential as all the construction work is already complete. OC is received for two out of the four office towers across Pune and Bangalore. Leasing of these offices is also gathering a strong momentum. Moving on to slide 16, Millennium Towers and Millennium Club. Our vision of Millennium Towers is for it to be the best office building in Pune. These assets are high quality and have high visibility. They are located in strong micro markets with limited new supply expected. These will drive consistent annuity-style earnings. The vision for these offices is to provide a lifestyle-oriented offering with grade A amenities along with high-quality office spaces.
Moving on to slide number 17, at Phoenix Asia Towers, we are ramping up leasing to 90% by 2026, which currently stands at approximately 10%, and this will drive strong EBITDA growth and further value creation. The offices sit in a well-established office micro market with upcoming metro and infrastructure projects, which will enable seamless access to the campus and increase the catchment area and the attraction of offices at this location. The highlight is the metro station, which has access from within the campus itself. Moving on to slides 18 through 23, which explain the Phoenix Marketcity, Bangalore phase two and phase three expansions. We have several initiatives underway under phase two. We will be launching the Gourmet Village in 2026, a brand new floor of F&B and entertainment spanning 19 new experiential dining options set in a beautiful theme.
With a 400-key Grand Hyatt focused on events, we plan to establish ourselves as one of the most renowned hotels in Bangalore and perhaps a very high-performing with very high performance, focusing on strong occupancy and ADRs. The case study of a similar hotel in the same micro market gives you an idea of the healthy revenue and EBITDA margins achievable. The hotel product has been designed based on our learnings at the St. Regis Hotel Mumbai, and the designs have been optimized to yield the highest revenue per sq ft. In addition, we will also be introducing about 400,000 sq ft of state-of-the-art offices in this campus in phase two.
Moving on to phase three, where this campus further expands, we intend to add a second hotel of approximately 300 keys, offices of about 1.2 million sq ft, and a further retail expansion of about 600,000 sq ft by 2030. This will take us and help us deliver our vision of a super campus, one of the largest retail-led mixed-use campuses across the country. Moving on to slide 24, the super campus is a preferred and top-of-the-mind destination for any consumption. All parts of the campus designed to feed each other with higher visits, longer stays, stronger consumption, all from PML's point of view, fueling stronger rental needs and driving consumption. Moving on to slide 25, the EBITDA growth drivers at operational malls.
EBITDA growth at our malls is driven by optimizing anchor spaces for higher yield tenants, enhancing category and brand mix, attracting star and luxury brands to prime locations, and with the upgraded infrastructure in the neighborhood, this will also improve access and visitor experience to our malls. Slide number 26 represents the significant rental upside. This is an illustration, or rather an explanation, of initiatives undertaken at Phoenix Marketcity, Bangalore in the last year, where the hypermarket and a fashion anchor were exited from their current locations. The space was redesigned, and the layout was expanded to accommodate the growing fashion category. This has created prime space for releasing to flagship inline and mini anchors at higher rental yields, driving stronger trading density. In this particular case, we believe we have nearly doubled our monthly rental from the same space.
Slide number 27, at Phoenix Mall of Asia, we have about 10% vacancy. 8% is located at the upper ground level, which was strategically kept last for leasing to bring in the highest rent-yielding luxury and star brands. Some of the watch brand deals recently concluded are currently at a minimum guarantee rental of approximately INR 550 sq ft. Moving on to slide number 28, we expect the proposed infrastructure upgrades near and around Phoenix Citadel in Indore to significantly benefit the mall. The new flyover and underpass are expected to be ready by 2026. This not only improves access but also reduces the interim hardship that our mall visitors are currently facing because of the roadworks which have been ongoing. This will further enhance footfalls and consumption.
Moving on to slide number 29, after accounting for all the expansion plans and the ongoing projects across locations, we continue to have balanced FSI potential across all these developments. It's expected to be at about 2.7 million sq ft cumulatively across three cities. This is based on land that we already own. Clearly, it is subject to regulatory and planning approvals and payment of premiums and charges as may be applicable. We have not yet planned the CapEx for exploiting the potential of this balanced FSI potential. Slide number 30 takes us to ESG initiatives. We are fully aligned with sustainability expectations of long-term investors, and we continue to be driven by them. The USGBC LEED certification has been achieved with a gold rating in place for three of the latest retail assets. We have already initiated solar energy, smart building systems, water conservation, EV charging efforts.
To conclude, this transaction fully aligns with our strategic objectives. It gives us complete control of a high-performing platform structured in a capital-efficient manner that safeguards PML's liquidity. The transaction enhances operational flexibility, removes minority interest leakage, and provides a clear path to unlocking further value at both asset and platform levels. Since the inception of the JV, we have delivered marquee developments, including three retail assets, two office assets, and an iconic hotel and additional offices currently under construction. We remain committed to building destinations of international standards, vibrant retail hubs attracting a large catchment, lifestyle-oriented offices, and integrated mixed-use super campus in Whitefield. The next phase of growth is already in motion, and full ownership of this platform positions us to execute this seamlessly.
Our other partnerships with CPP Investments at Kolkata and Lower Parel continue as planned, and we look forward to exploring future opportunities with CPP Investments to further expand this fantastic partnership. Thank you. We will now move to earnings section. Thank you. Thank you. May I request Varun Parwal to kindly take over this section?
Thank you, Shishir. And just moving on very quickly to an update on quarter one results, I will first start with the retail portfolio. Retail consumption at our malls was strong during quarter one, coming in at 12% year-on-year. We had very strong year-on-year growth at Phoenix Mall of the Millennium, Phoenix Palassio, and our malls in Ahmedabad, Indore, Pune, and Bangalore. I would also like to highlight that this strong growth was despite a temporary and a strategic dip in trading occupancy during the quarter.
Our portfolio-level leased occupancy is at an average in excess of 95% plus, but there was a temporary dip in trading occupancy owing to a significant repositioning exercise that is currently underway across our Phoenix Marketcity malls, particularly in Mumbai, Pune, Chennai, and Bangalore. We are actively reshaping the brand mix across these key centers, and the broad goal here is to replace low-efficiency formats with stronger, better-trading brands while also creating more room for high-performing flagship inline stores and other key categories. In parallel, we are also upgrading the under-utilized lower-level areas by bringing in premium brands across watches, electronics, beauty, etc. This churn has a temporary impact on occupancy and rental income, but it is a planned investment in creating sustainable long-term value for our retail assets.
Over the coming quarters, we expect this reposition to result in much stronger and improved brand mix, higher consumption, and stronger rental income growth, ultimately supporting and driving the double-digit EBITDA growth that we have seen historically in our retail malls. For the quarter, retail rental income stood at approximately INR 506 crores, up 4%, despite an impact from the planned churn at Phoenix Marketcity malls and also the loss of rentals from the planned Convergence Block redevelopment at Phoenix Palladium. If I account for the impact from the churn as well as Convergence Block, this impacted our retail income growth by approximately 5%-6% for the quarter. This is, of course, temporary in nature, and as trading occupancy returns to stabilized levels of 95% plus in coming quarters, we expect to see much stronger growth coming through.
Moving on to our offices, we have had a great start to the year with completion of Phoenix Asia Towers and receipt of OC, as well as completion of the three towers in Pune and receipt of occupation certificate for one of the three towers. Our leasing has also picked up in line with delivery of these two developments, as well as the commercial offices in Chennai, which are nearing completion. Overall, for the quarter, we have leased an area in excess of 430,000 sq ft, and we expect demand to remain strong, especially for these quality well-located office spaces. Our total portfolio had a strong performance for the quarter, with revenue coming in 11% higher at INR 130 crores, and EBITDA showing very strong growth of 19%, reaching INR 58 crores for the quarter. Our total portfolio consists of the St. Regis Mumbai and Courtyard by Marriott in Agra.
Our operational performance in residential was also very strong, with gross sales in excess of INR 168 crores and collections of INR 99 crores. The price hike that we had undertaken in Kessaku and One Bangalore West has been well accepted by the market, and we recorded an average sales price of INR 27,000 a sq ft for the sales done during quarter one. A large part of the sales were completed during the month of June, and as such, revenue recognition for quarter one came in only at about INR 40 crores. However, the rest of the sales booking done in quarter one will reflect in terms of revenue recognition in coming quarters on completion of registration, and that should boost our revenue and EBITDA performance from the residential portfolio in coming quarters.
Now wrapping up, overall, if we look at our gross group level, our EBITDA across the portfolio came in at about INR 544 crores, registering a 6% growth. Our group debt stood at about INR 4,435 crores, and our Net Debt to EBITDA reduced moderately from the March ending quarter. We have also seen a significant reduction in our cost of debt. Cost of debt came at about 7.92% for quarter ending June 2025, and we expect some of the recently announced rate cuts for RBI to transmit into the balanced loan portfolio in the coming quarters. Overall, we have continued to maintain a prudent balance sheet and disciplined capital deployment, which gives us significant headroom to continue investing in high-quality assets while maintaining our financial flexibility to pursue growth. This brings me to the end of our formal update. We can now move to the Q&A.
Thank you very much. We will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on the touchscreen telephone. If you wish to remove yourself from question queue, you may press star and two. Participants are requested to use handsets while asking a question. Ladies, and gentlemen, we'll wait for a moment while the question queue assembles. The first question is from the line of Puneet from HSBC. Please go ahead.
Yeah, thank you so much, and congratulations on the acquisition. It's quite an interesting one. My first question is, if you can give us some color on what is the cap rate you are ascribing to this valuation in your mind?
Puneet, we haven't approached this transaction on a cap rate basis.
We see it as being significantly value-accretive over the next five years with the several ongoing construction nearing completion, as well as the further expansions that we've planned in phase two, which are phase three in ISML Bangalore, which will commence shortly. So that may not be the appropriate way to assign an enterprise value by simply looking at a cap rate on NOI. Having said that, in FY 2025, the EBITDA at the ISML platform was at INR 617 crore, and with all the ongoing developments which are nearing completion, plus what is planned to be completed by 2030 in this platform, we are going to see, we hope to see the EBITDA grow by multiples over this period of time and it becoming highly value-accretive to us. We believe that today's acquisition price is at fair value.
This has also been, I would say, based on the valuation reports that have been put together by the valuers, registered valuers, Bansi S. Mehta Valuers LLP, and the fairness opinion provided by Morgan Stanley India Company Private Limited. In FY 2027, while the retail EBITDA was about six, EBITDA contribution came in mainly from retail, which was about INR 617 crore across four malls. We have 2.2 million sq ft of offices which are ready, and a sizable part of that OC is received, and for the balance, we expect the OC to be received. But they are pre-leased only at about 6% cumulatively, right? So there's a huge headroom which will also be a significant valuation upside trigger as these get leased out during this year.
We have a very strong pipeline in place, and we have a very strong team now spearheaded by the CEO for commercial real estate and offices, Mr. Vitthal Suryavanshi, who's recently come on board. We have about 300,000 sq ft of retail. Right. Sorry, 170,000 sq ft of retail, which is currently ongoing, expansion ongoing, and this will be delivered by 2027.
Got it. So from the valuation perspective, is it fair to assume INR 5,400 is only equity value? There is roughly INR 1,000 crore of existing debt in ISML, right? Those numbers are right.
No, that may be the gross debt. Gross debt is about INR 950 crore. About INR 950 crore is the gross debt. And net? And net debt is also about INR 650 crore. So adjusting for cash on the balance sheet, the net debt is about INR 650 crore.
Okay.
When you talk about this INR 5,400 crore of value which you pay over three years, is the entire EBITDA attributable to you from day one, or it also gets attributable? Okay.
No, under the way this transaction is structured, it is pretty much like a spot transaction. And I mean, obviously, every tranche will only be payable as per the applicable law and fair value asserted, but the EBITDA is attributable to us, and cash flow uses are exclusively for us going forward from the day the transaction gets approved and the first tranche payment is made.
Understood. And lastly, if I can ask you very bluntly, what can you do now which you couldn't do earlier in this platform?
Okay. From PML's perspective, I think it helps because minority leakages are kind of addressed. It reduces that or eliminates minority leakages entirely.
It allows us, PML, to upstream or the cash flows to be upstream to PML for efficient utilization, and it allows, we estimate that our EBITDA could potentially grow 3x-4x over a period of time, and this will all result in a growth to PML's back. At the ISML level, it allows us several synergies to optimize structure and drive operational efficiencies, including costs. It allows us the optionality of future platform monetization of ISML by way of REIT or listing, et cetera, and at the subsidiary levels, again, we retain the optionality for individual asset-level monetization should we choose to do so, and gives us the opportunity to create new growth platforms.
Understood, but is there a thought at this point of time to monetize individual assets? This is what you -
No, no, no. That is an option available to us, as I mentioned.
That is not the strategy.
Okay. And from timing perspective, is it the right time? Even your offices are not yet leased, and CPPIB theoretically would have provided good insights on the office leasing side. From timing perspective, are you comfortable, or would you have—
The timing is perfect, Puneet. The timing is perfect. In fact, as I mentioned earlier, the scale-up or ramp-up of occupancy at the offices from current approximate 6% across locations to what our target is to be at 90% in 2026, and that's what Vitthal and the team are actively working on. I think that is where there's a huge, huge valuation upside that can be achieved based on our performance and our delivery.
Understood. And lastly, if you can tell us what is your CapEx plan for this year and next year, how much should we pencil in?
I think about INR 1,200 crore-INR 1,300 crore over the next 12 months.
That's it. Okay.
That's it.
Okay, great. That's all from my side. Thank you so much and all the best.
Clarifying that that INR 1,200 crore-INR 1,300 crore is at a group level, not just at ISML.
Yeah, yeah. Understood. Okay. Great. Thank you so much.
Thank you. The next question is from the line of Praveen Choudhary from Morgan Stanley. Please go ahead.
Hi. Thank you so much for taking my call. Congratulations on this deal. I have a few questions, but related to the business segment. Can you talk about why Mall of Asia Bangalore business performance has been down year- over- year? I thought it's a new mall, so it must be ramping. So that was one small question. I had another question on depreciation, which jumped massively.
And then the third question I have is on the timing of Kolkata and Surat and the new malls, if you can talk about. Thank you so much.
Hi, Praveen. Varun on the side. I will take the first question before handing it over to the management people on the call. To your question on Mall of Asia, Praveen, I think last quarter and quarter one, we had significant one-time rental billing that happened for several retailers. That was a one-time increase in rental of about INR 10 crores. So if you compare quarter one FY 2025 rental billing and you compare it with quarter four FY 2025 rental billing, we reported about INR 47.5 crores for quarter one, whereas the quarter four rental billing was at about INR 40 crores. So the normalized billing for Mall of Asia in FY 2025 was about INR 40 crores per quarter.
If you see quarter one FY 2026, it has come in at about INR 48 crores. So adjusted for the one-time billing that we had taken in the prior year, we are seeing a strong 20% growth as far as the rental billing is concerned. Praveen, does that answer your question?
Yes, it does. It does. I'm just waiting for other questions. Yeah. Thank you, Varun.
Praveen, may I request you to repeat the follow-up questions that you had on this so we can address them one at a time?
Yeah. I just wanted to get a sense of the latest timing for the opening of new malls that is expected to come in the next two, three years, but just wanted to get if you have better clarity on Kolkata and Surat malls. And then I had a question on depreciation.
It seems like depreciation number on your PNL jumped year- over- year, and I just wanted to understand anything which is one-off. Sure.
So we'll take the first part, which is the completion of. We expect the Grand Victoria mall, Kolkata, to be completed in 2027. Surat is also expected to be completed in 2027. Thane Phase One Retail is expected to be completed in 2029. Coimbatore Retail in the same year, and Chandigarh Phase One Retail between 2029 and 2030. We also have a sizable expansion going on at our flagship property, Phoenix Palladium, Mumbai, which has retail and offices. All of this is expected to be completed by end of 2026 and mid of 2027 in phases.
Yeah. Very helpful.
Yeah. So on an accounting piece, basically, there are two things.
One is that the Project Rise portion actually, which we have recently opened in the Phoenix Palladium, so that has added depreciation, and that will be a continuous over the period of time. Apart from this, there is just one-time depreciation of around INR 7 crore-INR 8 crore, primarily driven from the demolition of a couple of pieces in the Phoenix Palladium side because there we have used the accelerated depreciation, basically.
Existing retail blocks have now been demolished. We have therefore written down that in our book value for about INR 8 crore.
Understood. Understood. Can I ask on the deal, last question from me? So this deal that has been done, it will reduce your minority interest, and there's a lot of optionality here, clearly. Would you think of a similar deal, maybe not this year, but in future, with another partner that you have?
Or should I put it differently? Was this deal initiated by the other party, or it was mutual?
Well, it was mutual. May I clarify that there was no exit obligation on us to provide our partners an exit, but it was a mutual discussion, and both sides saw the benefit of it. With regards to our other joint venture with the other partners, we have the Coimbatore project and the Surat project under development in there. And I think our partners will only see full true value once those projects near completion or other are completed and commence operations and become revenue-generating. There is no conversation ongoing for any similar transaction on that JV.
Thank you. And once again, congratulations. This deal definitely looks good if you continue to execute the way you have been. Thank you.
Thank you very much.
Thank you.
Ladies and gentlemen, in order to ensure that management is able to address questions from all the participants in the conference, please limit your question to two questions per participant. Do you have a follow-up question? We request you to rejoin the queue. The next question is from the line of Girish Choudhary from Avendus Spark. Please go ahead.
Hi. Good evening. Firstly, if you can help us understand the funding of this INR 5,400 crores, I mean, will it be significantly buyback at the ISML level, or let's say the standalone entity also buying out the stake? So how will the funding route happen? And also, I mean, internal approvals and what's the incremental debt we can see from this?
So now the transaction is structured in four tranches, right? Payment consideration is to be paid in four tranches. We have multiple modes of making this paying this consideration.
These include buybacks, payment of dividends, capital reduction, and secondary by PML or any of its affiliates. So this is a combination that we are going to be looking at. And in each year, depending on the cash flows at the ISML level, we are going to be effecting dividend payouts or buybacks or capital reduction. Currently, we don't envisage a secondary transaction to take place until perhaps the last tranche. There may be some small amount initially, which PML or any of its affiliates may need to fund. But again, as I mentioned, with this 100% ownership, we get the ability to upstream funds or free cash flows from the ISML platform to PML as well, which could also fund such secondary transaction.
Okay. Okay.
But okay, so my second question is, again, from a capital allocation perspective, I mean, in the past, generally, you have said that, I mean, for your investments, generally, you look at 14%-15% yield on cost. So I mean, for this INR 5,400 crores of investments or payout, can we expect a better yield on cost, I mean, once everything is up and running? I mean, just a follow-up to that, I mean, this investment, does it also signal that, I mean, in the past, we had a development-led growth? Right now, I mean, are we seeing that we are shifting towards yield-focused asset consolidation? So how should we look at this transaction from that point of view as well?
Okay. Several questions in that question. We'll try and break it up into parts, right?
In the first instance, the illustration that we have on slide number 14 will give you kind of an indication on the growing EBITDA at ISML level, and you should be able to work out the yield on cost, right? So I don't and we can get into details offline with our team on this, on the structure and the anticipated returns. But we see that if you look at also slide number just one moment, please. If you look at slide number 10, where we have shown what the cash flows are and the leverage headroom is, we've explained how in the last eight years between FY 2017 to FY 2025, our asset EBITDA has grown six times.
We hope to see at least double-digit growth in EBITDA from all the initiatives which are underway, including completion of the under-construction projects, leasing out of the already completed offices, and organic growth at our operating retail malls.
Just to add to what Shishir is saying, and we have already narrated in our commentary earlier, so we are not compromising in terms of our expansion projects, which we will continue to do because largely the transaction will be paid through the ISML platform. So effectively, the PML and its other entities are free to use its cash for acquisition or expansion. So I don't think they're compromising on any of the parameters which we had set as a benchmark for our company.
But at the same time, since the cash flow or the free cash flow generation is growing year-on-year basis, we thought to even consolidate because this opportunity was very tempting for us because one reason is that even the current EBITDA is quite strong, and secondly, the expansion plan is quite big if you see the overall slides and presentation.
Lastly, to again give you some guidance, if we look at our FY 2025 operational free cash flows, they were about INR 1,225 crore at the PML level, excluding the ISML and its subsidiaries. Now, just assume a similar run rate over the next five years without anything else. That itself could potentially translate to over INR 6,000 crore of operating free cash flows. Add to that the cash flows from the residential sales, which, as Varun explained earlier, we've seen a phenomenal quarter in resi sales.
We are gearing to launch the Kolkata residential project sales as well. Add to that the organic growth at retail, the completion of expansion, leasing out of offices, plus the significant potential to leverage the PML portfolio, excluding ISML. So INR 6,000 crore plus growth triggers plus the leverage potential at PML, excluding ISML assets, is more than adequate to pursue our growth aspirations, including acquisitions of greenfield, brownfield, operating assets in identified 10, 11 cities, including funding the CapEx required for our FY 2030 envisaged portfolio of 14 million sq ft of retail, taking the gross portfolio to 14 million sq ft of retail, 3.5 million sq ft of offices, 1,200 keys and hotels, and roughly 2.5 million sq ft of additional resi inventory.
Got it. Fair enough. Thank you and all the best.
Thank you. The next question is from the line of Parikshit Kandpal from HDFC. Please go ahead.
Yeah, Shishir.
My first question is, what is the current book value of the assets which you are buying?
The gross block of all the assets and of all the assets under these ISML and underlying SPVs is about INR 5,080 crore.
Okay. You're paying a slight premium to buy this out, which covers the balance growth opportunity.
Growth opportunity not opportunity, growth underway, FSI potential, which continues to get exploited over the next five years.
But your share will be 50% of this, approximately. So INR 2,500 worth of gross block, which is going out for the share you are buying out. So that is, you are paying almost two times, right? INR 5,400-INR 5,500.
I think this is a wrong way to interpret real estate, especially because what you are seeing is the historical value of the assets, but you are not seeing the potential or the market value of the assets, which would be much higher. I mean, while we have not assigned the number, but I think the book value, looking at the book value, is not certainly the right approach to value the transaction.
I'm just trying to arrive at the IRR, which the CPP is getting in seven, eight years. It's almost doubling. So just from that point, I was asking.
Sure.
And what is the balance CapEx for the rest of all the assets? And also, what is the balance CapEx for the ISML assets till you reach FY 2030 when all these development opportunities complete? So if you can help us a little bit with that.
So barring the new acquisitions and the three assets, basically, we are talking about excluding Thane, Coimbatore, and Chandigarh, the CapEx for next five years would be in the range of around INR 5,000-INR 6,000 crore. And against that, the cash flow generation will be much higher.
Interesting. I just want ISML when it's on the current stage to FY 2030, you want to take it up. So what is the CapEx for that?
If your voice is cutting out, can you just repeat this question again?
So I was asking what is the residual CapEx in ISML to reach that FY 2030 full development potential, which you highlighted in the presentation.
Okay. If we hear you clearly now, phase two, which is ongoing at ISML, will roughly require about INR 1,000 crore between now and 2027 to take it to completion.
Phase three, we will share the details when we have crystallized on our development plans and we've received all the final approvals.
Okay. And just last question on the EBITDA of INR 627 crore. So what is the clean EBITDA based on INR 617 crore that you highlighted? So out of that, if I remove the CAM EBITDA and other EBITDA, or is it just the asset level EBITDA from the malls, or does it include the CAM and other charges, other income, and all? So what is the clean EBITDA? So this is the clean EBITDA. There is no other income, no CAM EBITDA on this.
Yes, Parikshit, if you see the reported numbers for each of these assets, we have reported EBITDA numbers every quarter, every year.
And if you add up the reported EBITDA for Phoenix Marketcity Bangalore, Phoenix Citadel Indore, Phoenix Mall of the Millennium, and Phoenix Mall of Asia, you will get to the FY 2025 asset EBITDA of INR 617 crore. The offices that were completed, and they received OC just in January and April, they are not yet EBITDA contributing. But they're also not at purely retail.
Okay, purely retail, and there is no negative or anything, there is nothing from other income, nothing from CAM coming in here.
No, other income gets reported below EBITDA. So whatever is the contribution from other income is coming below the EBITDA line item. Like Kailash mentioned earlier, if I just see the FY 2025 balance sheet, our gross consolidated debt on the ISML platform was INR 960 crore. And our cash on books at the end of FY 2025 was INR 360 crore.
So our net debt is a shade under INR 600 crore at this point in time. The INR 617 crore of EBITDA generated by the platform also converted into an operating free cash flow of INR 510 crore for FY 2025 if you take out interest and tax expense just for the platform. So out of PML's INR 1,800 crore-INR 1,900 crore of operating free cash flow that we reported in FY 2025, INR 510 crore came from the ISML platform itself.
Sure. Okay. Thank you. Those were my questions, and congratulations on the deal.
Thank you.
Thank you. The next question is from the line of Pritesh Sheth from Axis Capital. Please go ahead.
Yeah. Thanks for the opportunity. A couple of questions on the transaction. First, has the valuer report mentioned about valuation for operational under-construction and future potential assets? I mean, is the breakup available? And if you can provide that to us.
No, there is no breakup as such in the public domain. I don't think we'll be in a position to declare or inform you any kind of numbers. The valuers have not published the sum of parts, if that's what you're.
Fair enough. And from CPPIB's perspective, while some of the assets have been recently completed, Citadel, Bangalore, Pune, and the office assets which you recently delivered, what was the thought process from their side to exit these assets without even seeing that five years of maturity or a steady state kind of run rate? So what was the thought process of exiting these assets at the early stage? And would this be a precedent for the next assets which we are building under this platform, be it Kolkata, Project Rise and even for that matter, I don't know, Coimbatore? So thoughts on that?
Okay. I cannot speak for CPP. Their rationale is obviously well deliberated. As I mentioned earlier, I want to clarify that we had no stated commitment or contractual commitment to provide an exit to CPP. I think it's their own considerations on the timeline of their investment, etc. And this was a conversation that we have mutually arrived at after negotiations. So I can't speak on their behalf. Coimbatore does not sit under the CPP platform. I'm clarifying since you mentioned that. And this is not intended to be a precedent for CPP to look for an exit in the other JVs where we have ongoing construction or otherwise.
Got it. Got it.
Again, I want to mention again that we have a fantastic partnership in CPP, and we're looking forward to this relationship growing as we grow our own portfolio.
Sure.
Taking this partnership ahead with our other partner, will we be offering some of the recent assets to GIC for some stake acquisitions in this asset, or do you think that given the cash flows and the leverage potential that we have, we'll be able to easily fund the consideration and create a lot of value, and hence no need to offer to them? What would be our thought process in this?
Pritesh, I think it's important for you to understand why we have created these two platforms at the time when we did. In 2017, when we entered into this first joint venture with CPPIB, we were looking for growth capital. We had estimates of potentially future cash flows.
However, there were opportunities that could be exploited at that point in time, and there was a timing issue in terms of free cash being generated from our resi sales and organic growth resulting in higher free cash from our operating assets, which is why at that point in time, we were looking for capital for growth, and we entered into this transaction. Moving forward in 2021, when we executed our second JV with our other partners, we were looking at creating sizable liquidity at Phoenix Mills level. This was immediately post-COVID, and we were looking at creating some kind of a safety net, and we have been very committed to the growth of that platform, and we've added Coimbatore, and we've added Surat to that platform, and we've committed the entire funds or the entire capital that was infused as a primary into that joint venture.
We've committed that capital for growth of that platform. Now, when we look at our balance sheet, we have a very, very strong balance sheet. We have sizable free cash being generated on a year-to-year basis, and we don't have intention of creating more platforms. At least we have no need to create those more platforms because we have enough cash.
Sure. Thanks for the answer, and I completely agree on that. Just one last on the assets beyond this platform. So there has been drop in terms of trading occupancy for Market City Malls in Bangalore, Chennai, Pune. Is that it in terms of whatever churn we wanted to plan? And potentially from this year end and next year, we'll start seeing good outcomes and good growth outcomes from the churn exercise that we are doing in these three malls?
Pritesh, repeat the first part of that question, and then I will hand it over to Rashmi to expand on what we are doing here. You have seen a significant drop in trading occupancy for this quarter in Phoenix Marketcity, Bangalore, and dip in trading occupancy, which are lower but still there in Pune and Chennai. These are, of course, very strategic and planned in nature, and they are aligned in terms of the brand mix and the key anchor, flagship, and inline stores that we want to bring into these malls at this point in time. Bangalore, the churn is happening. It has come together. That's why there is a big drop from where we were in December at 98% occupancy to today, where we are at about 84% occupancy. Through the rest of the year, the occupancy will go up significantly from here.
There are still a few more churns that are planned, but they are more staggered, and they will take place in the coming year. Now, I think I will hand the call over to Rashmi to just talk a bit on our philosophy and strategy.
Yeah. Hi. Currently, as you would know, we are undergoing a significant repositioning and premiumization change for most of our legacy assets, which are completing close to 14-15 years. And we see that there is a lot of headroom and appetite for increasing rental for a lot of these older deals. We also see that there is a lot of room for optimizing the anchor sizes to inline stores. And over the last few years, there has been increased demand and appetite from international brands for coming and opening stores in our centers.
I think it's sort of a moment in pivot where everything is coming together for us because a lot of these large boxes' expiries are coming up, and it gives us a beautiful opportunity to sort of rethink, reimagine because change is the only constant, and we want to continue to give newer experiences to our customers. So all these changes that we are making is from a long-term perspective. Even though you may see a drop in trading occupancies, all of these are typically leased to the newer premium international brands. What we do is if hypermarket, we feel like a 50,000, a larger hypermarket may not be relevant. The hypermarket may get leased to another brand in a different category. We move the hypermarket to a smaller gourmet concept. Basically, these are the things that we do.
What you see right now is basically a short-term impact of the long-term visionary changes that we are making.
Got it. Just to clarify, there would still be some bit of staggered churn across the three assets, which will come through the year, and then we'll be done, and probably 2027 is when we'll stabilize.
Pritesh, one on the side, you will have trading going up, and there may be some churn that could happen, but overall, we should see a ramp-up in trading occupancies.
Okay. To what extent?
26% plus that we see, you will see the progression of trading occupancy towards the lease occupancies.
Got it.
Any of these repositioning brands, etc., they are already under very active setups.
So if you are visiting Bangalore anytime, give us a shout, and we would love to show you and walk you around either the Bangalore Mall or the Pune or the Chennai Mall.
So to summarize what Varun is saying, that the gap between what you see as the trading occupancy and the leased occupancy (leased occupancy is much higher than trading occupancy) that gap is stores that are going to become operational soon.
Got it. Got it. That's really helpful. Thank you. All the best. That's it from my side.
Thank you. The next question is from the line of Murtuza from Kotak Securities. Please go ahead.
Yeah. Hi, gentlemen. Firstly, congratulations on the deal. I think it's a very elegant exit that you're planning to go CPP. But just on the operational numbers, just two or three pieces.
One is if I look at this quarter's numbers, 12% consumption growth, 4% rental income, should that be just explained by a possible less favorable shift in mix or anything else that we should read into that number? Number one. Number two, on the CPP piece, you also, among other things, highlighted the potential upside in the occupancies for the recently commissioned office assets. Any visibility? Because to me, that number on how much is leased appears low for an asset which has just received OC. But anyway, you have said that you're targeting 90% in 2026. But any near-term visibility numbers on how you look at a ramp-up in that occupancy? So two pieces. One on the retail side, the growth in consumption versus rental income. Second, on the leased occupancy for the newer commercial assets.
Sure, Murtuza.
On one side, I think first on the quarterly performance for the rental income compared to the consumption trend. We spoke about it earlier on at the starting of the call that this quarter we had impact on two accounts. One is because of the planned churn that we had undertaken and the significant churn that we had undertaken at our Phoenix Marketcity malls, even in Mumbai, Pune, Chennai, and significantly in Bengaluru. That churn contributed to about a 3% drop in rental income compared to the numbers that we reported. There is also the negative impact from when you compare year- on- year. At Phoenix Palladium, we have demolished a large part of the retail block, which housed retailers like Nike and Hamleys, which for the full year last year contributed about INR 200 crore in consumption and over INR 45 crore in rental income.
So the quarterly rental loss from the demolition of that retail block is also at about INR 12 crores. The planned churn and the loss of rent from Convergence Block between them have a 5%-6% impact on our rental income growth for the quarter. I'm not taking into consideration the other aspects where there may be smaller fit-outs or any rent impact from retailers being exited. But broadly, these are the two main reasons for the gap between consumption and rental income growth.
So a couple of high-yielding tenants have been sort of churned out. Is that the way to read it? Nike, Hamleys would have been—yeah. How should I read that? And on the office assets, the newer office assets in terms of visibility in the near term on occupancy ramp-up?
So we have every reason to be confident about seeing a significant ramp-up in the next 12 months. In calendar year 2026, our target is to see a 90% occupancy across office assets. We have completed these assets and completed all the amenities at these locations. Also, we have a very strong pipeline. Just to give you an illustration, in Chennai, the office asset, we have completed about 60% leasing in about four months. And we expect to see a similar trend even in Bengaluru and Pune.
Thank you.
Thank you.
Thank you. A reminder to all the participants, you may press star and one to ask question. Is there no further questions from the participants? I would now hand the conference over to the management for closing comments. Over to you, sir.
Thank you very much, ladies, and gentlemen, for joining us on our Q1 Earnings Call.
Wish you all the very best, and talk to you next quarter. Have a good evening.
Thank you. On behalf of The Phoenix Mills Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines. Thank you.